Losses are shared by farmers, private-sector crop insurance companies and the government.
For example, following the 2012 drought, the worst year in the history of the program from a cost perspective, farmers received more than $17 billion in indemnity payments to cover losses after paying approximately $4.1 billion in premiums and shouldering deductibles of approximately $12.7 billion. Private insurers had a $1.3 billion net underwriting loss in 2012 because claim payments were well in excess of premiums collected. For its part, the government fulfilled its contractual obligations in its role as a reinsurer under the terms of the Standard Reinsurance Agreement (SRA) and provided premium support to farmers.
The cost sharing arrangement under the crop insurance program stands in sharp contrast to ad hoc disaster bills, which are funded entirely by taxpayers and were needed to offset farmer losses prior to the emergence of modern-day crop insurance. Forty-two such emergency disaster bills in agriculture have cost taxpayers $70 billion since 1989, according to the Congressional Research Service.