Scholarships, Training Build Strong Communities

Mar’Kayla Bethea had to balance work with studies when she was an undergraduate student at Alabama A&M University.

Working at night and going to class during the day wasn’t easy. But she had no choice because she was paying for her education on her own.

That changed when National Crop Insurance Services awarded her with a scholarship.

“It allowed me to complete my undergraduate degree and I am now onto bigger and better things,” she said.

Today, she’s studying geographical information systems in graduate school at AAMU.

“This money was greatly appreciated,” she said.

NCIS has proudly provided scholarships to 18 students at 1890 Land Grant universities to help them complete their education since 2001. The universities have historically served African-American students.

It’s part of NCIS’ mission of helping under-served communities in rural America with access to top risk management and marketing training and education to develop the agriculture workforce.

Bethea’s story, and the stories of others who have benefited from scholarship program, are featured in the latest edition of Crop Insurance Today magazine.  Crop Insurance Today featured the risk management and marketing training offered through its partnership with 1890 Land Grant universities with a cover story last summer.

The scholarships are important to students who struggle with financial difficulties, said Dr. Mohammed Ibrahim, Associate Professor of Agricultural Economics at Fort Valley State University in Georgia, in the article.

“Sometimes, this struggle leads them to obtain a full or part-time job off campus and those jobs usually (due to lack of study time) cause their academic performance to fall,” he said

Dr. Albert E. Essel, Dean, Research Director & 1890 Administrator for the College of Agriculture at Lincoln University thanked NCIS for its continued support of students who will become the next generation of agricultural workers.

Essel is also involved in the community risk management and marketing training programs NCIS funds across the nation.

He spoke to a group in South Carolina last summer about marketing.

Farmers Tony and Belinda Jones of Morning Glory Homestead on Saint Helena Island, S.C., were among the participants. They said the NCIS training was very beneficial.

“If we did not attend the workshops and conferences like this we would have to research that on our own and might overlook it or skip it or not think it was important. But when you hear it from professionals who have a lot of knowledge in that field, it really hits home,” Belinda Jones said.

You can read more about the scholarship program in the Crop Insurance Today magazine and watch a video about the community training program at

Crop Insurers Release Last Video in Three-Part Series

National Crop Insurance Services today released the third installment in the “Risk Management Minute” series. This final video is focused on the importance of maintaining a strong public-private partnership.

“Now, assistance arrives in weeks, not years, because the private sector is involved,” explained the video, which noted that there are 20,000 agents, adjusters and staff to help rural America pick up the pieces following droughts, floods and freezes.

“And insurers spend millions on training and new technology to constantly improve efficiency,” it continued. “It’s a system that saves farmers time and taxpayers money.”

Despite crop insurance’s benefits and popularity among farmers, some farm policy critics are proposing drastic cuts that would make crop insurance unaffordable and unavailable for many farmers. And if such proposals were adopted, it would be difficult for the private sector to remain in business.

“Such short-sightedness would only weaken farmers’ primary tool for managing risk and put more burden on America’s taxpayers,” the video concluded.

Other videos – about the cost-sharing and risk-pooling attributes of crop insurance – can be viewed at CropInsuranceInAmerica and on NCIS’ social media channels.

New Video Explains Importance of Widespread Crop Insurance Participation

As the Farm Bill debate heats up, some farm policy opponents are lobbying to exclude people from crop insurance, which would harm farmers and taxpayers alike. That’s according to a new video released today by National Crop Insurance Services – the second video in its “Risk Management Minute” series.

Legislative proposals to apply an income means test to crop insurance participation could remove many farmers who have large farms, grow high-valued crops or work off-farm jobs.

“Doing so would only increase insurance costs for smaller farmers,” the video explains. “It’s kind of like preventing the safest drivers from getting auto insurance. The result would be an expensive wreck for farmers and taxpayers.”

The idea of shared risk – where premiums rise and fall with participation levels – is not unique to agriculture.

“Crop insurance is like other kinds of insurance,” according to the video. “The more people it covers, the more people there are to shoulder risk. And the more people there are to shoulder risk, the cheaper coverage is for everyone.”

Things get riskier and more expensive when participants are removed – especially insureds who carry less risk like the farms that are being targeted by farm critics.

“Congress made crop insurance a cornerstone of U.S. farm policy for a reason. It works. It’s efficient. It saves money. And it’s popular,” the video concludes. “No wonder so many farmers are saying ‘do no harm’ to crop insurance in the Farm Bill.”

Most Farmers Get a Bill, Not a Check, with Crop Insurance

We all carry insurance on something: Our homes, our cars, maybe even a special vacation or a treasured antique.

And, we all get bills in the mail to pay premiums on those insurance policies. When disaster strikes, and we have to use the policies we’ve paid for, we must first absorb part of the loss as a deductible before aid is received.

Farmers are no different, despite what farm policy critics might have you believe.

As with any line of insurance, farmers receive crop insurance payments only when there are verified losses and only after shouldering a chunk of those losses themselves through deductibles.

More often than not, farmers pay into the crop insurance system and don’t get indemnities at all. That’s why it’s often said with crop insurance, farmers get a bill not a check.

An examination of recent USDA figures shows farmers purchased 2,364,338 policies between 2015 and 2016. Of those, there were 563,506 claims, meaning 1,800,832 policies were not triggered.

In fact, if we look further, we find that farmers spent $7.2 billion out of their own pockets for insurance protection in 2015 and 2016. They also shouldered $13.6 billion in losses as part of deductibles. Indemnities totaled $10.2 billion, meaning farmers collectively put much more into the system than they got out.

This trend appears to have continued in 2017, too.

In other words, a bill, not a check.  Exactly like insurance is supposed to work.

But farmers are not complaining about helping fund their own farm policy. Crop insurance is not about making money. It’s about managing risk and paying into a safety net that kicks in when the worst happens so farmers can recover and continue to provide safe and affordable food for U.S. customers.

Farmers are happy to pay that bill.

Attacks on Revenue Insurance Harm America’s Farmers

Farm families across America are struggling.  Crop prices are down.  Farm incomes have fallen drastically in the past several years and weather disasters have hit farms in most parts of the country.  And the pain is trickling down to small businesses and communities throughout rural America.  Yet, some lawmakers are pushing proposals that will make it nearly impossible for farmers to rebound.

Senators Jeff Flake (R-AZ) and Jean Shaheen (D-NH) and Rep. John Duncan (R-TN) recently introduced bills to eliminate premium support for the harvest price protection component of the Revenue Protection (RP) crop insurance policy.  Revenue Protection protects against a loss of revenue caused by low prices or low yields or a combination of both.  Revenue Protection has become a valuable risk management tool for farmers across the United States and accounts for more than 75 percent of the Federal crop insurance policies sold today.

One of the key components of the revenue policy is the utilization of the fall harvest price, which allows a farmer to receive the greater of the fall harvest price or the projected harvest price to insure against revenue declines. The loss due to an increase in the harvest price occurs when a farmer suffers a yield loss.  Those lost bushels are worth more when the harvest price increases and therefore the loss of revenue is greater because the insured could not sell the bushels lost at the higher price. The farmer automatically has harvest price protection when buying an RP policy, but can choose to exclude it by selecting the Harvest Price Exclusion (HPE).  If the farmer opts to do so, he or she will pay a lower premium rate.

“This legislation specifically targets crop insurance policies that farmers pay more for out of their own pockets to provide some revenue stability amid price declines and low yields,” said Tom Zacharias, president of National Crop Insurance Services (NCIS).  “For example, corn farmers in the Midwest can pay more than 40 percent more in premiums for RP, depending on coverage level, than if they choose to exclude the harvest price protection. And because this is still an insurance policy, farmers face upwards of a 30 percent deductible before an indemnity is even paid.”

He continued: “Amazingly, supporters of this anti-farmer proposal tout taxpayer benefits as the justification for weakening the farm policies that are so important today. This is disingenuous considering farmers help pay for their own insurance protection and crop insurance represents less than one-third of one percent of federal spending.  It is also worth noting that crop insurance is operating below budget projections.”

Zacharias also noted that, despite critics’ accusations, revenue polices are not paying out frequently.  In its current form, RP has only been available since 2011.  However, according to an NCIS analysis of soybean and corn price movements, had RP been in effect since 1990, the price component would only have triggered in 11 out of 28 years for soybean farmers and even less for corn farmers – only eight out of the last 28 years.

NCIS analysis also shows a drastic increase in insurance costs for farmers if this proposal is enacted. A corn farmer in Illinois who selects the highest level of coverage for an RP policy – 85 percent – would see premiums climb by almost 30 percent.  Meanwhile, premiums at the 75 percent coverage level would increase by a staggering 98 percent.

Such increases in premium would likely result in dramatic declines in overall crop insurance participation.  Farmers would lose an essential risk management tool and be more inclined to turn to Congress to pass expensive, taxpayer-funded disaster packages when revenues plummet.

Farmers all across America have repeatedly asked Congress to protect crop insurance – to keep it available and affordable for all farmers.  Unfortunately, this proposal would do exactly the opposite, leaving many without the means to weather these tough economic times.

Misleading Crop Insurance Attacks Hurt America’s Farmers

Agriculture’s opponents use terms like “guaranteed profits” to disparage the crop insurers that protect America’s food and fiber supply, help farmers pick up the pieces after disasters, and shield taxpayers from footing the whole bill through unbudgeted ad hoc disaster packages.

These criticisms unfairly confuse basic business concepts like gross returns and net income. The National Corn Growers Association (NCGA) asked economists from the University of Illinois and Cornell University to study this issue in depth, and noted:

“What we discovered is that the returns private crop insurance companies receive are much smaller than opponents claim, and they are well within the standards set by [the USDA].”

It’s easy to see how this conclusion was reached once you compare the expected versus actual returns under the current Standard Reinsurance Agreement (SRA) – the business agreement between the government and crop insurers.

The 2011 SRA set a target gross return of 14.5%. This measure of revenue does not include business expenses or reflect profit. But the target has not been met, according to the Government Accountability Office, which calculated returns of 13.7% from 2011-2016.

After subtracting expenses like technology and compliance costs for government regulations, the net income realized by insurers is even lower, as the chart below from the NCGA study shows.

