Using Non-Insurance Information in Ratemaking - Cont.

A second link to consider is that between MPCI loss costs and geographic and climatological information. This would involve the use of econometric modeling techniques, but without the need to consider time dependency as was the case with yields. The concept is that the yields and the variation in yields, and hence the pure premiums, are related to the suitability of the land for the crops being grown. For example, average county pure premiums could be modeled as a function of independent explanatory variables, such as average annual rainfall, growing days, soil type, and elevation. The advantage of this form of analysis is that is can be used to estimate the pure premiums even if yield experience is not available.