The design of farm work-related disability income insurance
Abstract
Agriculture is one of the most hazardous occupation in the U.S. Most farmers and agricultural workers are not covered by Workers' Compensation Laws and very few farmers seem to have disability income insurance. Such insurance is expensive for non-group members. Work-related accident-only disability income insurance has several advantages. It is a possible alternative for farmers and agricultural workers. The general objective of this research was to develop Farm Work-Related Disability Income (FWDI) insurance policies which will appeal to farmers and agricultural workers while allowing the insurance companies involved to at least broken-even. Modern mathematical models in insurance are reviewed and applied to develop the optimal insurance coverage for FWDI insurance. The moral hazard problem in insurance is controlled by "incomplete coverage." While the income loss due to a farm work-related injury is defined as wage per day times the number of days lost due to the injury. By analyzing two data sets (the National Safety Council 1982 farm accident survey results and the 1990 Ohio agricultural Workers Compensation claims) with the direct probability approach and the econometrics modeling approach, the farm work-related injury factors were determined; the loss distribution of farm work-related injuries and the cost of FWDI insurance policies were estimated. A survey designed to determine the acceptance of the FWDI insurance policies was conducted. It was found that farmers prefer to pay $130 per year for disability income insurance with 30 days deductible and \$300 weekly compensation. The FWDI insurance policies have four main characteristics: the income compensation, the benefit duration, the deductible, and the cost. Sex, age, and type of farm were determined to affect the farm work-related injury rate and the type of insurance coverage needed. The dynamic change of annual premiums with respect to other characteristics were also analyzed. The estimated FWDI insurance premiums were compared to the premiums provided by two commercial insurance companies and the premiums of two states Workers' Compensation insurance programs. FWDI insurance has the lowest premium among the disability insurance policies and provides basic protection for farmers and agricultural workers. However, FWDI insurance does not provide coverage for medical expenses nor for disabilities resulting from illness.
Degree
Ph.D.
Advisors
Brown, Purdue University.
Subject Area
Agricultural economics|Management
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