Seasonal index-based corn insurance design for Brazil: Insights from Safra and Safrinha

Index insurance is promoted for climate risk management, but basis risk limits scalability. This article develops an ex ante, multi-hazard weather-yield index framework for corn in Paraná, Brazil, tailored to the state’s dual-season system (Safra and Safrinha) and the distinct priorities of farmers and insurers. We combine municipality-level yield panels with climate extreme indicators spanning temperature, precipitation, humidity, radiation, wind, and evaporative demand, and evaluate mean- and tail-focused econometric specifications alongside penalised alternatives to guard against overfitting. Basis risk is treated as two-sided and designable by explicitly trading off false negatives (uncompensated losses) and false positives (unnecessary payouts) through a stakeholder-weighted objective, implemented within clustered municipal zones and season-specific windows. Our framework delivers a transparent mapping from alternative basis risk priorities to contract design choices, offering a practical blueprint for piloting credible index insurance where products are not yet established.