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Rate Revisions and Risk Transfer Incentives in Agricultural Insurance

Author

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  • Tsiboe, Francis,
  • Turner, Dylan
  • Aglasan, Serkan
  • Rejesus, Roderick M

Abstract

Public-Private Partnerships (PPPs) are a common approach for offering agricultural insurance, but their stability can be threatened by asymmetric information, which allows private insurers to strategically transfer risk to the public sector. This study quantifies the economic value of routine premium rate updates in mitigating the ability of private insurers to extract economic rents via underwriting gains within the U.S. Federal Crop Insurance Program (FCIP). Using a counterfactual simulation on program data from 2001-2024, we model potential underwriting gains for private insurers by counterfactually simulating underwriting gains in a scenario where premium rating updates are delayed. Results indicate that forgoing a single annual rate update would allow private insurers to capture an additional $1.3 billion in underwriting gains on average, equivalent to 17% of total premiums.

Suggested Citation

  • Tsiboe, Francis, & Turner, Dylan & Aglasan, Serkan & Rejesus, Roderick M, 2026. "Rate Revisions and Risk Transfer Incentives in Agricultural Insurance," ARPC Working Paper 396238, North Dakota State University.
    • Handle: RePEc:ags:arpcwo:396238
    DOI: 10.22004/ag.econ.396238
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    References listed on IDEAS

    as
    1. Francis Tsiboe & Jesse Tack, 2022. "Utilizing Topographic and Soil Features to Improve Rating for Farm‐Level Insurance Products," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(1), pages 52-69, January.
    2. Jerry R. Skees & Michael R. Reed, 1986. "Rate Making for Farm-Level Crop Insurance: Implications for Adverse Selection," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 68(3), pages 653-659.
    3. Ralph R. Botts & James N. Boles, 1958. "Use of Normal-Curve Theory in Crop Insurance Ratemaking," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 40(3), pages 733-740.
    4. Eunchun Park & B Wade Brorsen & Ardian Harri, 2019. "Using Bayesian Kriging for Spatial Smoothing in Crop Insurance Rating," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 101(1), pages 330-351.
    5. Dmitry V. Vedenov & Mario J. Miranda & Robert Dismukes & Joseph W. Glauber, 2004. "Economic analysis of the standard reinsurance agreement," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 64(2), pages 119-134, November.
    6. Tsiboe, Francis & Turner, Dylan, 2023. "Econometric identification of crop insurance participation," Agricultural and Resource Economics Review, Cambridge University Press, vol. 52(3), pages 476-497, December.
    7. Dylan Turner & Francis Tsiboe & Hunter Biram & Lawson Connor, 2025. "Actuarial implications of prevented planting coverage," Applied Economic Perspectives and Policy, John Wiley & Sons, vol. 47(1), pages 394-415, March.
    8. Adhikari, Shyam & Knight, Thomas O. & Belasco, Eric J., 2012. "Evaluation of Crop Insurance Yield Guarantees and Producer Welfare with Upward-Trending Yields," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 41(3), pages 1-10, December.
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    11. Tsiboe, Francis & Turner, Dylan, 2023. "The crop insurance demand response to premium subsidies: Evidence from U.S. Agriculture," Food Policy, Elsevier, vol. 119(C).
    12. Turner, Dylan & Tsiboe, Francis & Baldwin, Katherine & Williams, Brian & Dohlman, Erik & Astill, Gregory & Skorbiansky, Sharon Raszap & Abadam, Vidalina & Yeh, D. Adeline & Knight, Russell, 2023. "Federal Programs for Agricultural Risk Management," Economic Information Bulletin 340216, United States Department of Agriculture, Economic Research Service.
    13. Yong Liu & A. Ford Ramsey, 2023. "Incorporating historical weather information in crop insurance rating," American Journal of Agricultural Economics, John Wiley & Sons, vol. 105(2), pages 546-575, March.
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    15. Adhikari, Shyam & Knight, Thomas O. & Belasco, Eric J., 2012. "Evaluation of Crop Insurance Yield Guarantees and Producer Welfare with Upward-Trending Yields," Agricultural and Resource Economics Review, Cambridge University Press, vol. 41(3), pages 367-376, December.
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