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Can Crop Insurance Premiums be Reliably Estimated?

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  • Ramirez, Octavio A.
  • Carpio, Carlos E.
  • Rejesus, Roderick M.

Abstract

The objective of this paper is to compare the accuracy of crop insurance rating methods based on historical liability and indemnity data (similar to the procedure currently used by the Risk Management Agency) and “yield distribution” approaches. Estimated rates are compared to “true” rates using empirically-grounded simulation procedures that take into account common data availability constraints. Simulation results suggest that farm and county level rate estimates using the “yield distribution” approach are significantly more accurate than those based on historical indemnity and liability records.

Suggested Citation

  • Ramirez, Octavio A. & Carpio, Carlos E. & Rejesus, Roderick M., 2009. "Can Crop Insurance Premiums be Reliably Estimated?," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49465, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea09:49465
    DOI: 10.22004/ag.econ.49465
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    8. Ramirez, Octavio A. & McDonald, Tanya U., 2007. "An Empirically-Grounded Comparison of the Johnson System versus the Beta as Crop Yield Distribution Models," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon 9814, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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    16. Bruce J. Sherrick & Fabio C. Zanini & Gary D. Schnitkey & Scott H. Irwin, 2004. "Crop Insurance Valuation under Alternative Yield Distributions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(2), pages 406-419.
    17. Lu, Yue & Ramirez, Octavio A. & Rejesus, Roderick M. & Knight, Thomas O. & Sherrick, Bruce J., 2008. "Empirically Evaluating the Flexibility of the Johnson Family of Distributions: A Crop Insurance Application," Agricultural and Resource Economics Review, Cambridge University Press, vol. 37(1), pages 79-91, April.
    18. Octavio A. Ramírez, 1997. "Estimation and Use of a Multivariate Parametric Model for Simulating Heteroskedastic, Correlated, Nonnormal Random Variables: The Case of Corn Belt Corn, Soybean, and Wheat Yields," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 191-205.
    19. Ramirez, Octavio A. & McDonald, Tanya U., 2006. "The Expanded Johnson System: A Highly Flexible Crop Yield Distribution Model," 2006 Annual meeting, July 23-26, Long Beach, CA 21455, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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    Cited by:

    1. Francis Tsiboe & Jesse Tack, 2022. "Utilizing Topographic and Soil Features to Improve Rating for Farm‐Level Insurance Products," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 52-69, January.
    2. Ramirez, Octavio & Colson, Greg, 2013. "Premium Estimation Inaccuracy and the Distribution of Crop Insurance Subsidies," SCC-76 Meeting, 2013, March 14-16, Pensacola, Florida 152130, SCC-76: Economics and Management of Risk in Agriculture and Natural Resources.
    3. Ramirez, Octavio A., 2014. "Appendix II to: Crop Insurance Savings Accounts: A Viable Alternative to Crop Insurance?," Applied Economic Perspectives and Policy Appendices 162319, Agricultural and Applied Economics Association.
    4. Yu, Jisang & Sumner, Daniel A. & Lee, Hyunok, 2021. "Premium rates and selection in specialty crop insurance markets: Evidence from the catastrophic coverage participation," Food Policy, Elsevier, vol. 101(C).
    5. Octavio A. Ramirez & Carlos A. Carpio, 2012. "Premium estimation inaccuracy and the actuarial performance of the US crop insurance program," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 72(1), pages 117-133, May.
    6. Ramirez, Octavio A. & Carpio, Carlos E. & Collart, Alba J., 2014. "Producer Welfare Implications of the RMA’s “Shrinkage” Crop Insurance Premium Estimator," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 168367, Agricultural and Applied Economics Association.
    7. Ramirez, Octavio & Shonkwiler, J. Scott, 2016. "Some Comparative Statics for Evaluating the Performance of the US Crop Insurance Program," SCC-76 Meeting, 2016, March 17-19, Pensacola, Florida 233761, SCC-76: Economics and Management of Risk in Agriculture and Natural Resources.
    8. Ramirez, Octavio A. & Carpio, Carlos E., 2015. "Are the Federal Crop Insurance Subsidies Equitably Distributed? Evidence from a Monte Carlo Simulation Analysis," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 40(3), pages 1-19, September.
    9. Gregory Colson & Octavio A. Ramirez & Shengfei Fu, 2014. "Crop Insurance Savings Accounts: A Viable Alternative to Crop Insurance?," Applied Economic Perspectives and Policy, Agricultural and Applied Economics Association, vol. 36(3), pages 527-545.
    10. Ramirez, Octavio & Colson, Gregory, 2013. "Premium Estimation Inaccuracy and the Distribution of Crop Insurance Subsidies across Participating Producers," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149690, Agricultural and Applied Economics Association.
    11. Ramirez, Octavio A. & Shonkwiler, J. Scott, 2017. "A Probabilistic Model of Crop Insurance Purchase Decision," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 42(01), pages 1-17, January.
    12. O'Connor, Claire, 2013. "Soil Matters: How the Federal Crop Insurance Program should be reformed to encourage low-risk farming methods with high-reward environmental outcomes," 2013 AAEA: Crop Insurance and the Farm Bill Symposium 156789, Agricultural and Applied Economics Association.

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    Keywords

    Agribusiness; Agricultural Finance; Risk and Uncertainty;
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