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Can Crop Insurance Premiums Be Reliably Estimated?

Octavio Ramirez, Carlos Carpio () and Roderick Rejesus

Agricultural and Resource Economics Review, 2011, vol. 40, issue 1, 81-94

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.

Date: 2011
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