Keeping Crop Insurance Affordable Key To ‘Doing No Harm’

The popularity of crop insurance was on full display during debate of the 2014 Farm Bill, and the phrase “do no harm to crop insurance” was uttered over and over again by farm leaders and policymakers alike when describing their policy goals.

Lawmakers embraced the policy because, with crop insurance, farmers have skin in the game and contribute their own dollars to purchase protection. In addition, private insurance providers help shoulder losses so taxpayers aren’t on the hook for everything.

Farmers utilize crop insurance because they can tailor policies to fit their own unique needs, and because they know efficient private-sector insurers are there to speed assistance when it is needed most without all the red tape.

However, crop insurance wasn’t always so popular.

Just 20 years ago, participation rates hovered around 30%. It didn’t gain popularity and cover 89% of cropland until Congress decided to make crop insurance widely available to farms and farmers of all kinds; decided to make policies more affordable to farmers; and decided to make delivery viable for private sector insurers.

This series explores each element of that public policy trifecta, and explains how together, the attainment of the goals of availability, affordability, and viability have propelled crop insurance to being a key component of modern-day farm policy.

In this article, we’ll examine the affordability of crop insurance.

The amount of money required to operate a farm for one year is more than most Americans borrow in a lifetime. From seed and fertilizer to equipment, land and labor, farming is an expensive profession that can cost upwards of seven figures every year.
Yet in an instant, a year’s worth of investment and hard work can be wiped out by a single storm, an unexpected drought, a springtime flood or frost, or a market crash—all of which are completely outside of a farmer’s control.

Protection from these kinds of risk doesn’t come cheap. From 2000 to 2013 farmers spent $38 billion from their own pockets to buy crop insurance, and have spent more than $3 billion in 2014.

And when disaster strikes, a farmer has to bear part of the losses by meeting an insurance deductible before receiving assistance. After the 2012 drought alone, the losses shouldered by farm families totaled almost $13 billion.

But if insurance bills get too big, or deductible losses get too high, fewer farmers will sign up for policies, and the whole system will collapse. If that happens, not only will it be harder for farm families to bounce back after disaster, but costs that are currently being borne by farmers and private insurance providers will shift back to taxpayers.
That’s why Congress designed crop insurance to be affordable to farmers and ranchers. Under the farm bill, farmers get a discount on the premiums they pay for crop insurance protection, including larger discounts for new and beginning farmers looking to start a career in agriculture.