Is Corn Belt Insurance Overrated?
Excessive profits insuring Corn Belt farmers must imply that Corn Belt insurance premiums are too high relative to the risks covered. Before we can conclude that crop insurance premiums on corn and soybeans are too high in the Corn Belt, we must consider the representativeness of growing conditions from 2000 to 2007. Overall, the recent experience in the Corn Belt is likely more favorable than what can be expected over any eight-year period. Although there were regional droughts that affected yields in 2002 and 2005, there has not been a widespread drought in the Corn Belt since 1988. Furthermore, the mechanism by which crop insurance rates are adjusted is based on a rolling 25-year average of losses within each state. The recent good experience in the Corn Belt is slowly making itself felt in lower premium rates for farmers. However, there is good evidence that production risks are falling much faster than crop insurance rates can adjust because of rapid advances in technology, especi
