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Satellite-based weather index insurance has recently been considered in order to reduce the high basis risk of station-based weather index insurance. However, the use of satellite data with a relatively low spatial resolution has not yet made it possible to determine the satellite indices free of disturbing landscape elements such as mountains, forests and lakes.

In this context, the Normalized Difference Vegetation Index (NDVI) was used based on both Moderate Resolution Imaging Spectroradiometer (MODIS) (250 × 250 m) and high-resolution Landsat 5/8 (30 × 30 m) images to investigate the effect of a higher spatial resolution of satellite-based weather index contracts for hedging winter wheat yields. For three farms in north-east Germany, insurance contracts both at field and farm level were designed.

The results indicate that with an increasing spatial resolution of satellite data, the basis risk of satellite-based weather index insurance contracts can be reduced. However, the results also show that the design of NDVI-based insurance contracts at farm level also reduces the basis risk compared to field level. The study shows that higher-resolution satellite data are advantageous, whereas satellite indices at field level do not reduce the basis risk.

To the best of the author’s knowledge, the effect of increasing spatial resolution of satellite images for satellite-based weather index insurance is investigated for the first time at the field level compared to the farm level.