Abstract: Based on cotton yield data and precipitation data at each growth stage from 1989 to 2011 in Binzhou,Dezhou and Liaocheng in northern Shandong province,trend yield was fitted by using cubic polynomial equation,then meteorologicalyield was extracted,decomposed,yield reduction rate of cotton due to meteorological disaster was calculated,33 effective samples were defined Water shortage was calculated according to precipitation and water demand at each growth stage of cotton,and was defined as drought index during whole growth season The relationship between drought index (DI) and yield reduction rate due to drought was analyzed quantitatively by establishing panel random effect model,namely DYLR=0.0003766DI The results showed that the unit indemnity amount was 0 when DI < 91.08mm in northern Shandong province,the indemnity was started when DI≥91.08mm,and the unit indemnity amount was the product of the insure amount and yield reduction rate due to drought Therefore,drought index insurance trigger value was 91.08mm,15 samples of 33 effective samples reached compensation standard in northern Shandong province Indemnity amount determine for cotton drought index insurance could avoid market failure due to asymmetric information,reduce operation cost and improve indemnity efficiency,and promote farmers positive to disaster prevention for the insure

Key words: Cotton, Yield loss rate, Drought index, Agriculture insurance, Indemnity amount