Year Net Income
2011 11.3%
2012 -20.2%
2013 -0.7%
2014 3.0%
2015 13.9
Average 1.5%

*2016 data not yet available

In other words, there are no guaranteed profits in crop insurance. In fact, crop insurers had underwriting losses in 2012, 2002, 1993, 1988, 1984 and 1983 – a far cry from other lines of insurance, which are historically more profitable than crop insurance.

As a result, the crop insurance industry has witnessed consolidation and the exit of major agribusinesses since the implementation of the 2011 SRA. If farm policy critics are successful in their efforts to reduce returns by another 33%, other providers will follow suit, and farmers could be left without the tools necessary to manage falling crop prices and extreme weather events.

Then, the burden of providing billions in disaster assistance will again fall squarely to U.S. taxpayers.

ICYMI: Insurance Vital for Farmers

By: Luke Sandrock
Published in the Herald & Review
August 25, 2017

Even the best-laid plans sometimes go wrong. No one knows this more than a farmer. They can plan out the entire year for how they will harvest a crop, but a single storm or a drop in the market can change everything. It can leave a farmer in financial ruin, and in the worst of cases, it can leave them without the ability to start again the following year.

This is why most farmers purchase crop insurance. It is the one part of the plan that holds together in a crisis. It is a tool that farmers rely upon when things go awry.

This hasn’t always been the case. When crop insurance got its start in the 1930s, it was a poorly run government program and rarely used. The premiums were too high and the coverage area was too limited, which resulted in low participation. Farmers mainly relied on costly ad hoc disaster assistance when natural disasters wiped out their crops, but that required Congress to not only act to authorize this assistance, but to act quickly. It was a clumsy system that didn’t provide any peace of mind to farmers or their bankers, and it was a costly way to operate since Congress was never budgeting for this disaster assistance.

This led lawmakers to rethink the mechanics of the program. In 1980, Congress passed the Federal Crop Insurance Act, which created the successful public-private partnership that remains today where risk is shared among farmers, the Federal government, and private insurance providers.

Premiums are more affordable for farmers through a government discount. Insurance products have expanded to include more crops across the country. Both of these factors have increased participation and broadened the risk pool, which makes the program more actuarially sound. Private companies are servicing the policies and making sure any claims are processed in an efficient and timely manner.

Another part of this success story is that Congress no longer has to worry about authorizing unbudgeted disaster assistance. Further, the current cost of crop insurance is under budget.

With Congress gearing up to write a new farm bill, a central concern for farmers all across the country is that lawmakers will fail to recognize this success story and will create new policy that undermines a farmer’s ability to manage risk.

The farm economy is struggling with net farm income half of what it was four years ago. Planning for the future is challenging enough given these circumstances, let’s not make it harder by eliminating a farmer’s ultimate backup plan when everything else fails.

Luke Sandrock is a junior partner and crop insurance agent at The Cornerstone Agency, Inc. in northern Illinois.

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.

Insurance Basics: Skin in the Game

Crop insurance is arguably the first farm policy in history that is largely financed by the farmers who benefit from it.

Unlike policies of the past, which were 100 percent backed by taxpayers, modern-day farm policy requires growers to take an active role in its funding – a concept sometimes called “skin in the game.”

The concept may be new to farm policy, but it’s not new to insurance. From the earliest shipping insurance at Lloyds of London in the late 1600s to the modern auto policy acquired via a smartphone app, the principal is the same.

A customer pays a premium to an insurance company based on the value of property, and predicted risks, to insure its worth. If the property is damaged, the customer absorbs a portion of the loss, called a deductible, and the insurance company covers the remainder through an indemnity payment.

The deductible acts as a deterrent to risky behavior and keeps the insurance policy intact for true disasters. Meanwhile, premium dollars help customers pool resources to more cheaply buy protection and fund the system that provides peace of mind.

The larger the pool of customers, the more risk can be spread, and the cheaper coverage becomes for all.

The same applies to crop insurance, which is why it would be a bad idea to arbitrarily exclude some farmers from participation.

Since crop insurance’s rise to prominence, famers collectively pay between $3.5 billion and $4 billion a year out of their own pockets in premiums. And they absorb hefty deductibles (on average, 25 percent of loss) when disaster strikes.

Famers love the set-up because it offers some predictability for marketing and for borrowing capital, and because it gives them the opportunity to tailor protection to their farms’ unique needs. Taxpayers reap the benefits, too.

Crop insurance means farmers aren’t running to Congress for one-time disaster relief bills every time drought ruins a corn crop in Iowa or frost kills apple trees in New York.

No wonder so many are singing crop insurance’s praises and calling it their “top priority” as we head into the next Farm Bill debate.

Insurance Basics: Delivery Costs

Whenever a customer writes a premium check for an auto or home insurance product, part of that payment is allocated to servicing the policy.

That is, insurance companies include an expense load in the premium for each policy beyond anticipated losses to offset overhead costs, such as staff salaries, agent commissions, adjusting losses, employee training, computer systems, customer support, office space, marketing, etc. The expense piece also includes a profit component for the insurer.

Unlike other types of insurance, crop insurance policies are not loaded for expenses. Why? Because Congress wanted to make crop insurance policies more affordable so farmers would purchase protection with their own money and leave taxpayers less vulnerable to agricultural risk and ad hoc disaster payments.

Prior to crop insurance’s rise to prominence, Congress was routinely called upon to pass expensive, unbudgeted disaster legislation after extreme weather struck. In fact, from 1989 to 2012, 42 emergency agricultural bills cost taxpayers $70 billion, according to the Congressional Research Service – none of which was funded by farmers.

Congress’ plan to promote private-sector delivered crop insurance as a popular alternative worked. Today, farmers collectively spend almost $4 billion out of their own pockets annually to purchase 1.2 million policies, which cover 290 million acres – or 90 percent of America’s planted cropland.

Of course, private-sector insurance companies cannot afford to deliver and service 1.2 million policies for free. So, the government pays part of the delivery costs to insurance companies on farmers’ behalf.

This is known as an Administrative and Operating (A&O) payment. Unfortunately for crop insurers, A&O payments do not cover all of the costs they incur, which continue to climb as more and more Federal requirements and paperwork are piled on insurance providers.

In fact, A&O payments have fallen short of actual company delivery expenses, with an average shortfall of 6.4 percent from 1998 to 2014. The shortfall in 2014 alone totaled $782 million.

To offset such losses, providers of typical property and casualty insurance lines would simply increase expense loads in the premiums they set. But, crop insurers don’t set premiums – the Federal government does, and those premium rates have been on the decline.

This has made for a challenging business climate in recent years, where some insurance providers have exited the crop insurance business altogether or consolidated their operations. To stop this negative trend, it will be important to ensure that crop insurance remains affordable, widely available, and economically viable.

ICYMI: Crop Insurance: What a difference four decades make


November 4, 2016

For nearly four decades I have worked with Connecticut River Valley farmers to help protect their livelihoods. Over that time, I’ve seen many changes, both in the make-up of farms and the tools farm families have to manage uncontrollable risk.

As our population has grown, the amount of available farmland has gotten smaller. This means our farmers have had to adapt to survive. More and more local farmers today also work jobs off the farm to help support themselves, meaning we have more part-time farms. We’ve also seen an increase in diversified farms here. Many of our dairy farmers, for example, are growing their own crops for feed to help improve their bottom lines.

Our farmers—those with a passion for the land often stretching back generations—have proven to be amazing innovators in the face of challenges. But even for the best agricultural innovators, there is one thing that always remains out of their control: Mother Nature.

Here in the Connecticut River Valley, we know this all too well. We’ve seen spring seasons that have been too dry or too wet for planting. We’ve seen hailstorms come through the Upper Valley like tornadoes, bringing destruction to one area, while miraculously sparing another area just a few miles down the road. We’ve even seen hurricanes, like Irene in 2011, and blizzards in recent years.

Thankfully, as a crop insurance agent, I have also witnessed positive changes to the crop insurance system, enabling many of our farmers to protect their operations against circumstances beyond their control.

During the 1980s, which marked the beginning of the public-private partnership between the U.S. government and private insurance companies, I was among the first crop insurance agents in the region. And the program experienced plenty of growing pains.

Participation was lacking due to high costs, spotty service and slim margins. Congress was spending considerably more each year cleaning up messes after disaster struck than beforehand on protection. Lawmakers also paid far more attention to traditional Midwest crops than those specialty products more prevalent in New England.

Even as late as the early 1990s, crop insurance participation rates nationwide hovered in the 30 percent range.

Things began to change in the mid 1990s, with the passage of the Federal Crop Insurance Reform Act of 1994, which dramatically restructured the program by strengthening the partnership between the federal government and private insurers. Through premium discounts we also started to see increased participation.

Then in May 2000, Congress approved another important piece of legislation: the Agricultural Risk Protection Act (ARPA). The provisions of ARPA made it easier for farmers to access different types of insurance products including revenue insurance and protection based on their own historical yields.

All of this has resulted in more crop insurance participants than ever before, but there was still work to be done. The Farm Bill of 2014 made crop insurance a cornerstone of U.S. farm policy and took steps to make it more affordable and available to specialty crop growers, organic producers and young farmers.

Today, crop insurance protects more than 90 percent of planted acres nationally. And it’s so popular that farmers are willing to collectively contribute about $4 billion a year from their own pockets to purchase protection and help remove some degree of risk from a very volatile business. That cost-sharing structure makes it a good investment for taxpayers as well, replacing expensive disaster bills of the past, while ensuring a safe and plentiful food supply.

No, a crop insurance check will never come close to what a farmer can get from a good harvest. Like homeowner’s insurance, farmers don’t collect a dime without a verifiable loss and paying a deductible. But crop insurance does offer farmers some peace of mind, which allows them to focus on producing higher-yielding, better-quality crops.

Connecticut River Valley farmers are inventive and hardworking businessmen and women and it has been an honor to work with them for the past 40 years. Given their ingenuity, and the important safety net crop insurance provides, the next 40 years should be exciting to watch.

Randy Odell is a Vermont crop insurance agent who has been in the industry for four decades.

