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Abstract
Multiple Peril Crop Insurance (MPCI) is a unique public/private market insurance product. This paper is intended to provide an introduction to the MPCI ratemaking process, as well as a discussion of some of the political and economic forces affecting the program.
The paper will provide a description of the coverage offered under the program and an overview of the ratemaking methodology. Specific challenges, relating to the catastrophic nature of the coverage and the geographical influences on loss exposure will be discussed. In addition to current ratemaking techniques, which involve a credibility weighting of county experience with the experience of adjacent counties, the paper will discuss alternatives, including:
- fixed territorial groupings of counties,
- spatial smoothing, and
- spatial credibility techniques.
The paper will discuss unique aspects of the product and the ratemaking process, including:
- the role of the Federal Government in supporting the program,
- the high correlation of experience among exposures, and.
- the use of econometric models and non-insurance data in validating experience.
The paper will also discuss some of the recent changes in the federal crop insurance program and how these are reflected in the rate process.
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