CROP INSURANCE OVERVIEW
Crop insurance in America can trace it roots all the way back to 1880, when private insurance companies first sold policies to protect farmers against the effects of hailstorms. These Crop-Hail policies are still sold today by crop insurance companies and are regulated by individual state insurance departments. In 2023, farmers spent just almost $1.3 billion on Crop-Hail insurance to protect $46 billion worth of crops.
In addition, farmers may also purchase Federal crop insurance which provides a suite of alternative risk management tools that protect farmers and ranchers against the loss of their crops due to natural disasters such as drought, freeze, flood, fire, insect, disease and wildlife, or a loss of revenue due to a decline in price. Federal crop insurance is sold and serviced by private-sector crop insurance companies and agents, while being regulated by the Federal government.
Participation in the Federal crop insurance program has grown rapidly since private sector delivery began in 1981 when only 45 million acres and $6 billion worth of crops were insured. By 2023, 1.2 million polices were sold protecting more than 130 different crops covering more than 540 million acres, with an insured value of $200+ billion.
The Federal crop insurance program provides timely financial assistance to farmers when they need it most, while reducing taxpayer risk exposure. Today, Federal crop insurance is the cornerstone of U.S. farm policy and the safety net for America’s farmers.
How Crop InsuranceWorks1
Two types of crop insurance are available to farmers in the United States: Crop-Hail and Multiple Peril Crop Insurance (MPCI).
Crop-Hail
Crop-Hail policies are not part of the Federal Crop Insurance Program and are provided directly to farmers by private insurers. Many farmers purchase Crop-Hail coverage because hail has the unique ability to totally destroy a significant part of a planted field while leaving the rest undamaged. In areas of the country where hail is a frequent event, farmers often purchase a Crop-Hail policy to protect high-yielding crops. Unlike MPCI, a Crop-Hail policy can be purchased at any time during the growing season.
Multiple Peril Crop Insurance (MPCI)
MPCI policies must be purchased prior to planting and cover loss of crop yields from all types of natural causes including drought, excessive moisture, freeze and disease. Newer coverage options combine yield protection and price protection to guard farmers against potential loss in revenue, whether due to low yields or changes in market price.
Under the Federal Crop Insurance Program’s unique public-private partnership, there are currently 15 private companies authorized by the United States Department of Agriculture Risk Management Agency (USDA RMA) to write MPCI policies. The service delivery side of the program — writing and reinsuring the policies, marketing, adjusting and processing claims, training and record-keeping, etc. — is handled by each private company. The program is overseen and regulated by the Risk Management Agency (RMA). The RMA sets the rates that can be charged and determines which crops can be insured in different parts of the country. The private companies are obligated to sell insurance to every eligible farmer who requests it and retains a large portion of the risk on over 80 percent of the policies written.
The federal government also subsidizes the farmer-paid premiums to reduce the cost to farmers. In addition, it provides reimbursement to the private insurance companies to offset operating and administrative costs that would otherwise be paid by farmers as part of their premium. Through this federal support, crop insurance remains affordable to a majority of America’s farmers and ranchers.
By combining the regulatory authority and financial support of the federal government with the efficiencies of the private sector, the crop insurance program has succeeded in meeting and even surpassing the goals set forth by Congress for broad participation, diversity and inclusion. By using the private sector, risk is shared among the private companies as well as the government.
1Source: Crop Insurance In America
Agriculture is Vital to California
California crops contribute $45.2 billion to the economy. Click here to download the California Crop Insurance Data Fact Sheet.
Agriculture is Vital to Arizona’s Economy
Arizona crops contribute $3.8 billion to the economy. Click here to download the Arizona Crop Insurance Data Fact Sheet.