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Estimating structural change in US crop insurance experience

Keith H. Coble (Department of Agricultural Economics, Mississippi State University, Mississippi State, Mississippi, USA)
Thomas O. Knight (Department of Agricultural and Applied Economics, Texas Tech University, Lubbock, Texas, USA)
Mary Frances Miller (Select Actuarial Services, Nashville, Tennessee, USA)
Barry J. Goodwin (Department of Agricultural and Resource Economics, North Carolina State University, Raleigh, North Carolina, USA)
Roderick M. Rejesus (Department of Agricultural and Resource Economics, North Carolina State University, Raleigh, North Carolina, USA)
Ryan Boyles (Department of Marine, Earth and Atmospheric Science, North Carolina State University, Raleigh, North Carolina, USA)

Agricultural Finance Review

ISSN: 0002-1466

Publication date: 3 May 2013

Abstract

Purpose

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The purpose of this research is to investigate the degree to which trends and structural change may have altered crop insurance expected loss cost ratios across time. Because loss experience is used to set rates for the program, these changes can impact the premiums paid by producers and cost to the government.

Design/methodology/approach

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County level adjusted loss cost data was merged with climate division weather data for the 1980‐2009 period. Crop‐specific regional‐level regression models were estimated to test for trends and structural changes in the loss experience for major crops (corn, soybeans, sorghum, cotton, winter wheat, and spring wheat). Climate data was used to control for the effect of weather.

Findings

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For several crops and regions, a significant break point in the loss cost data is found at 1995. This is consistent with the policy changes that occurred in in the program due to the 1994 legislative change. In most instances loss experience prior to 1995 is higher than more recent years even when controlling for the effect of weather. The exception is in winter wheat where it appears recent experience may be worse rather than older experience.

Originality/value

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This paper provides a large‐scale assessment of the magnitude of improved crop insurance loss experience across time.

Keywords

Citation

Coble, K.H., Knight, T.O., Miller, M.F., Goodwin, B.J., Rejesus, R.M. and Boyles, R. (2013), "Estimating structural change in US crop insurance experience", Agricultural Finance Review, Vol. 73 No. 1, pp. 74-87. https://doi.org/10.1108/00021461311321320

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Publisher

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Emerald Group Publishing Limited

Copyright © 2013, Emerald Group Publishing Limited

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