Routine Actuarial Adjustments Cut Taxpayer Cost in Subsidized Agricultural Insurance

The substantial fiscal commitment of government-subsidized agricultural insurance highlights its critical role in supporting farmers, yet it also reveals the program’s financial vulnerability amid debates over fiscal cuts aimed at easing pressure on the public purse. Central to these debates is the need for actuarially sound premium rates. This study, which analyzes more than three million observations across 33 commodities from 2001 to 2024 in the United States context, examines how innovations in ratemaking affect taxpayer obligations. The findings indicate that updating the parameters used to calculate crop insurance costs for farmers can significantly reduce taxpayer expenses. Updating all the ratemaking parameters together saves about 10% annually, however, targeting just one component, such as the reference yields, can yield annual savings of up to 13%. Although most states benefit from these updates, precise ratemaking falls short in a few cases. Overall, the results highlight the complexities of setting premium rates that are both actuarially and fiscally sound, suggesting that smarter, targeted updates could improve the efficiency of the program and alleviate the financial burden on taxpayers.