Developing a multi-hazard risk index-based insurance for viticulture: theoretical framework and empirical application

Abstract Climate change is increasing the intensity and severity of environmental hazards, and even non-extreme climate events can have extreme consequences when they occur simultaneously. In viticulture, climate-related hazards such as droughts, heatwaves, and frosts increase the likelihood of risks related to reduced grape yield and grape quality, which ultimately threatens the economic sustainability of viticulturists. In response, this study proposes an insurance product based on a multi-hazard risk index-based model for viticulture, which enables insurers and viticulturists to manage complex, interacting climate-related hazards. The product is organized into three interconnected modules. The hazard module identifies key climate-related hazards and develops a multi-hazard index (MHI). This index aggregates phenology-weighted hazards and establishes critical thresholds for trigger payouts and exit in index-based insurance products. The vulnerability module employs regression analysis to quantify potential economic losses due to identified hazards, deriving a tick value; the monetary value is associated with a unit change in the index. The financial module integrates the outputs of hazard and vulnerability modules into an insurance pricing mechanism. The proposed approach offers a transparent and efficient risk transfer mechanism based on a localized MHI. By clearly accounting for multiple, interacting climate-related hazards, it supports both insurers and viticulturists in better managing climate-related financial risks and contributes to enhancing the resilience of the viticulture sector at the local and regional scale.