Crop Insurance and Weather Risk

This thesis investigates how rising temperatures and climate variability affect crop insurance decisions and premium rates for corn and soybean farmers in Kentucky. It introduces a new decision-support tool, the "Crop Insurance Decision Maker" (CIDM), which helps producers evaluate the financial trade-offs of various crop insurance products under different risk preferences. The first chapter details the tool’s development, function, and potential to improve farmer understanding of insurance options. The second chapter quantifies how +1°C and +2°C warming scenarios impact yield risk and crop insurance premium rates using 73 years of corn yield data, 51 years for soybean yield, and weather data. Results indicate that high temperatures significantly reduce average yields, increase yield variability, and raise actuarially fair premium rates. Corn experiences greater yield reductions than soybeans under warming scenarios, but soybeans show relatively larger increases in premium rates. These findings demonstrate the urgent need for climate-resilient reforms to the Federal Crop Insurance Program (FCIP) and highlight the value of educational tools in helping producers adapt to a changing climate.