Whenever a customer writes a premium check for an auto, health, or home insurance policy, part of that payment is allocated to the cost of servicing the policy. That is, insurance companies include an expense load in the premium for each policy to offset overhead costs, such as staff salaries, agent commissions, loss adjustment expenses, employee training, computer systems, customer support, office space, marketing, etc. This expense load includes an appropriate profit component for the insurer and is in addition to the premium necessary to cover the risk of anticipated losses.
Unlike other types of insurance, Federal crop insurance policies are not loaded for expenses. Why? Because Congress wanted to make policies more affordable so farmers would purchase higher levels of protection with their own money and leave taxpayers less vulnerable to agricultural risk and ad hoc disaster payments. Thus, Congress provided a benefit to farmers by providing an administrative and operating expense reimbursement on their behalf to the AIPs in lieu of adding the load for expenses to the underlying risk premium and increasing the farmers overall out of pocket cost.
*Updated March 2021