New study contradicts crop insurance critics

Crop insurance critics have said for a long time that it’s such a vital product that a rise in premium rates will have no impact on farmer participation. A peer-reviewed study says such claims may be convenient for special interest groups hoping to weaken the risk-management tool by making it more expensive. However, those claims aren’t correct. Dr. Josh Woodard of Cornell University says, “crop insurance would likely respond fairly quickly to large cuts.” Woodard’s work was recently published in the Journal of Risk and Insurance. He says crop insurance demand is clearly responsive to price. That’s been proven by a rise in participation following Congressional actions over the years to provide premium support instead of ad hoc disaster payments. “Crop insurance is already expensive, but participation is necessary to obtain new loans to invest in new technologies and conservation practices,” Woodard says. “Significantly cutting this support would not only hinder farmers ability to run sustainable operations, it will push many farmers out of crop insurance and out of the business.” The findings are quite a bit different from past studies which assumed that crop insurance demand would be unresponsive to price changes.

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