Pricing of Fisheries Microinsurance Premiums using the Poisson-Exponential Aggregate Distribution Approach

Abstract

Engaged in pond aquaculture is currently an attractive choice amid the high demand for fish in the market. Entrepreneurial opportunities in the pond fish farming sector are increasingly open, although the risk of crop failure remains, both due to weather factors and livestock processes. Crop failure can have a significant financial impact on pond fishery farmers. Therefore, there is a need for special insurance to protect against financial losses due to risks that can occur, namely Micro Fisheries Insurance. Microinsurance is a type of insurance product specifically designed for people with low income levels, offers features and administration that is simple, easily accessible, has an economical price, and a fast compensation settlement process. The focus of this study is to calculate premium prices by applying an aggregate risk model approach. The data used are the number of events and the magnitude of losses due to crop failure in shrimp pond cultivation in Pandeglang Regency in the period January 1, 2019-January 1, 2021. Data on the number of events follow the Poisson distribution, while data on the magnitude of losses follow the Exponential distribution. Next, it uses the Maximum Likelihood Estimation (MLE) method to calculate parameter estimation. The average and variance of aggregate risk is used to determine the size of the premium. The premium selection results in this study amounted to Rp42,005,600. The amount of the premium reflects the collective premium resulting from the calculation based on the standard deviation principle.