Crop Insurance Today Third Quarter 2022 - 1

C r o p I n s u r a n c e
today
Lessons
Learned
As this third quarter issue of Crop Insurance
Tom Zacharias, NCIS President
" Don't forget what your
failures have taught you
Or else you'll learn them
all over again. "
" Is the knowledge gained
Worth the price of the pain? "
TODAY® hits the " virtual street, " expectation and
chatter concerning future farm policy initiatives
is starting to build. Before sliding down that slippery
slope with unfounded prognostications,
perhaps a better use of our time here is to look
back over our proverbial shoulder and determine
if we have learned anything from the past, and
if those " lessons learned " help us going forward.
For this, of course, we need a lyric or two and
none better than those of the late Dan Fogelberg:
" Lessons learned are like Bridges burned
You only need to cross them but once... "
So, what do we know, what have we learned...
Individual Coverage
is Fundamental
Federal Crop Insurance as we know it today
has its beginning in state-regulated " Crop-Hail "
insurance delivered by private sector crop insurance
companies. Certain of these crop companies
(who, by the way, are NCIS members
today) are still in existence and thriving. Both
the early hail policy and today's revenue policy,
which make up the bulk of the crop insurance
business, are individually-based insurance coverages.
Should an insurable loss event occur,
these polices are designed to indemnify the
individual for their respective loss. Over time,
crop insurance polices have become more sophisticated
and specialized in order to meet the
risk management needs of the modern farmer.
Although area and parametric insurance polices
have been introduced, these products have
simply not experienced the degree of market
penetration that some thought possible.
Why is this? When compared to area-based
plans, individual coverage is the farmer's optimal
risk efficient choice. This result has been borne
out not only by the experience of area plans in
contrast to individual plans but has also been
shown to be the case using economic analysis.
A study conducted by NCIS demonstrates that
farmers' optimal coverage choices are individually-based
(Bulut, Collins, and Zacharias 2012).
In the study it was shown that only when area
plans are under-priced (or received higher premium
support) relative to individual plans,
farmers would begin to substitute a portion of
individual coverage with area coverage. If risk
minimization is the primary policy objective,
area-based or index-based products should be
designed such that these types of policies do not
distort the farmer's optimal choice of individual
coverage. Lesson Learned.
Ex Ante versus Ex
Post Nature of the
Farm Safety Net
We have opined on the benefits of the ex ante
nature of crop insurance on more than one occasion
in this publication. We will continue to
do so. The ex ante structure of the modern day
crop insurance system allows the farmer, the insurance
company, and the government to better
manage agricultural risk in today's environment.
Liabilities, premium amounts, and conditions
of indemnification are all established before the
Continued on page 32
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Crop Insurance Today Third Quarter 2022

Table of Contents for the Digital Edition of Crop Insurance Today Third Quarter 2022
