Agricultural Risk Transfer

CHAPTER 6Crop Insurance

6.1 INTRODUCTION

Crop production is one of the key sectors of agriculture and provides food staples, feed for livestock and agricultural raw materials for many other industries, including biofuel production. Crop production has grown significantly, while at the same time production volatility has increased as the industry has specialised (monocultures) and is therefore more exposed to adverse weather conditions and market forces in a globalised grain and oilseed industry. Risk management, including risk transfer in the form of insurance, has been supporting production of the green revolution and developed different products tailored to the needs of individual markets.

This chapter gives an overview of trends in the crop sector and describes the main indemnity- and index-based crop insurance products. Named-peril crop insurance (NPCI) is discussed in the form of crop hail insurance and frost insurance, with calamity-based insurance as a special case. The following sections focus on multi-peril crop insurance (MPCI), which forms the basis for revenue insurance (RI) and income insurance. Index-based crop insurance is discussed for area-yield indices, weather indices and satellite- as well as model-based indices. The main crop insurance markets are discussed from a product point of view in the corresponding sections. The pricing and underwriting of some of the main insurance products are demonstrated through the example of corn production in Adams County ...