cancel
Showing results for 
Search instead for 
Did you mean: 
Friend

Cost of Crop Insurance Subsidies

Here are the reasons that FSA should be selling Crop Insurance instead of Private Company’s:
Administrative and Operating Expense Reimbursements Paid to Insurance Companies by the Crop Insurance Program in the United States: From 1995 to 2010 was $13,824,279,099
Indemnities: $51,616,090,842
Other Federal Expenses: $2,618,503,799
Total of what the Government pays out to Crop Insurance Agency’s is: $68,058,873,739
Farmers pay for their part $28,366,946,447

Total of our Government taxes going to Insurance Agents are: $39,691,927,292, Your seeing right, it over 39 billion.

This is not money that goes to the farmers this is the money that goes directly to the crop insurance agents.

I guess if this is ok with you as a tax payer thats your decision, but as for me (a tax payer) I don’t find it acceptable at all. With all the savings that could be realized from this, if FSA administered the crop insurance program, they could hire people just to take care of the program and they could get licensed and take any classes to keep up that license. Most states you just have to take a test you don’t even have to have any classes, so its not rocket science for sure. Just about anyone can get an insurance license. Then take continuing education classes like 8 or so hours every other year, I think it is here in Kansas.

This is just another case of outsourcing at its worst. This is a program that could be handled by FSA. I work for FSA, the can do agency and believe me, we could make it happen. But the Politicians are being lobbied by the insurance people with our own money no doubt. This is one of the reasons that Insurance Companies are some of the richest companies in the world.

0 Kudos
9 Replies
Senior Advisor

Re: Cost of Crop Insurance Subsidies

halleluia! Perhaps this time somebody burst the bubble that private enterprise is always so efficient. I deal with the FSA office in wright county Iowa  and the skills and efficiency of that organization are top notch and I don't care who knows it.

 

Thanks for the post. I hope you get the respect that you deserve.

0 Kudos
Senior Contributor

Re: Cost of Crop Insurance Subsidies

Who was it that said the definition of insanity is doing the same thing over and over expecting different results?  FSA at one point in time did handle Federal Crop Insurance.  It was a complete and utter disaster.  They turned it over to the private enterprise because it was hemorraging tremendous amounts of cash.  I find it interesting from a taxpayer perspective that you're outraged over what insurance agents receive in commission rather than the amount of tax payer money that goes to pay for premiums via subsidies.  I read an article today on AgWeb that stated 70 percent of the cost to taxpayers annually for Federal Crop Insurance is for farmer premium via the subsidy while only 30 percent goes to the private industry to administer and underwrite.  If we're looking at this thing purely from a taxpayer point of view, it appears you're stepping over nickels to pick up pennies. 

 

Here's a little blurb from Bruce Babcock at Iowa State University:

 

 

Farmers must pay for crop insurance, but they pay only a portion of the amount needed to cover insured losses. Throughout the 1980s and 1990s, farmers were reluctant to buy enough crop insurance to satisfy Congress. So to get farmers to buy more insurance, ARPA dramatically decreased the portion that farmers must pay. Currently, farmers pay about 41 percent of the amount needed to cover insured losses. This large subsidy means that most farmers will get substantially more back from the program than they pay into it.

It is somewhat of a paradox why farmers require such large subsidies to buy a product that substantially reduces their financial risk. But farmers routinely reduce financial risk in a number of other ways. Growing more than a single crop, raising livestock, working off-farm, employing marketing tools, and adopting risk-reducing management practices--all work to reduce financial vulnerability. In addition, for the lowest-risk farmers, the price of crop insurance may not adequately reflect their risk. So one explanation for this paradox is that for many farmers, the amount of remaining financial risk they face may simply be too small to insure unless the price of insurance is low enough. The current 59 percent average subsidy seems to have reduced the price of insurance to the point where most farmers now consider it worthwhile to purchase. This premium subsidy is now so large that the average farmer in the program can expect a rate of return on the producer paid premium of 143 percent.

