FINANCIAL INCENTIVES AND DISINCENTIVES IN CROP INSURANCE:
Challenges for Small-Scale, Diversified Growers
COMPENSATION STRUCTURE
Crop insurers are usually compensated by commissions or percentages of the general crop insurance coverage contract. This implies they earn a portion of the premiums paid by the farmer for the insurance coverage protection.
INCENTIVE STRUCTURE
The inducement for insurers lies in maximizing their commissions, which frequently correlates with the scale and ease of contracts. Insuring a bigger farm with fewer crop varieties is extra financially interesting as a result of:
· The insurer avoids the extra paperwork and workload related to every further crop, which minimizes complexity and administrative burden.
· Smaller, diversified farms with a number of crops on fewer acres (e.g. 30 crops rising on 5 aces) require extra paperwork and energy for comparatively smaller fee returns.
Choice for *Giant-Scale Farms
Given these elements, insurers are extra prone to desire working with bigger commodity farmers who:
· Have bigger acreage however fewer crop varieties (e.g. 300-acre commodity farmers who solely develop three or 4 crops a 12 months).
· Supply bigger, easier contracts that generate increased commissions with much less administrative overhead.
Drawback for Small-Scale, Diversified Growers
In distinction, insurers are much less prone to desire working with small-scale growers with diversified crops on restricted acreage as a consequence of:
· Increased paperwork and administrative burden for every crop.
· Smaller general contracts with decrease insurer commissions as a consequence of their scale and diversification.
*Acknowledgement: Please be aware, we’re not disparaging giant farms that develop a small variety of crops. We’re extremely proud to be part of Georgia’s wealthy agricultural heritage and neighborhood. We’re merely trying to find — and advocating for — insurance coverage options that equitably safeguard the pursuits of natural farms cultivating many, various crop varieties.
