Crop Insurance Today Third Quarter 2022 - 32

Continued from page 1
crop is planted and well before a loss occurs. At
one level, this seems like just good old common
sense. Interestingly enough, the benefits of ex
ante crop insurance relative to ex post disaster
aid can be illustrated using economic theory.
Another study conducted by NCIS demonstrates
that from the government's perspective it is socially
optimal to provide premium support for
crop insurance in lieu of ex post ad hoc disaster
payments (Bulut, 2017). Ex post disaster aid provides
an " implicit " coverage not tailored to the
farmer's individual risk management needs. Crop
insurance allows and enables farmers to plan and
manage their risks individually. Lesson Learned.
Actuarial Soundness
As defined by the actuarial profession, one
aspect of actuarial soundness essentially refers
to the insurance system's premium setting methodology's
ability to adequately fund expected indemnities
over the long run. Since the mid to late
1990s, Federal crop insurance has experienced
favorable actuarial performance as the program
loss ratio has remained below 0.88 as targeted
by the Risk Management Agency. In my humble
opinion, this performance appears to be attributable
to three factors: (i) increased and diverse
participation that has allowed for the spread of
risk; (ii) improved program underwriting standards;
and (iii) improvements in RMA's actuarial
methodology combined with better data.
Actuarial soundness benefits all program
stakeholders, and it is fundamental in establishing
and maintaining confidence in the insurance
system. As such, actuarial soundness is critical
for the success of the program. Lesson Learned.
Institutional
Infrastructure
Matters
" Is the knowledge gained
Worth the price of the pain? "
I have had both the honor and privilege to
speak about the U.S. crop insurance model to a
wide variety of audiences over the years, including
the USDA Annual Outlook Conference, as
well as international presentations such as the
International Hail Congress (AIAG). In these
discussions I often " start at the beginning. " That
32 THIRDQUARTER2022
Knowledge
is, what are the fundamentals of the U.S. model
that has resulted in its success? First, the U.S.
system is governed by contract and legislative authority.
The " rules of the road " are written down
and publicly available. Over time, both USDA
and the private sector have established and built
an " institutional infrastructure " if you will. Second,
this infrastructure includes not only the
legislative language, the policies, the loss adjustment
procedures, and the actuarial database,
but in addition, this infrastructure includes the
human capital housed in the companies and
agency force along with USDA. The wealth of
institutional knowledge housed in the women
and men working in this industry is phenomenal
and has been decades in the making. To answer
Dan's question, yes, the " knowledge gained has
been worth the price. " Lastly, this is not accomplished
without commitment. Both the private
and public sector are extraordinarily committed
to improving crop insurance. And it shows, with
90 percent of principal crop acreage insured, an
actuarially sound insurance system, and farm
groups repeatedly stating that maintaining and
strengthening crop insurance is an essential policy
priority for the future.
As we go forward, let's keep in mind that there
have been, and continue to be, headwinds facing
our industry. In recent years, this industry, in
partnering with RMA, has worked through the
pandemic, the crop failures of 2012, the prevent
planting losses of 2019, the derecho of 2020, and
now the aftermath of Hurricane Ian. There have
been and will be legislative and funding challenges
as we all work to improve crop insurance.
Through all of this, improvements to our industry
and the crop insurance delivery system have
been made due in part to the Lessons we have
Learned. So, in closing, one final lyric:
" Don't forget what your failures
have taught you
Or else you'll learn them all over again. "
In this Issue
The 2021 agronomic research results are presented
in this issue. These results are invaluable
to ensure the accuracy of the standardized industry
loss adjustment procedures. The one-year results
should not be used on their own but will be
combined with multiple years of research results,
either conducted in conjunction with these projects
or from previous projects.
We introduce you to farmers from North
and South Carolina who rely heavily on crop
insurance to protect their farms, many of which
have been in their families for multiple generations.
Farming in the Carolinas isn't without its
challenges, so it's important that crop insurance
agents understand the policies available and
present all options to their clients. We met just
three of those dedicated agents and are pleased to
introduce them to you, as well. We hope you will
watch their full stories at CropInsuranceInAmerica.org/RealStories.
Dr.
Harun Bulut's article on Area versus Index-based
insurance plans provides a brief review
of these products in association with the overall
book of business-which has been predominantly
individual coverage. The objective of the article
is to clarify the roles of area or index-based plans
within the Federal crop insurance portfolio.
We also highlight the important information
presented at the 2023 Fall Train-the-Trainer
Conference, which was held in July with attendees
participating in person or virtually. And we
introduce you to the latest group of NCIS summer
interns, who worked very hard learning
about all aspects of crop insurance from NCIS
staff and others throughout the industry.
Bulut, H., K.J. Collins, and T.P. Zacharias.
2012. Optimal Coverage Demand with Individual
and Area Plans of Insurance. American Journal of
Agricultural Economics. 94(4): 1013-1023. https://
doi.org/10.1093/ajae/aas068.
Bulut, H. 2017. Managing Catastrophic Risk in
Agriculture through Ex Ante Subsidized Insurance
or Ex Post Disaster Aid. Journal of Agricultural
and Resource Economics. 42(3): 406-426. https://
jareonline.org/articles/managing-catastrophic-risk-in-agriculture-through-ex-ante-subsidized-insurance-or-ex-post-disaster-aid/.

http://CropInsuranceInAmerica.org/RealStories http://CropInsuranceInAmerica.org/RealStories https://doi.org/10.1093/ajae/aas068 https://doi.org/10.1093/ajae/aas068 https://jareonline.org/articles/managing-catastrophic-risk-in-agriculture-through-ex-ante-subsidized-insurance-or-ex-post-disaster-aid/ https://jareonline.org/articles/managing-catastrophic-risk-in-agriculture-through-ex-ante-subsidized-insurance-or-ex-post-disaster-aid/ https://jareonline.org/articles/managing-catastrophic-risk-in-agriculture-through-ex-ante-subsidized-insurance-or-ex-post-disaster-aid/ https://jareonline.org/articles/managing-catastrophic-risk-in-agriculture-through-ex-ante-subsidized-insurance-or-ex-post-disaster-aid/

Crop Insurance Today Third Quarter 2022

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