Using Non-Insurance Information in Ratemaking

An important aspect of MPCI coverage is the linkage between the loss experience and non-insurance information. A potential use of this external information is to test the reliability of the indicated rates. Another is to provide a means to develop rates for counties in which past experience for the crop is not available.

The first link to be considered is that between MPCI pure premiums and yields. For individual producers, the yield determines the indemnity payment. Since the results for individual producers are strongly influenced by the weather, the loss experience and the yields among producers are highly correlated, even when aggregated to the county or state level. An analysis of this relationship at the statewide level for Iowa Corn is provided below.