Secretary of Agriculture Sonny Perdue recognized crop insurance as an important part of the farm safety net and said the program is critical to the country’s food security during recent Senate testimony about the proposed United States Department of Agriculture (USDA) budget.
Committee members from both sides of the aisle also voiced support.
Sen. John Hoeven (R-ND) described crop insurance as “the number-one risk management tool for our producers,” adding, “particularly as we look at a drought year and low commodity prices, it is vitally important.”
Sen. Jon Tester (D-MT) meanwhile made it clear that farmers don’t make money off crop insurance and would rather plant a successful crop than receive an indemnity payment.
Tester’s comment was aimed at a recent controversial statement Secretary Perdue made in the Senator’s home state, when the Secretary implied some farmers may buy insurance hoping it will pay out on a lost crop. The Secretary has since asked that these remarks not be misinterpreted as no farmer hopes to lose a crop.
The numbers bear that out, proving that crop insurance helps farmers pick up the pieces after disaster, not profit. Over the past five years, the cumulative nationwide loss ratio has averaged 0.91 (any number below 1.0 means that insurance premiums paid were greater than what farmers received in indemnities).
In fact, one of the reasons that crop insurance is so popular on Capitol Hill is its structure that promotes accountability and reduces waste. Crop insurance requires all losses to be verified by a trained, independent third party, and farmers have “skin in the game” by paying premiums and shouldering a portion of losses.
Even in the aftermath of the historic 2012 drought, America’s farmers did not make money off crop insurance, but used it to survive losses and plant again the following year. In fact, farmers paid more than $4 billion in premiums and shouldered approximately $13 billion in losses before their policies kicked in.
Furthermore, since crop insurance providers have dollars at risk on every policy, they are financially incentivized to eliminate wrongful claims. That is why companies have invested millions in new technology and training and education efforts.
The efforts have paid off, with instances of improper crop insurance payments in 2016 at just 2.02%, down from 2.2% in 2015, according to the Office of Management and Budget. This is significantly lower than the government-wide improper payment rates of 4.67% in 2016 and 4.39% in 2015.
As budget discussions continue—one thing is very clear. Crop insurance is an excellent taxpayer investment and is working to constantly improve.