Insurance Basics: Coverage Availability

Suppose that you have a fire in your home, or you total your car and have to file a major claim with your insurance provider.

On one hand, you’re thrilled that an indemnity is on its way to help pick up the pieces.  On the other, you’re dreading future increases in premiums and the likelihood of receiving a notice that your insurance company decided against renewing your coverage.

In the insurance world, you now pose a higher risk because of your history, which means higher rates and even the denial of coverage.

This treatment can also extend to people who have never had to file a claim.  For example, coverage may be hard to come by if you just bought a home in an area prone to disasters, or if you are a very young or very old driver.

Insurance companies have the right to do business with anyone they chose, and like any smart business, they choose to work with the people who pose the lowest risk.  This ability to pick their customers may explain why providers of everyday property and casualty (P&C) insurance have only lost money once over the past 50 years – in 2001, the year of the 9/11 attacks.

Crop insurance is different.

Under the crop insurance system that has become the centerpiece of America’s farm policy, private-sector insurance providers must offer insurance to growers who are eligible for coverage and want it.  They cannot choose to simply do business with well-established farmers from states that have fewer droughts or are less likely to have violent storms.

For the safety net to be truly effective – and to ensure that taxpayers aren’t left footing the whole bill after disaster strikes – farmers who are statistically more likely to suffer loss must receive high-quality protection, too.

By not excluding farms, the policies carry more risk.  In contrast to the profitability of other lines of insurance, crop insurers lost money in 2012, 2002, 1993, 1988, 1984 and 1983.

Additionally, crop insurers don’t have control over premium setting.  A farmers’ rates are calculated by the government and, unlike lines of P&C coverage, prices will not fluctuate between insurance providers.

In other words, crop insurers compete on customer service, not price.  Conversely, recouping loss from a bad year isn’t as easy as simply raising premiums as is the case with other insurance products.

In return for private companies shouldering more risk and having less control over premium setting, the government serves as a reinsurer on some policies.  As such, the government shares in the losses in bad years, and the gains in years where fewer indemnities are paid out.

It’s a system that has married the best of the private sector with the best of the public sector, and the result has been the most effective, popular farm safety net in the history of agriculture.

Insurance Basics: The Risk Pool

All insurance, from auto to life, health, and crop insurance, works best when it expands the number of people it covers. That’s because the broader the participation, the more widely risk can be spread. And by spreading the chance of loss among a diverse group of insureds, premiums become more affordable for everyone involved.

This concept is known as the “risk pool.”

Think of it like this: Car insurance would not work if only a handful of drivers participated – especially if those drivers were accident-prone or heavily ticketed. Insurance companies would be hesitant to offer coverage and premiums would be astronomically high. A deep bench of experienced drivers with safe driving records is needed in the risk pool to balance out the equation and help offset losses.

The same can be said for health insurance. Why else do you think there was so much discussion on enrolling young, healthy people during the Affordable Care Act debate?

Crop insurance is no different, except crop insurance is about acres covered, not the number of farmers participating. If 1,000 acres is farmed by one farmer or three smaller operations is of little to no consequence. Getting the 1,000 acres covered is the key to expanding the size of the risk pool.

Widening the risk pool is so important that many forms of insurance encourage participation through incentives or mandates. If you have a mortgage, for example, you are obligated to carry insurance. State laws require auto coverage. Health insurance is aided when employers and the government help cover a portion of the premium.

In the case of crop insurance, these incentives didn’t always exist. As a result, coverage was expensive, policies were unavailable for many crops, and few people were insured. And when disaster struck, farmers looked to Congress to help them rebound through expensive, unbudgeted disaster legislation.

In fact, in the early 1990s, less than 30% of farm acreage was insured and farmers were vulnerable to risk. Having been stung by $70 billion worth of disaster bills since 1989, lawmakers needed to find a way to boost crop insurance participation.

Congress expanded the size of the risk pool through a three-pronged strategy.

First, it said crop insurance must be available to all – farmers couldn’t be excluded because they grew canola instead of corn or because they farmed in California instead of Connecticut. Then, the government invested in the development of new policies for crops, regions, and farmers that were traditionally underserved. Finally, it incentivized participation by discounting farmers’ premiums.

And the results speak for themselves. Today, 90% of acres are covered, taxpayer-funded bailout packages are a thing of the past, and farmers get assistance quickly when they need it thanks to private-sector efficiency.

Yet, despite these advances in modern risk management, some of agriculture’s political opponents have demanded that these investments be unraveled and that we return to the old inefficient and expensive model.

These farm policy critics want to exclude farmers with large operations from the system and cap benefits for all growers. Doing so would remove large swaths of acres from the risk pool, alienate experienced farmers with lower risk profiles, and ultimately make it harder for smaller, beginning farmers to get insurance coverage.

Just like removing all the safe drivers from auto insurance, that would be a wreck for everyone involved – including taxpayers.

Crop Insurers Celebrate Past Success, Set Sights on Future

Crop insurers and farmers have shouldered their share of challenges in recent years, ranging from an historic drought to lower-than-expected financial returns, legislative debates, and implementing a new Farm Bill.

But Tim Weber, chairman of the American Association of Crop Insurers and National Crop Insurance Services, said today that those challenges have only strengthened crop insurance providers and better equipped them for the future.

“I believe crop insurance is stronger today for the obstacles it has faced in recent years and most importantly, it is ready to meet tomorrow’s challenges,” he told colleagues at the industry’s annual conference.

Weber, who is coming to the end of his term as chairman, used his remarks to reflect back on lessons learned during pivotal years within the industry – a time, he said, when teamwork and building alliances was emphasized.

“Overall, I am very proud of what we have accomplished,” he said. “These accomplishments were the result of a hard-working, talented workforce that was willing to work together as [insurance providers], agents, adjusters, and industry allies to overcome attempts to weaken our farmers’ and ranchers’ most important risk management tool.”

Weber noted that, despite crop insurance’s past successes and its popularity with farmers, agriculture’s opponents will continue to criticize the farm safety net. He pointed to the recent Bipartisan Budget Act of 2015, which sought to cut $300 million a year from crop insurance, as proof of that criticism and how rural America must counter it.

“Farmers from across the country came to our defense…as did the agent force, the lending community, input providers, Main Street businesses, the conservation world, and leading voices from academia,” he explained. “Notwithstanding this level of support…we would never have won this battle if not for the leadership of key lawmakers who were not bashful about standing up for agriculture.”

Weber urged the group to remain vigilant moving forward by focusing on industry cooperation and collaboration with third-party allies. He also urged insurers to invest time and resources in the political process as a way to blunt future critiques.

“We need all Members of Congress to hear directly from their constituents regarding the importance of maintaining an effective crop insurance program,” he concluded. “After all, every person in this country benefits from a dynamic, financially healthy agricultural industry. Not only does it provide a dependable supply of domestically grown food, fuel, and fiber, but it also supports economic and job growth.”

WSJ Spotlights Crop Insurance Business

Farm policy opponents love to tell tall tales of crop insurance providers banking huge returns. In a quest to eliminate farmers’ primary risk management tool, they repeatedly attempt to mislead lawmakers into believing that crop insurance profits are guaranteed and will remain rosy for perpetuity.

Luckily, America’s premier business publication isn’t buying such nonsense and is actually reporting on what’s transpiring in the marketplace, where a string of expensive natural disasters and low commodity prices are reshaping the industry.

Just before New Years, the Wall Street Journal summed up the situation in an article titled “Cargill to Sell Crop-Insurance Unit to Silveus.”

The business of insuring farmers’ crops against financial or physical losses has grown tougher as corn, soybeans and wheat prices have slumped over the past three years, mainly due to a string of bumper crops and benevolent weather, according to Keith Coble, a professor of agricultural economics at Mississippi State University.

“Reimbursement for these companies is on a percentage of the [insurance] premium, and the premium is tied to the value of the crop,” Mr. Coble said.

Futures prices for corn, the most widely grown U.S. crop, have declined nearly 50% over the past three years, while soybean and wheat futures both are down about 40%. Other players, including tractor maker Deere & Co. and biotech seed giant Monsanto Co., have sold crop-insurance units over the past year as declining crop prices have pinched farmers’ wallets and pressured profits for the companies that sell farm supplies.

Wells Fargo & Co. this month agreed to sell its Rural Community Insurance Services, one of the largest U.S. crop-insurance providers…

If crop insurance profits were really so enormous and guaranteed, why are well-known companies headed for the exits? No one ever said farm policy critics exercised much common sense in their campaign to deceive.

NCIS President: “Opponents of Farm Policy Have Bad Memories, Bad Metrics and Misleading Messages”

NCIS President Tom Zacharias took on opponents of farm policy during more than a dozen live interviews at the National Association of Farm Broadcasters Convention in mid-November.

“The opponents of farm policy have bad memories, bad metrics and misleading messages,” noted Zacharias, who was referring to the 11th hour budget deal cut in late October that would have crippled agriculture’s safety net. “This destructive proposal would have forced a new SRA renegotiation before the end of next year around an arbitrary rate-of-return target so low that it would have effectively ended private-sector delivery.”

Zacharias reminded radio hosts that the private sector delivery of crop insurance — which ensures farmers receive their indemnity check for verified losses in weeks not years — was one of the chief reasons why farmers have adopted crop insurance as their primary risk management tool.

“Farmers have embraced both the personalized risk management plans that they work out with the crop insurance agents and the speed at which help arrives after they experience a loss,” Zacharias added.

Zacharias explained that before the advent of the premium subsidy and private sector delivery; only about 30 percent of cropland was protected by crop insurance.

“Those who would cut crop insurance further would literally turn the clock backward by decades, removing private-sector delivery and driving down enrollment in the program,” he said. “Today, that number is easily more than 90 percent.”

Farmers are the engines that drive the rural economy, and when it became clear that the farm safety net was under attack, rural America rallied. Zacharias noted, “Farmers from across the country called on their congressional delegations demanding that the cuts be stopped. Commodity organizations pulled out all the stops to educate lawmakers about the need for effective and affordable risk management tools, while input providers and agricultural lenders also weighed in.”

