Weather-based index insurance contracts pay an indemnity
conditional on the realization of an index that is defined as
either a single weather variable or a mathematical function of
multiple weather variables. The weather variables aremeasured
at a weather station over a specified period of time. Unlike conventional
insurance products, the indemnity on weather index
insurance is not directly tied to realized farm-level production.
In this sense, weather index insurance is similar to area-based
insurance products such as the Group Risk Plan (GRP) and
Group Risk Income Protection (GRIP) index insurance products
offered under the Federal Crop Insurance Program in the
United States (Skees et al., 1997).