Title

Actuarial Fairness of Crop Insurance Rates with Constant Rate Relativities

Campus Units

Economics, Center for Agricultural and Rural Development

Document Type

Article

Publication Version

Submitted Manuscript

Publication Date

2004

Journal or Book Title

American Journal of Agricultural Economics

Volume

86

Issue

3

First Page or Article ID Number

563

Last Page

575

DOI

10.1111/j.0002-9092.2004.00601.x

Abstract

Increased availability and demand for low-deductible crop insurance policies have increased focus on crop insurance rating methods. Actuarial fairness cannot be achieved if constant multiplicative factors are used to determine how premiums change as coverage levels increase. A comparison of premium rates generated by the factors used by the two most popular crop insurance products with those generated by a standard yield distribution shows that the popular insurance products overcharge for low-deductible policies in most counties. This overpricing may explain why large premium subsidies were required to induce farmers to move from low-deductible to high-deductible policies beginning in 2001.

JEL Classification

G22, Q18

Comments

This is a working paper of a article from American Journal of Agricultural Economics, 86:3(2004); 563-575. Doi: 10.1111/j.0002-9092.2004.00601.x.