A bootstrap approach for pricing crop yield insurance. Issue 2 (2nd May 2017)

• Record Type: Journal Article
• Authors: Xiao, Yugu; Wang, Ke; Porth, Lysa
• Is Part Of: China agricultural economic review. Volume 9:Issue 2(2017)
• Page Start: 225
• Page End: 237
• Publication Date: 2017-05-02
• Subjects: Crop insurance -- Bootstrap confidence interval -- Coverage probability -- Premium rate; G22 -- Q14; Agriculture -- Economic aspects -- China -- Periodicals; Rural development -- China -- Periodicals; Agriculture and state -- China -- Periodicals; 338.10951
• DOI: 10.1108/CAER-08-2015-0105
• Languages: English
• ISSNs: 1756-137X

Abstract

Abstract : Purpose: While crop insurance ratemaking has been studied for many decades, it is still faced with many challenges. Crop insurance premium rates (PRs) are traditionally determined only by point estimation, and this approach may lead to uncertainty because it is sensitive to the underwriter's assumptions regarding the trend, yield distribution, and other issues such as data scarcity and credibility. Thus, the purpose of this paper is to obtain the interval estimate for the PR, which can provide additional information about the accuracy of the point estimate. Design/methodology/approach: A bootstrap method based on the loss cost ratio ratemaking approach is proposed. Using Monte Carlo experiments, the performance of this method is tested against several popular methods. To measure the efficiency of the confidence interval (CI) estimators, the actual coverage probabilities and the average widths of these intervals are calculated. Findings: The proposed method is shown to be as efficient as the non-parametric kernel method, and has the features of flexibility and robustness, and can provide insight for underwriters regarding uncertainty based on the width of the CI. Originality/value: Comprehensive comparisons are conducted to show the advantage and the efficiency of the proposed method. In addition, a significant empirical example is given to show how to use the CIs to support ratemaking.