Evaluating the Potential of Whole-farm Iinsurance over Crop-specific Insurance Policies

The rationale of whole-farm insurance (WFI) is to pool all farm¿s insurable risks into a single policy. This paper compares separated multi-peril crop-specific insurance policies (CSI) with WFI. We first compare the loss ratios of frequent buyers of agricultural insurance in Spain to confirm whether data provide support for combining separate premia in WFI policies. Actuarial data show that loss ratios are lower for farmers that sign up for different insurance groups or insure more than one crop.. Secondly, using the records of farmers who bought CSI for three crops during 1993-2004, we carry out Monte-Carlo simulations to evaluate premium differences, revenue, and farmers¿ utilities (DARA-CRRA) of CSI and a WFI designed to cover the same risks than do the CSI policies. Results show that premiums are reduced by 20% and farmer¿s certainty equivalents are slightly larger. Farmers would benefit from WFI and governments would enhance the efficiency of their insurance subsidies.

BIELZA DIAZ-CANEJA Maria;  GARRIDO COLMENERO Alberto; 

2009-03-04

SPANISH NATL INST AGRICULTURAL & FOOD RESEARCH & TECHNOLO

JRC43183

1695-971X,