The Rising Cost of US Crop Insurance Under Climate Change

This paper quantifies how climate change affects federal outlays on premium subsidies in the US Federal Crop Insurance Program under the status quo subsidy schedule. Using the dynamic model of land use and insurance choice developed in Obolensky (2026), I compare a stationary-climate baseline to a climate-change counterfactual over 2030–2050 and compute equilibrium paths for premiums, insurance participation and contract choice, cultivated acreage, and prices. Climate change increases aggregate subsidy outlays by 9.9 percent on average over 2030–2050. Fiscal impacts are highly spatially heterogeneous, with county-level changes ranging from –30 percent to 60 percent. To clarify mechanisms, I implement a Shapley-value accounting decomposition that separates the change in subsidy outlays into four channels: (i) premium growth driven by shifts in yield loss risk, (ii) changes in insurance participation and contract choice, (iii) changes in cultivated area and crop allocation that alter subsidized exposure, and (iv) premium growth driven by equilibrium price feedbacks induced by aggregate acreage adjustment. The results show that higher loss risk is the dominant driver of subsidy growth, insurance demand modestly amplifies spending, and land-use adjustment partially offsets fiscal exposure by reducing insured acres and shifting production toward relatively safer crops. However, land-use adjustment also raises equilibrium prices, increasing insurance liability and placing upward pressure on premiums. The results provide a transparent mapping from climate risk into federal fiscal exposure under current crop-insurance policy and clarify how endogenous adaptation reshapes subsidy growth.