Crop Insurance’s Future Depends on Private-Sector Delivery

December 10, 2014
Matthew King, a farmer from central Ohio, recently took to the editorial pages of the Columbus Dispatch to defend America’s current farm policy. And he gave some real-world perspective on the skin-in-the-game farmers have in today’s system.
“In 2013, our farming operation’s crop-insurance premium totaled more than my wife’s annual salary as a local teacher,” he said. “And in most years, we don’t make a claim.”
So why would a grower like King spend so much of his hard earned-money on something he is so unlikely to use?
Having peace of mind that you can pick up the pieces if Mother Nature strikes or markets plummet is undoubtedly a big factor. But it’s not the only factor.
Farm risk has been around forever, yet 70 percent of farmers weren’t buying this peace of mind just 20 years ago. Not until the efficient private sector became entrenched in the delivery of crop insurance did it become popular enough with farmers that collectively they were willing to spend $4 billion out of their pockets every year for coverage.
The future viability of crop insurance’s private-sector delivery system is the focus of this article – the final part of a three-part series devoted to the policy attributes needed to keep crop insurance strong.
Today, private-sector insurance agents help individual farmers tailor the policies that are best for their unique operations, giving farmers more choice and control over the farm safety net than ever before.
Private-sector insurance providers administer the protection and shoulder a significant portion of the risk so taxpayers aren’t on the hook for everything. This reduces cost and makes possible nationwide coverage and efficient service operations.
Private-sector reinsurers help underwrite catastrophic losses that so often plague agriculture. And when disaster strikes, private-sector claims professionals verify losses then process payments to farmers – usually within 30 days of a claim being finalized.
Help that once took years to arrive shows up in weeks thanks to private-sector efficiency, making modern-day farm policy effective and reliable. But for that farm policy to flourish, crop insurance must remain viable for the private sector.
Key to this viability is a reasonable rate of return for insurers on the infrastructure they built to deliver farmers’ most important risk management tool.
An adequate return on investment enables insurance providers to routinely reinvest in technology, infrastructure efficiency, and service improvements for farmers and ranchers. Unfortunately, adequate returns don’t always happen.
  • With weather disasters and crop price volatility since 2011, crop insurers have sent out record amounts of loss payments and have struggled to break even.
  • More than $12 billion in funding was cut by Congress and the Administration from the crop insurance delivery system in 2008 and 2011.
  • And farm policy opponents looking to harm agriculture have targeted crop insurance for even more funding reductions.
In the latest farm bill, lawmakers took steps to address some of these challenges by underscoring their commitment to crop insurance protection and private-sector delivery.
They expanded coverage opportunities, encouraged beginning farmers and ranchers to purchase risk management protection, and strengthened the public-private partnership with tools to constantly improve program integrity.
Congress got it right by making crop insurance more viable, and those important efforts can be built upon. For example, regulatory burdens must be minimized, constant budget attacks need to be beaten back, and the continued actuarial soundness of insurance policies should remain a focal point.
With its place cemented as a focal point of current farm policy, crop insurance is bound to be at the center of public policy debates for years to come. Decisions made as a result of those debates will certainly affect the viability of private-sector delivery, and there will be a lot riding on those decisions.
After all, not everyone farms, but everyone eats. So everyone depends on a strong farm policy.