A Cooperative Micro-insurance to Cover Light Livestock Risks in the city of Mashhad

The main goal of this article was to design and implement a light livestock (sheep or goat) micro-insurance model in rural areas in the form of a cooperative insurance. In the first phase, to identify the pillars of cooperative micro-insurance (i.e., insurers, policyholders, actuary, and reinsurance), the grounded theory framework has been conducted by several in-depth interviews. In the second step, based on the pricing index method, we employed weather indices. To derive an appropriate model, we used Mashhad city’s data from period 1950 to 2018. Among all available weather indices, only “Lowest temperature”, “Highest temperature” and “Average temperature in winter, spring and summer” indices have significant impact on loss ratio. The well fitted time series model for these indices are ARIMA(0,1,1), ARIMA(0,1,1), ARIMA(0,1,1), ARIMA(0,1,1) and ARIMA(0,1,1), respectively. Moreover, the best fitted distribution for loss ratio and present value of claims are LogNormal and mixture LonNormal, respectively. Using these findings, price of the light livestock insurance coverage has been estimated. In the third phase, in the form of two types of reinsurance, stop-loss and proportional reinsurances with upper limit, the share of the main insurer (cooperative insurance fund) and the reinsurer (agricultural products insurance fund); premium and damages have been determined exactly. The results of this study showed that the use of this type of micro-insurance, in addition to eliminating moral hazards and adverse selection, will make the share of the reinsurer (Agricultural Products Insurance Fund) more homogeneous than the damages.