Researchers at Nanyang Technological University’s Nanyang Business School have made a remarkable breakthrough. They have developed an artificial intelligence (AI) driven insurance model that aims to provide farmers with more cost-effective safeguards against the weather risks associated with climate change.
Utilizing neural networks, the research team unearthed intricate relationships between various weather elements such as temperature and rainfall and the losses in crop production. These relationships deviate significantly from the simplistic models of the past. The outcome of this study, jointly led by Associate Professor Zhu Wenjun and Assistant Professor Zhang Jinggong, is an innovative weather index insurance contract. This AI-based policy holds great promise, as it has the potential to enhance policyholders’ wealth by nearly 5% while also being 37% more affordable than the average price examined in the research. The researchers are optimistic that this enhanced cost-efficiency will spur greater demand for such insurance products.
The implications of these findings extend beyond the agricultural sector. They could prove invaluable to governments seeking to fine-tune their strategies for reducing the financial burden on public agencies during climate-induced crises. Moreover, it showcases the far-reaching potential of AI to revolutionize the design of financial products, not just in this particular industry or region, but potentially across a wide spectrum of sectors and geographical areas. As the world grapples with the increasing impacts of climate change, this AI-driven insurance model could be a crucial step towards more resilient and sustainable economic systems.
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