Area yield index insurance

Area yield index insurance is crop cover that pays when the average yield measured across an area falls below a preset trigger, whatever the insured farm actually harvested. In 1993 the US Federal Crop Insurance Corporation piloted the Group Risk Plan, a policy that never looks at the insured's field. The indemnity depends on the county average yield published by the federal agricultural statistics agency, the National Agricultural Statistics Service (NASS), measured against an expected yield set before the season. If the county figure lands below the chosen percentage of that expected yield, every insured grower in the county gets paid at the same rate, whether he harvested a bumper crop or almost nothing. Hence the name: the index is output itself, measured over an area instead of farm by farm. Against a rainfall index the edge is clear. Drought, hail, pests and flood all show up in the same number, and basis risk shrinks to the gap between one farm and its area average. Moral hazard is close to zero, since a single grower cannot move a county yield, and adverse selection fades because the carrier knows the area history as well as the farmer does. The cost is data. Pricing takes fifteen or twenty years of yields by area, and settlement takes a reliable reading every year. In the US that reading is official statistics. In India it is millions of crop cutting experiments, sample plots harvested and weighed in each notified area, and their slowness and exposure to tampering drive most of the disputes. Payment also comes late: harvest, then the estimate, then settlement, often several months after the loss. So the product does little for a grower short of cash mid-season and a lot more for a lender or a government protecting a book of farm loans. Starting with the 2014 crop year the Group Risk Plan gave way to Area Risk Protection Insurance, which keeps the same county logic.