nep-ias New Economics Papers
on Insurance Economics
Issue of 2011‒05‒07
four papers chosen by
Soumitra K Mallick
Indian Institute of Social Welfare and Business Management

  1. Optimal Coverage Level Choice with Individual and Area Plans of Insurance By Bulut, Harun; Collins, Keith; Zacharias, Tom
  2. Hog Insurance Adoption and Suppliers' Discrimination: A Bivariate Probit Model with Partial Observability By Cao, YIng; Yuehua, Zhang
  3. Impact of the New Standard Reinsurance Agreement (SRA) on Multi-Peril Crop Insurance (MPCI) Gain and Loss Probabilities By Vergara, Oscar
  4. Premium Estimation Inaccuracy and the Actuarial Performance of the US Crop Insurance Program By Ramirez, Octavio; Carpio, Carlos

  1. By: Bulut, Harun; Collins, Keith; Zacharias, Tom
    Abstract: We theoretically examine a farmerâs coverage demand with area and individual insurance plans as either separate or integrated options. The individual and area losses are assumed to be imperfectly and positively correlated. With actuarially fair rates, the farmer will fully insure with the individual plan and demand no area insurance regardless of the plans being separate or integrated. Under separate plans, free area insurance and the fair rate for individual insurance, area insurance replaces a portion of individual insurance demand. Under integrated plans, free area insurance, and the fair rate for individual insurance, the farmer will over-insure with individual plan and demand additional area insurance.
    Keywords: Agricultural risk, area plans of insurance, crop insurance, Agricultural and Food Policy, Agricultural Finance, Crop Production/Industries, Demand and Price Analysis, Farm Management, Financial Economics, Industrial Organization, Marketing, Production Economics, Research Methods/ Statistical Methods, Risk and Uncertainty, D81, G22, Q12, Q18,
    Date: 2011–04–26
  2. By: Cao, YIng; Yuehua, Zhang
    Abstract: This paper explores the factors that impact insurance choices. Specially designed survey questions allow one to fully observe the demand tendency by the farmers and partially observe the supply tendency by the insurance company. A joint estimation of insurance decision by both supply and demand sides suggested that factors performing different roles in affecting insurance participation game. Farmerâs age and education have positive impact on insurance demand, but are indifference to the insurance providers. Insurance suppliers care more about farmersâ experience in the field, but this experience occasionally results in overconfidence for the farmers and hence, impedes insurance purchasing. Production scales, proxy by sow inventory, is put more weight by the farmers than the suppliers when making decisions. Production efficiency measures, which performs as incentives for farmers to purchase insurance, acts as some disadvantages in the suppliersâ point of view. While the suppliers prefer customers who use vaccine, the hog producers tend to treat vaccine as a substitute for insurance so as to prevent disease risk. The study also generates discussion on the topics such as short-run vs. long-run factor impact by comparing past insurance choices and current choices. Information on choices regarding different types of insurance (hog and breeding sow) is also discussed. Results from bivairate probit model offers deeper understanding about livestock insurance choices and further insights to improve policy design and promote participation.
    Keywords: Livestock Insurance Choices, Bivariate Probit, Partial Observability, Agribusiness, International Development, Livestock Production/Industries, Risk and Uncertainty, C35, D13, Q12,
    Date: 2011–03
  3. By: Vergara, Oscar
    Abstract: We utilize an agricultural model that uses crop/weather relationships at the county resolution and fits robust distributions that take into account the impact that weather has on crop production. Once the crop insurance policy conditions and prices are applied to the modeled county yield distributions, the portfolio gain and losses can be calculated by aggregating the gain and losses at the county level, state level, regional level and nationwide level. Portfolio losses are computed under the old and new SRA rules and regulations for comparison purposes.
    Keywords: SRA, MPCI, crop insurance, stochastic model, weather peril, probabilities, Crop Production/Industries, Research and Development/Tech Change/Emerging Technologies, Risk and Uncertainty, C, Q,
    Date: 2011–05–01
  4. By: Ramirez, Octavio; Carpio, Carlos
    Abstract: This article explores the impact of the likely levels of inaccuracy associated with two main types of premium estimation methods, under different sample sizes, on the actuarial performance of the US crop insurance program. The analyses are conducted under several plausible assumptions about the insurer versus the producersâ estimates for their actuarially fair premiums. Significant differences are found due to estimation method and sample size, with the currently used procedures resulting in the worse actuarial performance. Several conclusions and recommendations are provided that could markedly reduce the amount of public subsidies needed to keep this program solvent.
    Keywords: Agricultural Subsidies, Crop Insurance Premium Estimation, Loss-Cost Procedures, Risk Management Agency, Financial Economics,
    Date: 2011

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