Since the inception of the public-private partnership, crop insurance companies experienced net underwriting losses, even after Federal reinsurance, in 2012, as well as in 1983, 1984, 1988, 1993 and 2002.
In fact, crop insurers lost 1.4 percent from 2011 to 2014 once all expenses were accounted. While companies achieved an underwriting gain in 2015 and 2016, the industry’s cumulative returns have still fallen well below the target assumed in the 2011 Standard Reinsurance Agreement (SRA).
A 2017 study by economists from the University of Illinois and Cornell University noted that returns for crop insurance providers have dropped a staggering 12.6 percentage points since the current SRA went into effect.
This stands in sharp contrast to providers of property and casualty (P&C) insurance, which lost money only once in the most recent 20 years, in 2001—the year of the 9/11 attacks. According to a recent report by Grant Thornton LLC, a national accounting firm: “The crop insurance program historically has been less profitable and its financial performance more variable than the P&C industry as a whole.”
When examining company returns, it is important to realize that, even in a year with underwriting gains, crop insurers may not be profitable because underwriting gains alone are not profits; they are one component of a company’s revenue. Second, the Administrative and Operating (A&O) expense reimbursements received from the government, the other major component of revenue, have consistently fallen well short of actual delivery costs for loss adjustment, commissions, information technology, salaries and benefits, rent and other expenses.
While A&O expense reimbursements were intended to pay for program delivery costs, they have been consistently less than actual expenses since 1997.
Read more about the rate of return here.
* Updated July 2019