Mapping agents: A spatial economic analysis of agent location in the Federal Crop Insurance Program

Crop insurance is delivered to farmers and ranchers through a partnership among the Federal Crop Insurance Corporation (FCIC), part of the United States Department of Agriculture, and the crop insurance industry. The FCIC offers financial incentives, through reinsurance and subsidies, to private insurance companies for insurance contracts sold in accordance with the Standard Reinsurance Agreement (SRA). Crop insurance agents play an important role in the delivery of the federal crop insurance program, acting as intermediaries between farmers and crop insurance companies. Little is understood about the supply of crop insurance agents and the role of government policy in the provision of agent services, particularly after the 2010 SRA. We model the equilibrium supply of crop insurance agents to derive testable hypotheses about the factors that influence agent concentration across space. We evaluate our model using spatial econometric techniques and a novel dataset of crop insurance agent locations by county. Generally, forces that raise agent compensation, including the degree of competition among insurance companies, are shown to increase the local supply of agents. Results vary by government-defined reinsurance regions. Notably, historical average premium rates, which both reflect actuarial risk and influence farmer insurance demand, are negatively related to agent competition in the low-risk Group 1 states, which contributes over 40% of insured liabilities. These factors produce spatial spillovers, suggesting the presence of agglomeration effects in the market for agent services. Proposed changes to the SRA should consider impacts on the regional distribution and local supply of agents.