Can crop insurance premiums be reliably estimated?

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

Research output: Contribution to journalArticle

7 Scopus citations

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.

Original languageEnglish
Pages (from-to)81-94
Number of pages14
JournalAgricultural and Resource Economics Review
Volume40
Issue number1
DOIs
StatePublished - Apr 2011

Keywords

  • Agricultural subsidies
  • Crop insurance premium estimation
  • Loss-cost procedures
  • Risk Management Agency

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