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Satellite-retrieved vegetation health (VH) indices are under active consideration to be integrated into weather index insurance to reduce the basis risk and increase the attractiveness to farmers. The objective of this study is to obtain a deeper understanding of the hedging effectiveness (HE) of the satellite-retrieved VH indices.

By using winter wheat yield records from 79 farms in Northern and Eastern Germany over 20 years, we designed index insurance based on three satellite indices to explore their HE: the Vegetation Condition Index (VCI), the Temperature Condition Index (TCI) and the Vegetation Health Index (VHI) with a spatial resolution of 1 × 1 km. As the benchmark, a meteorological index related to precipitation is employed.

The results indicate that, on average, the TCI and VHI outperform the benchmark index in a statistically significant way. However, considerable differences across regions are observed. In particular, the highest HE, and therefore basis risk reduction, was found for regions with sandy soils in Eastern Germany.

Insurers can be advised to accelerate the research and development of satellite-based index insurance in Eastern Germany. By considering our insurance design, products with low transaction costs and therefore comparatively low loading factors can be offered to farmers.

To the best of our knowledge, this is the first study that uses a large sample to explore the HE of index insurance based on satellite-retrieved VH indices by focusing on different regions in a country.

Index insurance is promising to mitigate drought-related income losses in agriculture. To reduce the basis risk of index insurance, the integration of satellite data is of growing interest in research. The objective of this study is to obtain preliminary evidence regarding farmers' perceived usefulness (PU) of satellite-based index insurance.

By modifying the transtheoretical model of change to a transtheoretical model of PU, German farmers' gradual PU of satellite-based index insurance was investigated.

The results show that the average farmer perceives satellite-based index insurance as useful. It can be particularly seen that a higher level of education in an agricultural context as well as higher trust in index insurance products increases farmers' gradual PU. Moreover, higher relative weather-related income losses increase farmers' gradual PU.

It is recommended to apply latent variables when conducting future investigations regarding farmers' PU.

To the best of the authors' knowledge, this is the first study to explore farmers' PU of upcoming satellite-based index insurance by modifying and applying the transtheoretical model in a new way.