An Introduction to Crop Insurance

Welcome to “What’s Cropping Up.” If you’re reading us for the first time, chances are good that you’re either a new Congressional staffer or a reporter that’s joining the ag policy beat.

As such, we wanted to start with some of the basics. Of course, if you’re chomping at the bit to graduate from Crop Insurance 101, please checkout — the go-to source for crop insurance stats and information.

Crop insurance, simply put, protects the livelihoods of the farmers who grow the food we eat, the clothes we wear, and the fuel that moves us.

Farming is no easy task. It is one of the riskiest enterprises in the world, defined by uncontrollable conditions that are unlike any other profession. Bad weather, blight, insects, natural disasters, price fluctuations, and global subsidization all make it hard to make a living as a farmer.

That’s where crop insurance comes in. It’s basically no different than auto insurance or homeowner’s insurance. Banks require farmers to purchase it, just as they require insurance from homebuyers.

But because of the risks unique to agriculture, it can be cost prohibitive. Without a strong infrastructure and investment, crop insurance would be too costly for most farmers to afford or for most private-sector insurance companies to widely provide.

That’s where government steps in, acting as a middleman that encourages participation and ensures adequate coverage.

Without this middleman, crop insurance would flounder and work for just a few. And the responsibility of funding U.S. farm policy would again fall completely on taxpayers’ shoulders rather than the current cost-share system that is partially financed by farmers and insurers.

Crop insurance been around since the 1930s when the Great Depression and the Dust Bowl decimated family farms. And over the years, it’s been modernized to enable farmers to tailor individual protection for their own unique farms.

Today, it has supplanted costly, unbudgeted ad hoc disaster legislation and direct payments as the centerpiece of America’s farm policy. Here’s how it works:

  • Thanks to government investment, farmers receive a discount on coverage.
  • Private-sector agents help farmers pick the coverage that is just right for them, using historical farm data and other personalized information.
  • Farmers then spend between $3.5 billion and $4 billion a year to purchase crop insurance sold through private companies.
  • These companies service the policies and work closely with the U.S. Department of Agriculture, which acts as a reinsurer, oversees the system, and covers part of companies’ operating costs for administering it.
  • When disaster strikes, a claim is filed. A private-sector adjuster investigates, verifies the loss and an indemnity check is sent.
  • These checks usually arrive within 30 days to help the farmer rebuild – in sharp contrast to the months or years it took old-style disaster aid to show up.

Crop insurance is extremely popular, covering roughly 90 percent of farmland, or nearly 300 million acres. More than 1.2 million policies are sold nationwide, offering some $100 billion in liability protection.

Corn, cotton, soybeans, and wheat account for the largest percentage of U.S. farm acreage and crop insurance coverage. But, investments in designing new products means there’s now protection available for more than 120 crops.

What will tomorrow bring?

Those discussions will soon begin. When they do, it will be important to remember that crop insurance has proven to be a popular, efficient, lowest-cost safety net that underpins a secure domestic food, fiber, fuel and feed supply.