Low Participation and Risk Reduction Potential of Supplemental Crop Insurance in the United States

ABSTRACT Federally subsidized crop insurance is a cornerstone of U.S. farm risk management, yet policies with the greatest share of participation only trigger indemnities after losses exceed 15%. Supplemental insurance was introduced to cover part of this deductible, but participation remains largely unchanged. Using 1,005,245 sub‐county aggregated insurance observations and applying novel calibration and simulation methods, we show that low participation in supplemental coverage limits risk reduction potential. While basic insurance provides a foundation, adding supplemental policies meaningfully improves downside risk reduction and income transfer. Although these gains involve higher premiums, a benefit‐per‐premium analysis still favors broader use. These results reflect potential program impacts conditional on adoption, recognizing that actual participation depends on farmer preferences, risk perceptions, and institutional constraints.