Farmer Participation, Entry and Exit Decisions in the Italian Crop Insurance Programme

Abstract

The factors affecting the demand for agricultural insurance in the USA have been extensively studied over the last two decades. However, the determinants of a farm's entry and exit decisions in the insurance market have received relatively little attention. Turnover in the insurance book of business is an important issue in most private and public crop insurance plans. Moreover, insurance markets in the EU are still largely under‐investigated. We investigate empirically the determinants of crop insurance participation in Italy. We show that the participation rate is high for large firms and that it is negatively correlated with crop diversification, which is itself a form of insurance. High premiums tend to inhibit both entry and exit from the insurance market. Larger and wealthier farms are more likely to adopt insurance and renew coverage over time. We discuss implications of our results for public intervention and the private industry. In particular, we demonstrate that the decision to drop coverage by an insured grower may differ significantly from the corresponding decision to enroll in an insurance programme by an uninsured farmer. To the extent that policymakers want to encourage participation in subsidized crop insurance programmes, education and outreach efforts toward uninsured farmers may differ substantially from those directed toward keeping insured farmers enrolled in the programme. We investigate these differences.

I Learn, You Learn, We Gain Experience in Crop Insurance Markets

“…Our dataset provides yearly information on land size, altitude, farmers' age, diversification of farming activities, adoption of irrigation, and farms' revenue. We compute revenue variability as standard deviation of farms' revenue (over the entire period, 2004-2010), and expected premium per hectare by averaging across regions and farming systems the (crop-specific) total premia, as proposed in Santeramo et al (2016) and Goodwin (1993). 3 The variable proxies farming system-specific and region-specific levels of riskiness.…”

“…A vast number of studies have analyzed the determinants of participation in crop insurance programs (Skees and Reed 1986;Goodwin 1993;Smith and Goodwin 1996;Sherrick et al 2004;Walters et al 2014;Tolhurst and Ker 2015;Menapace et al 2016), the dynamics of subsidized crop insurance programs (Coble and Barnett 2013), and the potential effects of innovative contracts (Maestro et al 2016). Santeramo et al (2016) analyzed the drivers for entering and exiting from the crop insurance market. However, existing research, with few exceptions (e.g., Cole, Stein, and Tobacman 2014;Santeramo 2018), has stopped short of providing a deeper investigation into the role of experience on participation in crop insurance programs.…”

Designing a whole-farm revenue insurance for agricultural crops in Zanjan province of Iran

“…In such a case, losses and premium rates eventually increase and more farmers drive out from the insurance market. Santeramo et al (2016) argued that the expected loss ratio plays a significant role in the farmer's participation to insurance program and demonstrated that contrary to prior expectations, higher expected loss ratios correspond to a lower likelihood of participation and to a more probability of exit. Although these two problems and correlated risks are not unique to crop insurance but addressing these issues for crop insurance is more costly due to the high costs of monitoring agricultural production (Goodwin and Smith, 1995).…”

Agricultural insurance policies in Spain and the EU: an analysis of existent and new risk management tools focusing on indirect risk assessment, and asymmetric information

“…Coble et al, 1996), asymmetric information (e.g. Zilberman, 2008 andGlauber et al, 2002) or farmers characteristics (Santeramo et al, 2016a). Low insurance demand is often due to the infrequency of events and the high premiums derived under the actuarial principles leading market-based insurance, which discourage farmers to pay the premiums every year when indemnities are seldom received (Mahul and Stutley, 2010).…”