Ratemaking of Natural Risks in Agriculture

Yehuda Kahane

Journal of Insurance Issues, 1988, vol. 11, issue 2, 83-91

Abstract: Agricultural risks are characterized by infrequent, but catastrophic losses. Agricultural insurance programs, therefore, often take the form of mutual long-term arrangements, where the risk is being shared on the basis of a temporal spread of the financial burden. The insurance arrangement is, thus, analogous to a loan. This calls for an explicit inclusion of the interest rate in the ratemaking process. In addition, this affects the way in which past experience has to be handled for ratemaking purposes. We suggest the use of a simple method which is based on the loss cost statistics, and distinguishes between "regular" and "exceptional" records.

Date: 1988
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