Pricing the risk of the quality-guarantee in a stand establishment service
A stand-establishment service concept with quality guarantee was analysed. Here, the quality of stand establishment was assessed as the density of good quality seedlings evenly distributed on the plantation three years after planting. The amount of adequate premiums for the guarantee service and the risks accumulating to the service provider were studied. Monte Carlo simulation was used as a tool for analyzing the risks accumulating to the service provider of the stand-establishment in operational environments of different sizes. The premiums calculated to cover the expected amount of claims caused by the plantations not meeting the pre-set criteria were about 4–8% in addition to the approximated costs of stand establishment. The criteria used for determining the success or failure in a stand have a marked effect on the amount of premiums with a reasonable risk of ruin.
Received 23 February 2004 Accepted 25 October 2004 Published 31 December 2005