When looking towards the opposing side, he explained that opponents of agriculture have purposely confused the public about gross revenue versus net profit to spread misinformation about crop insurers’ returns. But when the facts are laid out and terms are clearly defined, it is clear that business returns have fallen well short of the levels necessary to preserve private-sector delivery of crop insurance.

“The actual bottom line return for crop insurance companies has fallen well below other lines of insurance, with crop insurers are losing 1.4 percent under the 2011 SRA,” Zacharias explained.

Despite the misleading rhetoric, rural America rose to the occasion and fought hard for the crop insurance industry. “All of that effort paid off in the end, with farmers and their allies in rural America securing a promise from Senate and House leaders to restore the full funding of the program in the omnibus budget deal at the end of the year,” Zacharias concluded.

Although it made for many sleepless nights, the harmful proposals were neutralized – for the time being – by passage of the highway bill that will restore $3 billion worth of cuts to the nation’s crop insurance program.

New Crop Insurance Video Tackles Common Farm Policy Misperceptions

Investments made in farm policy and crop insurance benefit Americans, according to a new video released earlier this month by National Crop Insurance Services (NCIS).

The two-minute educational piece was made public as Congress worked to reverse harmful cuts to crop insurance made during last month’s Budget Agreement. If those cuts remain in place, agricultural leaders fear it would cripple private-sector delivery of crop insurance, and with it a key component of the 2014 Farm Bill.

Farm policy critics often use misinformation and misperceptions about agriculture to attack crop insurance, and NCIS produced its video to help combat those efforts.

“Instead of getting a check in the mail, farmers now get a bill,” the video explained. “And, because private insurers deliver the system and help shoulder risk, taxpayers aren’t left footing the whole bill when disaster strikes.”

Farmers spend $4 billion a year combined, to buy crop insurance protection. This stands in sharp contrast to the days of direct government payments and $70 billion in disaster bills before crop insurance’s rise to prominence, noted the video.

The piece also tackled the often-misunderstood issue of private-sector returns for delivering crop insurance. Under a 2011 agreement between the government and crop insurers, 14.5 percent was targeted as an expected gross revenue.

“But those returns aren’t guaranteed and haven’t materialized,” NCIS said in its video. “Actual gross revenue turned out to be 5.7 percent – not even half the targeted amount. When you subtract expenses, crop insurers lost 1.4 percent from 2011 to 2014.”

The cuts included in the recent congressional budget package would lower returns by another 38 percent, further compounding private-sector losses and making it extremely difficult for crop insurance providers to stay in business.

“Unless this trend is reversed and the attacks on crop insurance stop, farmers will be left without the tools necessary to manage falling commodity prices and extreme weather,” the video concluded. “Taxpayers will be left holding the bill once again.  And worst of all, because every American eats, every American will be harmed.”

Technology, Sustainability and Insurance Essential to Agriculture’s Future

Farmers and ranchers are tasked with producing more food and fiber than ever to meet the world’s growing appetite, and they have to do it while preserving scarce natural resources and dealing with extreme weather and volatile markets.

A combination of new technology, smarter farming practices, and government policies will be required to succeed, according to experts at a recent international agriculture summit held in Kansas City.

Don Preusser, executive vice president and chief marketing officer of Farmers Mutual Hail Insurance Company of Iowa, explained that the global agricultural sector is already evolving and altering the way the world farms.

“Agriculture is rapidly changing as operations become larger, more commercialized, technologically advanced, and vertically integrated,” he told hundreds of attendees of the International Association of Agricultural Production Insurers (AIAG) biennial conference.

“Precision agriculture is driving significant productivity and efficiencies gains, helping to grow and secure global food needs,” Preusser concluded. “And granular field level data combined with predicative analytics will soon create new insights and innovative risk management solutions.”

When it comes to risk management, no tool is as important for U.S. farmers as crop insurance.   AIAG traveled to America for the first time ever so leaders from more than 30 countries could learn more about how the dynamic U.S. system operates.

Tom Zacharias, an AIAG board member and president of the Kansas-based National Crop Insurance Services, explained that the U.S. model is characterized by its unique private-public partnership and cost sharing.  “U.S. crop insurance benefits from the efficiency of the private sector, comprised of companies, agents, claims adjusters, and reinsurers” he said.  “Meanwhile, the government has made smart investments to keep policies affordable for farmers and widely available across a spectrum of crops and geographic locations.”

Zacharias also said that farmers bear a significant portion of the cost, which has had the desired effect of reducing taxpayer exposure to agricultural risk.  “U.S. producers collectively spend $4 billion from their own pockets each year for crop insurance, and they shoulder losses through deductibles before receiving an indemnity,” he noted.

But none of it would have been possible, Zacharias said, without a commitment from U.S. policymakers in recent years.  He hopes strong support will continue in the years to come and that America’s successes can provide a roadmap for insurers and farmers world-wide.

Library of Congress Adds Crop Insurance Website to its Historical Collection

National Crop Insurance Services (NCIS) announced recently that its website has been selected by the United States Library of Congress (LOC) to be part of America’s historic collection of Internet materials.

For nearly two decades, the LOC has catalogued digital materials spanning a variety themes, events, and issue areas with the purpose of capturing records of historic significance that would otherwise be lost because they were never printed on paper.  The NCIS website,, will be a part of the archived public policy records.

“It is an honor that the crop insurance industry was chosen to be part of this esteemed collection,” said NCIS President Tom Zacharias. “Crop insurance has certainly made history in recent years by emerging as the cornerstone of U.S. farm policy and protecting the country’s farmers from historic floods and droughts.”

NCIS launched the website in 2008 to better explain the benefits of crop insurance to farmers, taxpayers, and consumers, and to demonstrate how the program helps drive the nation’s rural economy.

The site contains videos and testimonials from farmers following disasters; a section called “Just the Facts” that is devoted to answering policy questions with academic research and public data; an electronic version of the industry’s quarterly magazine Crop Insurance TODAY®, which dissects the issues facing crop insurance; and links to numerous press reports and quotes about the public-private partnership that has made the system such a success.

Farmers Help Fund $14 Billion of the Farm Safety Net in 2014

Farmers who filed crop insurance claims in 2014 collectively shouldered approximately $10 billion in deductible losses before collecting any payments, according to new data unveiled recently by the National Crop Insurance Services (NCIS).

When combined with the $3.9 billion spent to buy insurance coverage in 2014, farmers absorbed at least $14 billion in out-of-pocket costs, which is well in excess of the $9 billion in insurance indemnity payments that flowed to rural America.

NCIS President Tom Zacharias said this is significant for several reasons.  “First, it shows that U.S. farmers are actively participating in the funding of their own safety net and minimizing taxpayer risk exposure,” he explained. “It also proves that crop insurance is working as designed by helping farmers recover – not profit – from disaster.”

This was even the case after the historic 2012 drought, when farmers shouldered $17 billion in deductible losses and premium payments and received $17 billion in insurance payments.

Because farmers have substantial “skin in the game,” crop insurance helps reduce the cost of U.S. farm policy while discouraging risky behavior that may otherwise occur if taxpayers picked up 100 percent of the tab.

Zacharias said that growers favor the current system over past farm policies because crop insurance can be tailored to a farm’s unique characteristics and because efficient private companies administer crop insurance and speed relief when it is needed most.

The newly released deductible calculation completed the 2014 crop insurance picture. Other relevant statistics were detailed in the May edition of NCIS’s Crop Insurance TODAY magazine and included:

  • 1.21 million policies were sold, protecting nearly $110 billion in crop value.
  • More than 294 million acres were insured, with a record 83.5 percent of those acres being insured at high coverage levels.
  • Private insurance companies successfully and efficiently processed claims on more than 441,000 policies.

NCIS noted that the $10 billion in deductible losses only reflects losses for crops on which an insurance claim was filed. Farmers who shouldered smaller losses but did not file a claim are not included in the calculation.


Crop Insurers’ Returns In Question

Financial returns for crop insurers have fallen nearly 60 percent below expectations since 2011, according to the National Crop Insurance Services (NCIS).  The Standard Reinsurance Agreement — the business contract between the federal government and private-sector insurers that went into effect in 2011 — targeted average returns on retained premium of 14.5 percent.  Returns on retained premium have averaged only six percent over the four-year period.

And because these calculations only measure gross revenue, not net profit, the actual financial pain has been far greater, said NCIS Chairman Tim Weber. When expenses are subtracted from gross revenue, average net profit since 2011 has been less than one percent, with the industry experiencing negative returns in 2012.

“This falls well short of the averages for other lines of property and casualty insurance,” Weber noted during a recent speech at the industry’s annual convention.

Weber explained that unexpected premium reductions implemented by the U.S. Department of Agriculture (USDA) in 2012, $600 million a year in reduced funding under the current SRA, increased regulatory burdens, falling crop prices, and bad weather have caused the poor financial performance.

The worst year, 2012, saw companies absorb $1.3 billion in underwriting losses when premiums collected failed to cover indemnities paid out during the record drought. “Companies need to make a reasonable return on their investment to stay in business…and we cannot do it for free, or worse yet, a negative return,” Weber said.

Crop insurers at the convention expressed disappointment in recent remarks by the Agriculture Secretary, who misinformed reporters about industry returns while advocating for additional funding cuts.

“One of those reforms would be to take a look at what the average rate of return is on crop insurance.  Today it’s roughly 14 [to] 15 percent on average of return on investment,” Secretary Tom Vilsack said during an interview with Politico.

“The Secretary is pointing to revenue projected by the USDA, not what has actually materialized in the marketplace,” noted Tom Zacharias, president of NCIS.

New NCIS Video: Private-Sector Delivery Essential to Crop Insurance’s Future and Viability

Private companies are integral to crop insurance’s future because they shoulder risk that would otherwise be borne by taxpayers and because they maintain the system used to efficiently provide assistance to farm families following disasters.  However if the business does not remain viable, private-sector participation could wane, which would weaken America’s farm policy, according to a new NCIS video.

“Key to this viability is a reasonable rate of return for insurers on the infrastructure they built to deliver farmers’ most important risk management tool,” the video explained.  “An adequate return on investment enables insurance providers to routinely reinvest in technology, infrastructure efficiency, and service improvements for farmers and ranchers.  Unfortunately, adequate returns don’t always happen.”

