Profit is far from guaranteed in crop insurance markets. In fact, crop insurers lost money in 2012 as they did in 1983, 1984, 1988, 1993 and 2002. After taking the shortfall in A&O payments into consideration, crop insurers also lost money in 2013. Like all private-sector companies, compounding years of losses can lead to providers exiting the business. At least three insurance providers have taken this step since 2015.
That does not mean crop insurers never see positive returns. In the mid-to-late 2000s, U.S. agriculture generally experienced good weather. Since farmers experienced a low level of crop losses, crop insurance companies paid few claims and, as a result, earned underwriting gains. This is positive for the farm safety net as a whole because private-sector crop insurance and reinsurance companies need years with low losses to build surplus in order to pay claims in years with catastrophic losses.
Underwriting gains are only part of the story. When all revenues and expenses are accounted for, a crop insurance company, like any other private-sector business, will have profits in some years and losses in others. The income situation varies by company and by region of the country. To remain in business, companies must earn a competitive rate of return over time.
When determining an appropriate rate of return, it is important to properly consider companies’ expenses and recent events, such as:
- The severity of losses in 2012;
- Changes in the Risk Management Agency (RMA) rating methods that have reduced premium income in many key states since 2012; and,
- Changes to crop insurance made in the 2008 and 2014 Farm Bills and the Standard Reinsurance Agreement (SRA) that have increased delivery costs and reduced underwriting gains and Administrative & Operating (A&O) payments.
Read more about the rate of return here.
National Crop Insurance Services
8900 Indian Creek Parkway, Suite 600
Overland Park, KS 66210-1567
Phone: 913-685-2767