Crop insurance saving accounts
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Crop insurance is a critical risk management tool for farmers to protect against yield and revenue losses, smooth income over time, and remain a viable operation in times of catastrophic farm losses. However, despite the benefits of crop insurance programs, current crop insurance policies require significant subsidization from the government in order to achieve broad participation. This study proposes a novel alternative design to traditional farm insurance program - Crop Insurance Savings Accounts (CISAs). Our proposed CISA system enables farmers to annually deposit pre-tax income in a personal savings account and draw an indemnity from their accounts when there is a qualified loss. The design has a number of additional advantages including a reduction of farmer moral hazard and adverse selection problems in addition to insurers no longer have to price risks, thus eliminating the associated premium rating problems that weaken actuarial soundness.