How wealth and savings impact crop insurance
One of the study's general findings was that the demand for insurance will decline as the interest rate on savings rises. Similarly, farmers will save more and insure less, as insurance premium rates increase. However, an exception to these general findings would be for those farm households who are less wealthy.
The study also found that the demand for crop insurance, when examined over multiple years, is primarily driven by the farmer's financial wealth rather than one's attitude toward risk. Therefore, the purchasing of insurance and the choice of coverage levels are heavily determined by the producer's income and savings.
The demand for crop insurance was also found to be reduced at both the lower and higher levels of farm wealth. However, the reasons differ depending on what side of the spectrum the farm household falls.
High-wealth farmers may not purchase insurance at all and may instead use savings to self-insure. By comparison, households with low wealth may not purchase crop insurance simply because they cannot afford it.
The researchers also found that farmers do not make production decisions based solely on what would be best, considering the current crop season. Instead, they choose to manage their farms in a way that helps them earn the most value over the lifetime of the farm, with the demand for crop insurance dropping the longer the farm's expected time horizon.
Another finding in the study found that operators with larger amounts of debt were more likely to purchase insurance they assume to avoid accumulating more debt in the event of bad weather or other unfortunate incidents.
source: agweek.com