Among the factors that have made crop insurance less viable in recent years:

  • Weather disasters and crop price volatility since 2011 have resulted in record loss payments from crop insurance providers;
  • $1.2 billion a year in federal funding was cut in 2008 and 2011; and
  • Farm policy opponents are targeting crop insurance for further funding reductions.

The 2014 Farm Bill took steps toward improving crop insurance by expanding coverage, by bringing new customers into the system, and by providing new tools to continually minimize waste, fraud and abuse.

Tom Zacharias, president of NCIS, applauded Congress’ actions and said it will be important to continue making improvements by reducing regulatory burdens, avoiding further funding cuts and keeping crop insurance actuarially sound.  And he believes that all Americans have a stake in the future of crop insurance.

“After all, not everyone farms, but everyone eats.  So everyone depends on a strong farm policy,” the video concluded.

The video is the most recent in a three-part series dedicated to the key policy attributes essential to crop insurance’s continued success.  Previous pieces examined the importance of making crop insurance widely available and affordable to farmers.

NCIS President Tom Zacharias Talks Crop Insurance on Agri-Talk

The increasingly important role of crop insurance to farmers, ranchers and producers across the country – and its place of prominence in the 2014 Farm Bill – were among the many topics of conversation during Mike Adams’ recent interview with NCIS President Tom Zacharias on Agri-Talk.

“We think this is a very positive Farm Bill for farmers and ranchers in the U.S. and for the crop insurance industry in general,” said Zacharias.

Zacharias pointed out that crop insurance has changed dramatically over the last 10 to 15 years, now protecting 294 million acres with crop insurance premiums running at about $10 billion.  “That’s a liability of $110 billion of coverage for America’s farmers and ranchers,” noted Zacharias.  “This is a private/public partnership and on both sides of the equation, the companies involved have a fiduciary responsibility to their shareholders and with the public sector,” he added.

Zacharias pointed out that the last few years have posed some real challenges to both farmers and crop insurance companies.  “If you look over the last couple of years, we have faced some headwinds,” he said.  “Take the situation in 2012 with the extensive drought we had in the Midwest.  Last year, when we had the swing in prices and a lot of other revenue policies kicked in, so there were indemnities paid there.”

Zacharias also explained that in order for crop insurance to remain strong, it must remain viable to the private sector.  “It is important for the private sector to remain viable.  If you look at where this Farm Bill has taken us, the availability for farmers to have different risk management options, affordability of that part of the program remains very much intact.  We need both farmers and insurers to see reasonable returns in this business to help manage the risk.”

Zacharias said the 2014 Farm Bill has maximized choices for the farmer.  “With that choice, comes great responsibility,” he added.  He noted that there are many Title I provisions that farmers needs to be aware of so they can purchase the protection they need.  That, of course, is where the industry’s 12,000 agents come into play.  “They will need to go out and seek the expertise of both the crop insurance agency force as well as those folks in extension and farm managers who are grinding through the Title I Component,” he added.

Read the full transcript of the interview here.

Affordability of Crop insurance Policies Focus of New Video

Crop insurance policies must remain affordable for farmers and ranchers or the entire farm safety net will fail, crop insurance providers said today in a new educational video.

Farmers help fund current farm policy by spending approximately $4 billion a year out of their own pockets on crop insurance policies and by shouldering a portion of losses in the form of deductibles before receiving assistance.

“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,” noted the video.  “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.”

Congress took steps in the 2014 Farm Bill to keep crop insurance affordable.  Among the steps spotlighted in the video:

  • Farmers receive discounts on the premiums they pay for coverage, including discounts for new and beginning farmers looking to start a career in agriculture.
  • Some of the typical insurance delivery expenses that would otherwise be built into a policy’s cost are offset.
  • Supplemental coverage is made available to help counterbalance a portion of deductible losses.
  • Congress defeated attempts by some opponents of agriculture to cap crop insurance benefits and make policies more expensive for everyone.

This is the second in a series of educational videos meant to highlight three policy attributes that are essential to maintaining a strong crop insurance system.  The first three-minute segment examined the importance of making crop insurance, widely available, and a future piece will look at maintaining the viability of private-sector delivery.

“Congress cemented crop insurance’s role as the centerpiece of the farm safety net during the 2014 Farm Bill,” explained Tom Zacharias, president of National Crop Insurance Services (NCIS).  “However, that safety net will breakdown if crop insurance policies aren’t widely available, aren’t affordable to producers, and aren’t economically viable to be administered by efficient private insurance providers.”

View other videos on NCIS’s YouTube channel here.

Crop Insurance Adjuster Schools Off to a Great Start!

Crop insurance loss supervisors and loss adjusters attended classes that provided them with updated field instruction, basic procedures, recent loss adjustment policy changes and hands-on training for dealing with crops damaged by hail.  The classes, part an ongoing adjuster educational series sponsored by National Crop Insurance Services (NCIS), were held in Columbia, Missouri in early June.

Nationally, more than 1,200 adjusters – new and experienced – attend these classes each year to learn valuable information, hone their skills, or teach new adjusters the ins and outs of loss adjustment.  When asked what the goal of this school was, Missouri’s NCIS Regional/State Chairman, Jeff Dexter, Rain and Hail, explained:  “To create an environment where new and seasoned adjusters can learn and follow procedures in loss adjustments.”  He went on to say, “…I think it is a responsibility of companies and seasoned adjusters to pass on knowledge to the future leaders of our trade. In the end, we all have one common goal – to follow the procedures provided to us from the many years of (NCIS) research.”

As one of the 13 NCIS schools being held in 2014, the Missouri Crop-Hail Wheat and Corn School was the second of the season.  Kathy Holmes, a Claims Adjuster for ARMtech Insurance Services said, “I really enjoyed the hail school this year. I have been numerous times and each year it gets better.”

The improvement and continuation Holmes speaks of is necessary for this industry to survive, as adjusters must be able to distinguish a range of possible causes of loss in combination with current issues or changes to procedure. Along with NCIS-sponsored schools, Approved Insurance Providers (AIPs) also conduct their own training sessions across the United States on a variety of crops. It is through the hands-on training at these schools that farmers can rest assured knowing the loss adjuster who comes to his/her farm is adequately trained and the loss will be evaluated based on sound, scientifically-proven procedures.

2013 Year in Review: New Policy and Coverage

Crop insurance reached significant and historic milestones in 2013 — both in its formal recognition by Congress as the primary risk management tool for farmers and the volume of protection it offered — according to an article released in the May 2014 edition of Crop Insurance TODAY.

“Again in 2013, crop insurance helped farmers deal with the year’s weather and market risks,” noted authors Keith Collins and Harun Bulut. “Crop insurance was singled out by legislators during the development of the new Farm Bill as the primary program supporting production agriculture and was heralded as indispensable for successful farming today,” they added.

The ability of farmers to rely on the crop insurance policies they had purchased gave them confidence to plant yet another year of near record total production, the authors explain. “Farmers were able to plant 325 million acres in the spring of 2013, down slightly from a year earlier but four million [acres] above the previous five year average.”

The article points out that looking to the future, the public can rest assured that crop insurance will be in place to provide financial stability for the many small, family farms that comprise the core of U.S. farm production. “Crop insurance will ensure that when the repeated disasters of recent years strike again, as they most assuredly will, U.S. farmers will be able to bounce back to produce again at high levels the food, feed, fiber and energy crops which the U.S. and world populations have come to expect and depend [upon],” they said.


CROP INSURANCE IN ACTION: Tim Totheroh, Wellington, Illinois

Although Tim Totheroh says that his last name is “Pennsylvania Dutch,” he’s 100 percent Illinois farm boy, having spent his entire life on a farm near Wellington, Illinois.

Totheroh, who farms 850 acres of corn and soybeans, is also a crop insurance adjuster, which gave him unique insight into the historic drought of 2012. Totheroh says that in all of his years of farming, he’s never seen anything quite like last summer. “I entered a corn field and walked half a mile, turned and walked a half a mile in the other direction,” he said. “And I didn’t see a single ear of corn. Not one single ear.”

Totheroh said that sometimes he’d walk through a field and happen upon a small portion of corn that fared a little better. “Every here and there, you’d find a part of the field that got lucky and had a shower or two more than the rest, and you’d have 180 bushels in that one little spot. But then the rest of the field was just awful,” he said.

Read Tim Totheroh’s story here.

2014 Farm Bill Changes to Crop Insurance Detailed in Newly Released “Crop Insurance: Just the Facts”

Since the new 2014 Farm Bill was signed into law, questions have arisen about how this new legislation affects crop insurance and the farmers who rely on it. Detailed answers to questions, ranging from major and minor policy changes, the introduction of new products including SCO and STAX and the link between the premium discount and conservation are all detailed in the newly released version of Crop Insurance: Just the Facts.

“The 2014 Farm Bill is a turning point in federal policy towards agriculture, pivoting away from the traditional support mechanism paradigm of the past and into a risk management model that features crop insurance as farmers’ primary — or only — risk management tool,” noted Tom Zacharias, president of National Crop Insurance Services.

Crop Insurance: Just the Facts, a popular online resource that provides the A to Z overview of Federal crop insurance resides here, on the Crop Insurance Keeps America Growing website page “About Crop Insurance” where it is continuously updated.

“This resource has proved invaluable to farmers, students and policy experts who need to better understand the nuts and bolts of crop insurance,” said Zacharias.

In addition to addressing the various aspects of the new Farm Bill, the online series covers important topics such as how crop insurance benefits the public, economics of the industry, risk management in global terms, how crop insurance benefits producers and many other important issues.

Zacharias noted that crop insurance discussions are replete with exaggerations and misrepresentations about this important risk management tool. “Crop Insurance: Just the Facts, provides the details in an easy to read, reasoned and balanced perspective,” he said.

