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Can Crop Insurance Premiums Be Reliably Estimated?

Published online by Cambridge University Press:  15 September 2016

Octavio A. Ramirez ,
Carlos E. Carpio  and
Roderick M. Rejesus
Octavio A. Ramirez
Affiliation:
Department of Agricultural and Applied Economics at the University of Georgia, Athens, Georgia
Carlos E. Carpio
Affiliation:
Department of Applied Economics and Statistics at Clemson University, Clemson, South Carolina
Roderick M. Rejesus
Affiliation:
Department of Agricultural and Resource Economics at North Carolina State University, Raleigh, North Carolina
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Abstract

This paper develops and applies a methodology to assess the accuracy of historical loss-cost rating procedures, similar to those used by the U.S. Department of Agriculture's Risk Management Agency (RMA), versus alternative parametric premium estimation methods. It finds that the accuracy of loss-cost procedures leaves much to be desired, but can be markedly improved through the use of alternative methods and increased farm-level yield sample sizes. Evidence suggests that the high degree of inaccuracy in crop insurance premium estimations through historical loss-cost procedures identified in the paper might be a major factor behind the need for substantial government subsidies to keep the program solvent.

Keywords

agricultural subsidiescrop insurance premium estimationloss-cost proceduresRisk Management Agency
Type
Contributed Papers
Information
Agricultural and Resource Economics Review , Volume 40 , Issue 1 , April 2011 , pp. 81 - 94
Copyright
Copyright © 2011 Northeastern Agricultural and Resource Economics Association 

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