ACE Seminars

Abstract:
Recent legislative changes under the One Big Beautiful Bill Act (OBBBA) expanded subsidy support for supplemental coverage (add-on) products and relaxed restrictions on their adoption. These changes are likely to increase participation in such products. Given high subsidy rates and actuarial soundness goal of insurance, the net benefit for producers should have been positive for all cases. These benefits, however, are not evenly distributed across products, commodities, and regions. We evaluate how the design and historical performance of area add-on products to the COMBO product affect the regional distribution of benefits. Our results show that add-on insurance disproportionately benefits high-risk areas, both because of product design and because of historical performance. Since insurance decisions are linked to planting decisions, these effects may also induce shifts in acreage toward higher-risk areas.