2013 A Landmark Year for Farmers, Crop Insurance Industry

On the heels of the 2012 drought, farmers turned to crop insurance in record numbers to protect their crops in 2013, according to data released recently at the convention hosted by the National Crop Insurance Services (NCIS) and American Association of Crop Insurers

The industry noted that 2013 had been a landmark year for both farmers and the crop insurance industry as a whole. The year clearly showed that farmers who purchase crop insurance can bounce back with a vengeance – producing bumper wheat and corn crops – without the need for costly disaster bills. Some of the more notable statistics for the year include:

  • Farmers spent $4.5 billion to purchase insurance policies. That is up from $4.1 billion in 2012 and brings farmers’ total investment in crop insurance to $38 billion since 2000;
  • 52,000 more policies were sold in 2013 than 2012;
  • Crop insurance protected $123 billion of potential liabilities last year, as compared to $117 billion in 2012 and $114 billion in 2011;
  • A record 296 million acres, or 90 percent of insurable cropland, was covered by crop insurance in 2013. U.S. farmers protected 86 percent of eligible acres in 2012 and 84 percent of acres in 2011;
  • To date, 423,000 policies have been indemnified in 2013, a sharp fall from the record of 495,000 in 2012. As a result, taxpayer costs dropped considerably.

“The fact that farmers were able to bounce back with a vengeance from the worst drought in decades and plant bumper crops, all without a call for disaster assistance to Congress underscores the value farmers place on crop insurance and why they are buying it up and protecting a record number of acres,” said Tom Zacharias, president of NCIS.

“Crop insurance is the risk management tool of choice for farmers, ranchers, farm leaders, bankers and members of Congress for one reason: it works,” he said.

Ten Considerations: The Role of Crop Insurance in the Farm Safety Net

More than a half-century ago, acclaimed historian Murray Benedict noted, “There are indications … that crop insurance is gradually emerging as one of the more settled features of American farm policy.” That prediction, perhaps a bit premature at the time, has certainly been borne out, as over the last decade crop insurance has grown from a little-known and underused program into the primary risk management tool for farmers and ranchers that protected 90 percent of planted cropland in 2013.

A newly released article in the third-quarter issue of Choices magazine offers a “within the industry perspective” on the status of crop insurance and key issues it faces as farmers’ quintessential risk management tool. Authors Tom Zacharias, National Crop Insurance Services president, and Keith Collins, former USDA chief economist note, “U.S. farm policy appears to be transitioning from direct income support to a risk-management-based system depending upon both public and private sector participation.” This rise, however, has triggered “significant criticism for its level of subsidization and other aspects,” they point out. “Such a tension, especially during the development of a new farm bill, seems natural and appropriate.”

Pointing out that there are many “key issues that remain in play,” the authors offer 10 considerations that the public and policy makers should be aware of when assessing the efficacy and future path of the crop insurance system. These considerations are intended to highlight and address the primary considerations from both the public and private sector in terms of the program’s current status, future regulation and information needs. These considerations are:

1. Is there a public interest in a resilient, financially sustainable and competitive industry that produces the nation’s food and is subject to natural disasters and other shocks?

2. Should there be taxpayer (government) support for a farm safety net?

3. What is the willingness and ability to spend on the farm safety net?

4. Should the safety net be ex ante or ex post?

5. Is the safety net income support or risk management?

6. Is current risk sharing optimal?

7. What is the role of area versus individual plans?

8. Should the safety net be incentivized?

9. Can the current incentive structure be improved?

10. Is crop insurance distortionary?

“It will be interesting to observe and participate in the direction of agricultural policy in light of the expected increasing prominence of crop insurance,” noted Zacharias and Collins, adding that the sway of the political pendulum will determine short-run directional shifts in policy. “Yet, as we outlined above, key issues remain in play, and particularly the level and use of taxpayer funds in determining a proper balance between the roles of the public and private sector in agricultural risk management,” they concluded.

CROP INSURANCE IN ACTION: Bing Von Bergen, Moccasin, Montana

Bing Von Bergen is not only the president of the National Association of Wheat Growers, he’s a third-generation Montana wheat farmer who has seen all kinds of weather over the years. “Last year, parts of the nation had the worst drought since the ‘Dirty 30s,” he said, recalling the name given the Dust Bowl years.

Von Bergen farms about 4,700 acres near Moccasin, Montana, close to the heart of the state. Growing up in agriculture, he knows hard times can be just around the corner.

But a lot has changed since the Dust Bowl years, including the tools farmers have to manage risk. At the top of that list is crop insurance. “Crop insurance is our principal safety net,” he said. “And farmers are fighting to preserve it.”

Von Bergen says that in the 34 years that he’s been farming, crop insurance has gone from being a program that few could afford or would consider purchasing to being the most important risk management tool available to farmers today. “It has taken 30 years for crop insurance to develop from a program that offered little protection into a program with real protection,” he said.

Read Bing Von Bergen’s story here.

New NCIS Video: Crop Insurance By The Numbers

As we continue pressing forward in the 2013 Farm Bill debate, the success of the crop insurance program and the benefit that it has had to the American taxpayer is the subject of a recently released NCIS video.

“Over the last decade, overall taxpayer spending on farm policy as a whole has steadily declined,” notes Tom Zacharias, president of National Crop Insurance Services. “That’s no accident,” he adds, explaining that commodity prices have strengthened and the country began shifting to an insurance system that reduced the need for traditional subsides and limited taxpayer exposure.

From 1998 to 2012, insured acreage has increased by 100 million acres. “It has become such a success, that most farmers agreed in 2012 to get rid of direct payments during the Farm Bill debate,” Zacharias notes.

But in addition to eliminating the need for direct payments, the public-private partnership of crop insurance has also eliminated the need for costly ad hoc disaster bills. “Since 1989, 42 pieces of legislation, totaling $70 billion in unbudgeted dollars were passed to help farmers following a disaster, he explains. “Those days are over.”

With crop insurance in place, farmers and private insurance companies now share the risk, ensuring that the entire burden doesn’t fall solely on the laps of taxpayers. Each farmer must pay the premium for their individual policy, and when disaster occurs, the billions paid in premiums by farmers help offset the cost of the insurance. “Farmers have paid $30 billion of their own money on crop insurance protection to buy this coverage,” Zacharias notes. In addition to the premiums paid by farmers, the government has collected more than $4 billion in underwriting gains from 2001-2010, which helped offset losses in the bad years as well.

Zacharias points out that crop insurers have stood alone in offering up budget reductions in recent years, totaling $12 billion. Unfortunately, some in Congress are angling for more, says Zacharias. “The additional cuts they are proposing would result in lower crop insurance participation, ironically shifting risk away from farmers and crop insurance companies right back to taxpayers,” he said.

“As we go forward in the next farm Bill, we would say ‘Do No Harm” to crop insurance.”

New Video Highlights Success of Crop Insurance in Managing Disaster

America’s Farmers Bounce Back from Record Drought of 2012

On the heels of the worst drought in decades, Americas farmers — and the rural economies they support — bounced back and are expecting a record corn crop this year, due in part to the fact that 86 percent of planted cropland was protected by crop insurance last year.

“America’s breadbasket rebounded after a punishing drought and farmers have shown that with the right risk management tools in place, they are among the most resilient and productive workers in the nation,” said Tom Zacharias, president of National Crop Insurance Services (NCIS).

A new NCIS video offers an oversight of risk management in agriculture and the various risks farmers face, including those from Mother Nature, market forces and rising input costs. “America used to handle agricultural risk through unbudgeted, after the fact ad hoc disaster bills,” noted Zacharias, adding that this was all taxpayer funded, very costly, and slow to deliver.

Finally, America turned to a before the fact, affordable and more accountable way to handle agriculture disasters: Crop insurance. In 2001, crop insurance began its rise in prominence as farmers’ most useful, and popular risk management tool, all while overall federal agriculture spending was trending down. “The idea here was to reduce taxpayer burden and put the system on a planned, sustained basis, noted Zacharias.

The drought of 2012 put that model to the test. “Crop insurance was credited with helping to keep the rural economy afloat,” he added, noting a recent study that credited crop insurance with saving 22,000 jobs and $2.2 billion in four Midwest states alone after the 2012 drought. “This was an enormous benefit,” he added, noting that as we saw the drought sweep through the nation last summer, “indemnity payments were paid back to the farmers within ten to thirty days, and money went back into the rural communities.”

“An important part from the aspect of farm policy is that there was no call for an ad hoc disaster bill,” he added. “And taxpayers were not on the hook for the whole thing.”

NCIS Responds to Unfair Bloomberg Series on Agri-Talk

Mike Adams, radio host of Agri-Talk, recently interviewed National Crop Insurance Services President Tom Zacharias regarding a recent Bloomberg News series that contained numerous factual errors and obvious bias, claiming for instance, that the government “pays farmers to buy [crop insurance] coverage.”

“Farmers are not paid to buy crop insurance,” noted Zacharias. “Farmers pay for crop insurance.” Zacharias explained that crop insurance was a new kind of risk management tool which required farmers to purchase policies with their own money in order to enjoy the relative protection that crop insurance provides.

Zacharias noted that farmers “spent about $4 billion of their own money in 2012 for premium, and last year when we had the catastrophic drought through the Midwest, before those deductibles kicked in, farmers absorbed just under $13 billion in uninsured losses.”

He explained that contrary to farm safety net programs of the past, there is no subsidy in the traditional sense of the word to farmers who purchase crop insurance. “Farmer premiums are discounted which makes crop insurance affordable,” he said, adding that farmers only receive an indemnity payment if they receive a verifiable loss.

Zacharias also pointed out that Bloomberg News led its readers to believe that the costs from last year’s historic drought had become the norm, “not putting it into perspective of what we were going through – the drought of 2012,” he said.

Zacharias told Adams that contrary to the claims in the Bloomberg News series, crop insurance companies are never guaranteed a profit; in fact they have suffered losses in a number of years. “Companies lost money last year, so I don’t think that they view this as a guaranteed profit.”

Zacharias explained that the lengthy series also failed to mention that crop insurance has taken $12 billion in funding reductions since the 2008 Farm Bill. “So there’s a laundry list of issues here” that Bloomberg failed to report correctly or completely omitted, he said.

“Unfounded, sensationalist headlines are uncalled for, it does not serve the public interest, nor the Bloomberg readership.”

Farmers Shoulder Nearly $17 Billion in Losses in 2012

Before farmers received a single dime in crop insurance indemnity payments, they shouldered $12.7 billion in losses as part of their deductibles to crop insurance policies, according to a guest editorial published today by Tom Zacharias, president of National Crop Insurance Services (NCIS).

