UNDERSTANDING CROP INSURANCE PRINCIPLES: A PRIMER FOR FARM LEADERS (original) (raw)

The Tangled Web of Agricultural Insurance: Evaluating the Impacts of Government Policy

SSRN Electronic Journal, 2014

This paper examines how changes in major elements of the U.S. federal crop insurance program affect the structure of the agricultural insurance industry. We model interactions between farmers, insurance agents and insurance companies. Marginal changes in government policy (premium subsidy rate, A&O subsidy rate, and loading factor) affect the insurance premium rate, agent compensation rates, agent effort levels, and market demand for crop insurance. Farmers prefer a marginal increase in the premium subsidy rate, but the insurance companies' most preferred policy is a marginal increase in the A&O subsidy rate. We also evaluate the consequences of changes in crop prices.

The Government Sponsored Crop Insurance Program: Expected and Unexpected Consequences

2008

Synopsis It is very popular for governments to use linear proportional premium subsidies to increase the insurance penetration in the agriculture production sector. This paper describes a case in which the affordability issue of agriculture insurance is induced by high fixed transaction cost. It is found irrespective of the independency of the risk government intervention helps farmers become better off, as long as the insurance company is certain about its portfolio risk. However, ambiguous information and spatial correlation of catastrophic risk make quite difficult for the insurance companies to estimate and price insurance lines correctly. Consequently, the unobservable high exposure and insolvent probability induced by the intervention could unconsciously hurt stakeholders involved.

The Us Federal Crop Insurance Program: A Case Study in Rent-Seeking

SSRN Electronic Journal, 2018

This study examines how, in the context of three major crop insurance legislative initatives by the US government in 1989, 1994, and 2000, regulatory and other innovations to the federal crop insurance program have been designed to jointly benefit farm interest groups and the agricultural insurance industry, with spillover benefits for credit institutions that make loans to farmers. The analysis clearly demonstrates that those initiatives have resulted in considerable and generally increasing costs to US taxpayers and that they evolved as the result of explicit or implicit coalitions between farm interest groups and crop insurance interest groups.

What Harm Is Done By Subsidizing Crop Insurance?

American Journal of Agricultural Economics, 2013

Agriculture is subject to a wide variety of risks, including many hazards arising from widespread natural disasters. The U.S. federal crop insurance program, initially introduced on a small scale in 1938 in response to a campaign promise of President Franklin Roosevelt, now carries a total liability in excess of 114billionandinsures262millionacres.Thepremiumspaidbyfarmersinthisprogramarehighlysubsidized(inexcessof60114 billion and insures 262 million acres. The premiums paid by farmers in this program are highly subsidized (in excess of 60% of the total premium) and private insurance companies also receive significant taxpayer subsidies to operate and administer the program. Private insurance companies are also provided with an advantageous taxpayer-supported reinsurance agreement. In recent years, the program has accounted for nearly 114billionandinsures262millionacres.Thepremiumspaidbyfarmersinthisprogramarehighlysubsidized(inexcessof6010 billion annually in subsidies to farmers and insurance companies, making it the most expensive agricultural commodity program. The program is currently being debated in Congress as the new 2012 Farm Bill is considered. If anything, indications are that the next farm bill may expand federal crop insurance programs by introducing a "shallow loss" program intended to offer higher coverage levels. Whether such a program is implemented through the federal crop insurance program or as a component of other farm commodity programs remains to be seen. However, all Congressional observers agree that crop insurance will continue to play a key role in US farm policy. Before proceeding to the central question of this paper-what harm does subsidized crop insurance cause-we must first address two fundamental issues. First, it is important to describe the various ways in which the U.S. government subsidizes the federal crop insurance program. There are several different dimensions to subsidies in the federal crop insurance program. The most obvious subsidies are those that are paid to farmers through subsidized premium rates. Most observers agree that the Risk Management Agency has done an increasingly effective job in determining actuariallysound premium rates for the various crop insurance programs currently available. However, from the viewpoint of a farmer buying insurance (or, for that matter, the taxpayer who is footing the bill) these unsubsidized premium rates are meaningless. Rather, it is the premium that farmers actually have to pay for coverage that is relevant to their participation in the program. Thus, the

Evaluating a proposed modification to Federal Crop Insurance

A proposed modification to the Federal Crop Insurance Program would allow crop producers to simultaneously purchase both a farm-level crop insurance policy and a supplemental county-level crop insurance policy. This study evaluates this proposal for representative cotton farms in Georgia. The goal is to test whether the additional risk protection provided by the supplemental policy is considered to be worth the additional cost.

Government Interventions in Agricultural Insurance

Hydrometallurgy, 2010

Agricultural insurance is normally undertaken as a market-based activity by private or state sector insurance companies, often with support measures from government. There is increased interest in risk management and insurance to promote agricultural investment and access to credit, and to provide financial stability to farmers and other actors in the agri value chain. The various types of intervention which are made by governments to facilitate agricultural insurance are reviewed, based on the results of a recent international survey conducted by World Bank. Whilst premium subsidy is the most common intervention, other enabling measures are important, such as the legal and regulatory framework, reinsurance, technical and administrative assistance, and linkages to government extension services in agriculture, animal health or meteorology. The main constraints and opportunities for crop and livestock insurance in developing countries are considered, such as insurance product types, hazards, vulnerability, and rural institutions which can support organisation and distribution. Developing appropriate distribution channels, and linking insurance to measures which can increase agricultural productivity, such as credit, farm inputs and services, provide an opportunity where insurance can add benefit to farmers. Insurance in isolation may attract little demand and may not be seen as a value proposition. Agricultural insurance is normally only affordable for exceptional events, and should not crowd out traditional risk coping at household or community levels, and can complement formal savings to manage frequent risk events. Agricultural insurance is complex from technical, organisational and financial standpoints, leading to many challenges for the insurance market and to decisions by government for appropriate intervention. This paper will consider international experiences in developing agricultural insurance, the governments’ interventions and relate these to the rapid expansion of the Chinese agricultural insurance market.