Crop Insurers Respond to GAO Calls for Additional Budget Cuts

August 28, 2017

The farm economy is struggling, with depressed prices and falling farm incomes reminiscent of the farm crisis in the 1980s. Back then, the Government Accountability Office (GAO) studied the best way to help farmers through tough times and noted, “crop insurance is a more equitable and efficient way to provide disaster assistance” than both taxpayer funded disaster payments and emergency loans.

GAO then recommended strengthening the country’s crop insurance program, which Congress did. Now, crop insurance is a cornerstone of America’s farm policy, farmers call it their top Farm Bill priority, and taxpayers are saving money because farmers and private-sector crop insurers help fund farm policy.

Given crop insurance’s success and popularity, it is disheartening that GAO recently recommended weakening farmers’ primary risk management tool. It’s even more troubling that GAO would gloss over important facts about the returns crop insurance providers receive for delivering America’s farm safety net. For example:

Insurance providers are not even achieving the returns targeted in the Standard Reinsurance Agreement with the USDA – GAO buried deep within its report the fact that actual returns have been 5 percentage points lower than USDA’s target from 2011-2015.
GAO’s data do not take insurers’ full business expenses into account – essentially, they are confusing gross and net returns.
A 2017 study by economists from the University of Illinois and Cornell University noted that net returns for crop insurance providers were just 1.5% from 2011-2015.

Farmers all across the country are depending on crop insurance to help them weather the current economic crisis. And private-sector crop insurers are delivering that assistance in an efficient manner that has come in billions under budget.

Clearly the system is working and does not need to be weakened when it is needed most. Luckily, most lawmakers recognize crop insurance’s value and are dedicated to keeping it affordable, widely available, and economically viable in the next Farm Bill.