Potential Impacts of Shifts in Climate on the Crop Insurance Industry

Abstract

Several studies have estimated the possible impacts and adjustments in U.S. agriculture resulting from a future change in climate. This paper examines how these adjustments and shifting climate conditions could affect the nation's crop weather insurance industry, including its ability to provide adequate coverage. Shifts in crop varieties, the extension of new crops into new areas, and changes in crop yields would all affect establishment of rates and many other industry practices, but we expect that these shifts could be adjusted to using existing techniques and field research. What will be most difficult to react to will be the shifting weather risk, such as ever-changing storm frequencies or intensities. Current practices of rate development and regulation of insurance rates are based on historical data, not on anticipation of future weather shifts. Outcomes seen during such climate transition periods with their inherent uncertainty include a reduced industry zeal for accepting risk. This would likely include declination of coverage, reduced coverage per unit area, and lower yield guarantees. These acts would lead to more self-insurance by crop producers, which would involve more crop diversification and greater dispersion of crops over an area.