“When combined with the $4.1 billion farmers paid out of their own pockets to purchase crop insurance last year, total farmer investment neared $17 billion,” explains Zacharias in the May 6 edition of Roll Call/CQ.

Zacharias noted that it was important to get those numbers out because of the ongoing assault on the “the men and women who put food on our tables and clothes on our backs” over their purchasing of crop insurance. “Critics called crop insurance a farmer bailout and said things like farmers were ‘laughing all the way to the bank’ and were ‘praying for drought, not praying for rain,’” the article notes. “Farmers even have been compared to cheap drunks at an open bar and told to pay their fair share.”

The article points out that when assessing the value of crop insurance, there are undisputed facts of what transpired after the worst drought our country has seen in decades:

  • Indemnities to farmers cost about $17 billion, but “thanks to crop insurance’s design, these indemnities were not completely borne by taxpayers because farmers and insurers picked up a major portion of the costs and sustained significant economic losses.”
  • “This was the sixth time since 1983 that crop insurers lost money. Compare that to the property and casualty insurance industry, which has lost money only once as far back as data is available.”
  • “It is also important to note that when crop insurance premiums exceed losses, the government sees underwriting gains that help offset payments in bad years. In fact, the government experienced nearly $4 billion in gains from 2001-2010.” And just as importantly, “Congress was not asked to fund an ad hoc disaster bill despite the historic devastation endured by our agricultural producers.”

Zacharias welcomed reasoned debate on farm policies, but added that “lawmakers and the American public deserve an intelligent conversation about the future of agriculture that is kept to just the facts.”

To see the guest opinion in its entirety, click here.

NCIS Releases ‘Crop Insurance: Just the Facts’

As the nation’s crop insurers prepare for the Farm Bill and funding deliberations in the future, National Crop Insurance Services (NCIS) has released a detailed question-and-answer resource laying out the facts about crop insurance and dispelling some of the most common arguments against crop insurance put forth by its critics.

“Crop insurance is the single most important risk management tool available to farmers today, and the public needs to understand why it is so valuable, how it benefits taxpayers and how it helps maintain a stable agriculture for the benefit of consumers,” said Tom Zacharias, president of NCIS.

“Crop Insurance: Just the Facts” resides on the “About Crop Insurance” page on the Crop Insurance Keeps America Growing website where it will be a continuously updated, convenient and accurate resource for industry, farmers and consumers. “This resource will provide a much-needed explanation on the value and need for crop insurance,” said Zacharias.

The series covers important topics such as how crop insurance benefits the public, economics of the industry, the globalization of risk management, benefits to producers, and many other important issues.

Zacharias noted that when it comes to the mechanics of crop insurance policies, why farmers spent more than $4.1 billion out of their own pockets last year purchasing it, and why it is the risk management tool of the future, there is a lot of misinformation and misrepresentation about the program. “Crop Insurance: Just the Facts,” lays out the details and provides a balanced and reasoned perspective,” he said.

The Truth Could Set Us Free; If They’d Print It

The ongoing discussions about resolving our national debt continues to provide plenty of fuel for those who wanted to torch a key aspect of farm policy, crop insurance.

The New York Times came out swinging against crop insurance – again – with a January 15 article that led “the worst drought in 50 years could leave taxpayers with a record bill of nearly $16 billion in crop insurance costs because of poor yields” adding that the “staggering” cost of the program was drawing attention from budget cutters.

Yes, indemnities could possibly hit $16 billion, but all of those costs will certainly not fall on the laps of taxpayers. What was missing from the article was mention of the more than $4 billion spent by farmers to purchase crop insurance as well as losses that will be realized by the 16 private sector companies who underwrite policies.

Dallas Smith, Deputy Under Secretary, Farm and Foreign Agricultural Services, United States Department of Agriculture, 1993-1999, submitted a letter-to-the-editor, pointing out:

“Your article about crop insurance indemnities missed several essential points. For 2012, farmers will pay about $4.1 billion in premiums for crop insurance coverage. With crop insurance, farmers only receive an indemnity when there is an insurable loss. There is no ‘direct’ cash subsidy.

“Previous to the current-day crop insurance program, response to agricultural weather-related exigencies was in the form of disaster legislation. In the past, the aid from disaster packages could take up to 18 months to reach the farm community. Not in all cases, but many drought-stricken farmers receive indemnity checks within weeks of filing a claim. With the current program, farmers, crop insurance companies and taxpayers all share in the cost of the program.

“As we have observed from the experience of Hurricane Sandy, disaster aid can be highly uncertain and slow in coming. Crop insurance is a better solution.”

The New York Times article was picked up by the Minneapolis Star-Tribune, which sparked a quick response from Greg Schwarz, a farmer from Le Sueur, Minnesota:

“The reason why crop insurance enjoys such broad political support in Congress while receiving the endorsements of nearly every major commodity group is simple, because it works. Your recent article about crop insurance indemnities, “Crop Insurance Could Cost $16 Billion,” (1/15/13) missed many of the key reasons why crop insurance is good for farmers, and taxpayers alike.

“First, prior to the emergence of crop insurance, Congress regularly turned to taxpayers when disaster struck, tapping them for $45 billion in supplemental disaster assistance from FY 1989 to FY 2001. The current public-private partnership that is our modern crop insurance system was designed to minimize taxpayer risk exposure and speed assistance to farmers when they suffer loss. Private insurers help shoulder the loss in bad years and have a sophisticated infrastructure to deliver assistance to farmers when they need it most.

“Second, farmers paid $4.1 billion out of their own pockets in premiums last year to purchase crop insurance coverage. In years when major disasters don’t strike – and that’s the majority of years – crop insurance companies and the government earn underwriting gains from these premium investments. These gains have added more than $3.93 billion to federal coffers, and help offset losses in years when natural disasters strike.

“The health and vitality of the rural economy has been one of the few positive economic trends over the last few years. A strong, viable crop insurance policy, which has helped rural America recover from back-to-back natural disasters in 2011 and 2012, is part of the reason behind that success.”

Not to miss an opportunity to chime in, a January 20 Washington Post editorial also let fly a salvo against crop insurance and the farmers who purchase it. The editorial repeated the misstatement contained in the earlier New York Times article, stating “The government’s total cost for crop insurance could hit nearly $16 billion for 2012, an all-time record,” and then continued by calling crop insurance “corporate welfare,” despite the fact that it is purchased by farmers with their own money.

Tom Zacharias, president of the Overland Park-based National Crop Insurance Services, responded in kind:

“It is unfortunate that the Post’s recent crop insurance editorial misled readers into believing the total cost covering the record drought losses of 2012 will fall solely on taxpayers’ shoulders. That would certainly be the situation under the old paradigm of ad hoc disaster legislation. Under today’s crop insurance system that is simply not the case because farmers and participating insurance companies are also helping to shoulder the burden.

“First, farmers contributed $4 billion of their own money for crop insurance premiums. Second, participating insurance companies will lose money in 2012 because total payouts will exceed premiums collected and the companies share in the losses. The final cost is still unknown, though it could be in the billions of dollars.


Video Shows Adjuster Training Ensures Consistency, Accuracy and Efficiency of Procedures

Support for crop insurance is especially strong in rural America after this historic drought. A new NCIS video focuses on the overall training, continuing education and primary role adjusters play in getting crop insurance claims processed efficiently and accurately. More than 146,000 policies have been indemnified so far this year, resulting in more than $2.2 billion worth of indemnity payments reaching farmers in need.

The video highlights the fact that claims adjusters must undergo 60 hours of training before they adjust their first claim, and then must earn 16 hours of continuing education every year thereafter to ensure that their procedures are consistent, accurate and efficient.

After spending time in the classroom reviewing data capturing procedures, students go into the field to examine damaged crops with experts on-hand. During a recent school in Lubbock Texas, Jim Allison, a claims supervisor from Shallowater, Texas, pointed out recent hail damage on grain sorghum and explained what it meant to the overall productivity of the plant in the long-term. “A more mature grain sorghum plant that loses all of its leaves is going to be affected much more severely from the hail and the impact to the yield will be greater,” he explained.

“We have a lot of losses due to hail every year,” explained Gary Smith, a claims supervisor from Idalou, Texas. “When we get any hail of any size with significant winds, it can be like a lawnmower or a shredder,” he explained.

Many claims adjusters currently farm, or have farmed in their recent past. And because of that experience, they understand the important role crop insurance plays in helping farmers manage risk. “Crop insurance has become an integral part of farming, period,” noted Ben Hanawa, a claims adjuster from San Benito, Texas. “Everything has gotten expensive, and without that form of backup from a disaster, it would be hard for anybody to survive.”

Crop Insurance Adjusters Work Over-Time to Expedite Claims

Crop insurance adjusters in the Corn Belt and in other drought-stricken areas have been working long hours to ensure that farmers who have crop damage can get their claims process started. With 5,000 adjusters working in all 50 states, the industry has been forced to move adjusters from regions spared from the drought to regions that have been hardest hit.

Tim Totheroh, a crop insurance adjuster from Wellington, Illinois, says that his workload this year has grown exponentially. “I have two to three times the number of claims I usually have this time of year,” he said.

Totheroh explained that in mid-summer, the majority of claims he’s dispatched to adjust are based on requests by farmers who have such low corn yields that they want to chop their corn as silage. “We have to verify what the farmer’s production will be to calculate what their final loss is, and then they are free to chop the corn,” he said. “That way, at least some good comes from a crop that is otherwise nearly useless.”

The claims he reviews in late summer or early fall are generally to determine the final yield per acre that farmers are making so that their loss can be calculated before harvest.

Totheroh notes that he’s been shocked on several occasions this year as he’s walked through once productive cornfields to see nearly complete devastation. “I did a silage appraisal on a field recently, and after walking a half mile through the field in one direction and then exiting the field in another direction, we failed to see a single ear of corn,” he said. “That’s a real jaw dropper, given the usual productivity of this part of the state.”

Totheroh estimates that actual production in his area will range from zero bushels to 130 or 140 bushels per acre, in a part of the state that had an initial potential for 200 bushels per acre if the rain had come.

