Optimal Crop-Insurance Strategies under Climate Variability: Contrasting Insurer and Farmer Interests

This study analyzes the potential synergies and conflicts of interest between farmers and insurers in the selection of an optimal crop insurance contract. Special attention is given to how climate information influences this decision-making process. To do so, we consider a representative 40 hectares, rainfed, cotton-peanut farm located in Jackson County in Florida. Our results show that year-to-year ENSO-based climate variability affects farmers’ income and insurers’ gains according to crop insurance contracts. Additionally, introduction of ENSO-based climate forecasts presents a significant impact on the selection of a particular contract. We conclude that insurers and farmers can bridge their divergent interests by improving their understanding of the effect of climate conditions on the development of sustainable business plans.