Hydrological Risk Transfer Model for droughts impacts on Agriculture in Southeastern Brazil

We simulated hydrologic multiyear lumped index insurance for safeguarding farmers from drought events in Southeastern Brazil. The model is divided into three modules: (i) hazard, (ii) vulnerability, and (iii) financial module. In the hazard module, we present 20 series of 50 years synthetic generated low-flows generated by Monte Carlo normal generated extreme events probabilities nested to a quantile Generalized Extreme Value (GEV) function. The 3-parameter GEV is estimated using MLE methods using observed daily streamflows. In the vulnerability module, using a water balance, which considered demands for drinking water supply, livestock and irrigation, we assessed potential economic losses on crops due to droughts. Water demands, economic indicators of crop production were obtained via freely available datasets from Govermental agencies. The data is aggregated by municipality. Finally, these losses were used in a cashflow equation to estimate optimized premium values in using different deductibles from 0 to 30% in a sensitivity analysis fashion.