Congress created and provides funding for the modern-day crop insurance system through the Federal Crop Insurance Corporation (FCIC) as a way to help farmers manage the risks of natural disasters and market fluctuations. The activities of FCIC are carried out by the Risk Management Agency (RMA) of USDA. Lawmakers intended for the system to largely replace the need for ad hoc disaster legislation, thereby helping to shelter taxpayers from the full costs of agricultural disasters and avoiding the need to enact new disaster assistance following every major catastrophic event.
To this end, FCIC/RMA sets program standards, approves new products, sets premium rates and discounts farmer premiums. The Federal government further makes crop insurance affordable for farmers by offsetting delivery costs that would otherwise be built into the premium. However, this Administrative and Operating (A&O) delivery cost reimbursement to the companies does not fully cover their actual delivery expenses. The Federal government also reinsures the crop insurance companies (known as approved insurance providers, or AIPs) through the Standard Reinsurance Agreement (SRA). The reinsurance involves the government and the companies sharing in the underwriting gains and losses of the program.
Thanks to the success and effectiveness of crop insurance, there have not been any widespread calls for ad hoc crop disaster bills over the past several years, including 2011 and 2012, two of the worst weather years on record. By comparison, 42 emergency disaster bills in agriculture cost taxpayers $70 billion from1989 to 2012, according to the Congressional Research Service.