No. Since the inception of the public-private partnership, crop insurance companies experienced net underwriting losses, even after Federal reinsurance, in 2012, as well as in 1983, 1984, 1988, 1993 and 2002. In fact, crop insurers lost 1.4% from 2011 to 2014 once all expenses were accounted. And while the companies achieved an underwriting gain in 2015, the industry’s cumulative returns have still fallen well below the target assumed in the 2011 Standard Reinsurance Agreement.
This stands in sharp contrast to providers of everyday property and casualty insurance, which lost money only once in the most recent 20 years, in 2001—the year of the 9/11 attacks.
First, it is crucial to realize that even in a year with underwriting gains, crop insurers may not be profitable because underwriting gains alone are not profits; they are one component of a company’s revenue. Second, the Administrative and Operating (A&O) payments received from the government, the other major component of revenue, have consistently fallen short of actual delivery costs for loss adjustment, commissions, information technology, salaries and benefits, rent and other expenses. This shortfall reduces the net income earned by private-sector crop insurance companies. Thus, companies can have underwriting gains and still have operating losses whenever their shortfalls in A&O payments exceed their underwriting gains, as was the case in 2013.
While A&O payments were intended to pay for program delivery costs, they have been consistently less than actual expenses ever since 1997. The average shortfall from 1998 to 2014 has been 6.4%, with the shortfall in 2014 alone totaling $782 million.
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