“The 100 degree heat we had the first week of July just burnt us up.”

Depending on the claim, the adjuster examines the corn itself as well as the overall yield before filling out the final report, which is signed by the farmer before being sent in to complete the crop insurance claim.


NCIS Unveils Newly Revamped, Redesigned Website

National Crop Insurance Services recently unveiled a newly redesigned and revamped website that will ensure that policy makers, members of the media and academics are able to easily find and utilize the organization’s many tools and online resources. The site prominently features key farmer, lender and insurance agent testimonials discussing the importance of crop insurance as the principal risk management tool as well as making key articles, magazines and videos readily accessible.

The improved sites contains all of the content of the former site with greatly improved usability and functionality, including optimization for mobile devices and tablets, as well as improved integration of NCIS’ social media channels Twitter, Facebook, and YouTube.

Also appearing on the site are several installments of a newly-released educations video series that explains crop insurance – what it is, how it works and why it has become the risk management tool of choice for America’s farmers. In the first video, titled “Crop Insurance 101,” Zacharias explains that crop insurance has evolved as a way to limit taxpayer risk exposure by shifting it to private business. Other videos detailing the importance of crop insurance to agriculture and the role it has played in mitigating the long term damage to farmers and their livelihoods caused by natural disasters are currently being released.

“Today’s popular crop insurance system has proven time and time again to be the most efficient way to deliver assistance to farmers quickly after a disaster to help them recover,” said Tom Zacharias, NCIS president. “This website redesign will make our industry much more accessible to those who need to understand why crop insurance has become almost every farmer’s risk management tool of choice,” he said.

Credit Providers Urge Senators to Keep Crop Insurance “Strong and Vibrant”

The three major trade associations representing agriculture credit providers expressed their unified view regarding the need to maintain a strong and vibrant Federal crop insurance program as a vital risk management tool for farmers and ranchers, noting that agriculture is an inherently risky business, both in terms of weather and markets, as well as being capital intensive.

“Federal crop insurance provides producers with an effective tool to manage their risk, and it provides lenders with greater certainty that loans made to producers will be repaid,” said American Bankers Association, Independent Community Bankers of America and The Farm Credit Council in a March 14 letter to the Senate Committee on Agriculture, Nutrition and Forestry that was formally submitted for the record at the hearing.

“Federal crop insurance is an important component allowing lenders to take on the additional risk of financing many young and beginning producers who have less collateral and equity,” they note.

The Federal crop insurance program has evolved into a broad-based safety net for producers. It is instrumental in assuring that American agriculture remains solid, solvent and globally competitive. “Without the risk protection provided by Federal crop insurance, agricultural lenders would be forced to increase underwriting standards, increase costs to offset risk, and likely be forced to reduce credit availability to some producers for their production, equipment and land purchase needs,” they add.

The letter explains that financially strong crop insurance companies, reinsurance companies and agents are critical to delivering the benefits derived from a strong program. “The private-sector delivery system currently in place for Federal crop insurance is working efficiently and effectively, and we believe its overall framework should remain intact,” they say.

“Federal crop insurance program is working,” the letter continued. “It continues to provide significant risk management support to producers. Producers enjoy the ability to select revenue and yield protection that enables them to obtain adequate capital from lenders to continue to be successful in their operations.”

Crop Insurance Leader Asks Congress to Do No Harm

“How crop insurance emerges from the 2012 Farm Bill process will hold major ramifications for this risk management program and for America’s farmers and ranchers who have come to rely on it,” Steve Rutledge told the Senate Committee on Agriculture, Nutrition and Forestry on March 15, 2012.

Rutledge, who spoke on behalf of crop insurance companies, underscored the public-private partnership that is unique to crop insurance and how that relationship lowers risk for taxpayers. The chairman of Farmers Mutual Hail Insurance Company of Iowa also asked lawmakers to do no harm to crop insurance with additional funding reductions or regulatory burdens in the ongoing legislative debate.

Rutledge’s testimony comes on the heels of record indemnities being paid out by crop insurers to farmers and ranchers recouping from the worst weather year in history, with claims to date totaling nearly $10.3 billion to cover agricultural losses. This surpasses the old 2008 record of $8.67 billion by approximately 19 percent.

“The fact that the United States is planting crops just months after such devastation in 2011 should not be taken for granted,” he testified, noting the importance of a vibrant agricultural sector to the larger U.S. economy.

“I can’t tell you how many times I have seen the relief and gratitude on a farmer’s face when they realize that because of crop insurance, they will be back in the fields in the spring and life will go on uninterrupted,” explained Rutledge, who began his career as an insurance adjuster.

But this success could be upended if the crop insurance infrastructure is strained, Rutledge said. He explained that in the midst of the growth of crop insurance and the rising crop prices—both of which increase the cost of the policy and company risk—crop insurance has lost about $12 billion in funding since 2008, making it one of the only sectors to sacrifice for deficit reduction.

“This reduction is astounding when one considers that crop insurance represented only 8 percent of Farm Bill spending and a meager one-tenth of one percent of overall government outlays,” he said.

Rutledge’s testimony concluded: “We firmly believe that crop insurance should remain the core risk management tool, and we are committed to the public-private partnership of program delivery, which directly supports more than 20,000 private sector jobs across the country. The private sector should continue to provide and deliver crop insurance options, share in the risk of loss caused by changing markets and natural disasters, and adjust losses for insurable crops. We believe the private sector, not the government, is the best way to provide the individual risk management information and tools that are indispensible for producers today. We understand that is the way farmers and ranchers want the program to operate, and trust in our congressional leaders to stay the course.”

Crop insurance companies wrote more than $11.9 billion in federal multiple peril crop insurance premiums last year, covering nearly 265 million acres of farmland, protecting more than 80 percent of eligible crops, with total potential liability exceeding $113 billion.

Since 2008, a total of more than $28 billion has been sent to farmers for policies they purchased. Federal investment in crop insurance, during that same period, was reduced by more than $12 billion.

Agriculture Risk Happens, Even Where You Didn’t Expect It

As a former Chief Economist for USDA, I can attest to the fact that farming is indeed a very risky business. Recent news reports out of USDA’s Risk Management Agency underscore that point all too clearly: With some 15 percent of all crop insurance claims yet to be processed, crop insurance companies have paid out a record $9.1 billion (1*) so far in indemnity payments to America’s farmers for 2011 crop losses, surpassing the previous record set in 2008 by nearly half-a-billion dollars. (2*) And the 2011 figure will continue to climb.

But the economist in me wanted to dig into the data to better understand the damages reflected by the overall numbers. And there were a number of surprises. Most people might expect that – given the severity of the drought in the southern plains – farms with the greatest damages per dollar of premium for insurance would be there. But while farmers in those states did suffer greatly, it was actually the farmers in Vermont, at the other end of the country, who saw the highest loss ratio last year.

Remember when Hurricane Irene slammed into New England? The farmers up there won’t soon forget it.

The surprise of that finding underscores just how vulnerable farmers are and how the federal government needs to have a hand in production agriculture. Indeed, farmers in 2011 were fortunate that crop insurance was available for more than 125 different crops and was purchased for 80 percent of eligible acreage.

But despite the success of the crop insurance program as illustrated last year, there are many in Congress who will be seeking even deeper cuts to this primary risk management tool, despite the fact that program funding has already been reduced by $12 billion since 2008. Congress and the Administration need to remember that farm income stabilization through risk management programs like crop insurance is critical for ensuring continuous and stable growth in overall supplies of food, feed and, increasingly, fuel.

In the not too distant past, when Mother Nature struck America’s agriculture sector, it often resulted in ad hoc disaster packages being born in the halls of Congress to address the damage and help the farming sector recover. While those packages were greatly appreciated by farmers, Congress decided to push to make crop insurance more universally available and affordable, giving farmers the tools they need to manage their own risks while taking some of the burden of the disaster assistance off of the backs of the public and putting it onto the laps of the private sector.

Today’s crop insurance policy makes more sense and works better because it puts the onus of managing risk on producers and farmers, not the government. The private sector crop insurance agent works directly with the producer to help put together an insurance plan that best meets their specific needs and is tailored to their comfort with risk. The outcome is a plan that protects their physical and financial assets in the face of natural hazards and market risks.

Another reason why crop insurance has become the most popular risk management tool in agriculture is that farmers and insurance agents alike recognize the wisdom in making farmers bear some of the risk and costs of the program. In order for a risk management program to work efficiently, it cannot completely remove risk from the equation—risk bearing ensures program accountability and discipline. Crop insurance helps ensure that while it’s in everyone’s best interest when farmers succeed, it’s also in everyone’s best interest to help farmers regain their footing when Mother Nature throws a tantrum.

There are other surprises that can be found when you drill into the 2011 claims data. For example, wouldn’t you expect that the ongoing drought in the southern plains would have meant that cotton and wheat were the most heavily damaged crops last year? But the hurricane that drowned out New England first passed over the Carolinas and severely damaged the flue cured tobacco crop, which, combined with several other weather issues in that area, resulted in the flue cured tobacco crop having the highest loss ratio last year of any crop.

Of course, drought did heavily damage much of America’s cotton and wheat, as $3.7 billion (3) in indemnities have been paid for those crops so far, but with crop insurance in place, farmers are able to bounce back. In fact, wheat growers in Kansas, Oklahoma and Texas sowed 1.7 million more acres this fall than they did last year. Hopefully, the rains will come and we will all see a bounty. But if they don’t, the farmers have something in place to keep the bottom from falling out.

If you were surprised by Vermont, I can assure you that so were those farmers. That simply underscores how unpredictable Mother Nature can be and how almost anywhere in our country, crop insurance is there to help those who purchase it bounce back from these things.

Keith J. Collins is a former USDA Chief Economist who received his Ph.D. in economics and statistics at North Carolina State University in 1977.

This op-ed appeared in the Raleigh News Observer on February 8, 2012.
Since this op-ed ran, these numbers have been updated. The new numbers are:
(1) Indemnities are currently $10.8 billion
(2) Current indemnities have topped the previous record by more than $2.2 billion
(3) To date, indemnities paid for damages to cotton and wheat are $4.2 billion.