Insurance policies that trigger on county yield are fairly priced, effective risk transfer instruments that work for farmers meeting certain conditions. The potential of Group Risk Policy (GRP) and Group Risk Income Policy (GRIP) have been a component of Michigan State University partnership on risk management education programs. This paper provides criteria for evaluating when GRP and GRIP should be considered by farmers. Decision making assistance is provided to farmers from extension services.
The findings are expected to aid farmers in understanding and evaluating insurance plans that trigger on county yield or revenue indexes. Case studies are provided to help farmers understand tracking between farm and county yields and the importance of their correlation. Farmers are shown how to determine if their yields track to county yields using a standardized yield series. Tracking rules of thumb are provided.
Empirical cumulative distributions are used to show the effects of different yield insurance plans. The empirical data describes how net (Farm Yield + Insurance Indemnity – Insurance Cost) yields change with different yield insurance policies. With empirical cumulative distributions, we show how location in our example county leads to different correlations. Furthermore, we show how different yield insurance policies work with different yield correlations. Finally, farmers are able to look at the probability of net yields and decide if crop insurance transfers adequate risk at a reasonable price.
|Conference||2005 National Extension Risk Management Education Conference|
|Presentation Type||30-Minute Concurrent|