  

0 Kudos
Veteran Advisor

Re: Cost of Crop Insurance Subsidies

If I read this right, over the last 15 years, actual crop loss indemnities were $51 billion dollars and $68 billion additional was paid out to administer the program and compensate crop insurance agents? So the crop insurance agents received $17 billion MORE compensation to administer the program than what farmers were paid for yield losses?

 

Furthermore, for every dollar that the farmers paid (total of $28 billion) they received almost $2 back in claims?  ( total of $51 billion).

 

Not sure that the argument should be over who administers the program, but maybe we should be shining the light on what actually is going on here.

 

I farmed without any crop insurance for most of my career, only lately when it became such a big part of the revenue planning have I jumped into the trough. For an honest guy, it doesn't appear that crop insurance pays, even with the subsidies since I sure know I am not collecting more money than what I pay in. What gives here? Are farmers milking the system? Cheating? Surely it is not set up to pay back that extreme on average...what states are getting the biggest claims compared to premiums? Do you have the stats on a state by state basis for comparison?

 

I have no quarrel with the administration of federal programs in general and  I just would not say that the crop agents are to blame here...they sure did not set the rules on compensation, or did they? Is their lobby so powerful that congressmen just bend over?

 

Sounds like another federal program that needs to have some daylight shed on it to see what is actually going on.

0 Kudos
Veteran Contributor

Re: Cost of Crop Insurance Subsidies

mich are you a fsa employee. Probably, they are already lobbying to try and take back controll of crop insurance. More for the security of jobs than anything. As for kraft, im gald that your fsa handles things properly, but 2/3 of them dont. They are simply payed employees. They have no desire to do the Top Notch job. They collect  a paycheck and move on down the road. The private sector has MADE crop insurace. These guys rely on crop insurance for a living so they provide great service. They have developed balance sheets and all kinds of computer programs where we can simple punch in our numbers and know what we need for crop insurance. Most are more then just selling crop insurance but a whole risk management package. They can develop an entire risk management profile incorporating crop insurance, hedging and other things to provide a safe bet for your farm. Non of these things would be in exictence today if not for them.

 

As far as the whole subsidizing thing goes its a back and forth battle. The only reason its subsidized was to get more farmers to buy into so the program could be viable. For the most part there only a few farmers comparitvely that actually require insurance year in and year out. These guys live in the deserts of south united states or places were two much rain is the problem. But if these guys were the only ones buying insurance it would be to costly for them so by subsidizing it reduces the costs for everyone and more people jump on board lowering the costs and increaseing the profits. I was in washington D.C a few weeks ago and spoke with the RMA personally and even after all the disasters last year crop insurance brought in more money then what was payed out on claims, very rarely do claims proceeds beat payments. What are done with those profits i cant tell you.

At least with crop insurance in the private sector things are taken care of. They are tax payers too. Everything they make is used to purchase goods that are taxed and the cycle continues

0 Kudos
Veteran Advisor

Re: Cost of Crop Insurance Subsidies

I think the collections are in the fringe areas, which would not get planted to major row crops without subsidized insurance. 
For example, in the last 6 years, my dryland corn yields have varied brom 35 to 155 BPA.  I cannot afford any 5bpa years without insruance, so had there not been insurance I could afford, it would not have gone to corn, or at least not nearly as much.

I guess it depends on what the government is wanting.  If they want max row crops, they need to continue some sort of subsidized crop insurance.  If they want minimum costs, and are willing to live with the results, they can cut it completly, but if they do I say we haven't seen high priced corn yet.

0 Kudos
Senior Advisor

Re: Cost of Crop Insurance Subsidies

What don't I get about "private" sector and government subsidies when I continuously here we should stand on ones own feet---I suspect we could hear next to  "privatize"  FSA ---  2/3   seems to be a really strong statement to be professed ---

0 Kudos
Senior Advisor

Re: Cost of Crop Insurance Subsidies

I suppose if I had a diaster I'd go running to the insurance agent, but for the most part I am confident I can live without crop insurance.  I would absolutley not want it adminstered by the FSA.  In the first place, all their edicts come from on high and are seldom timely.  With government operations you get people who are more interested in enforcing rules than in operating a successful program.  A commercial guy may try to cut you some slack if he can.  A government can't afford to get caught doing that as it will seem like favoritism and fraud.  In my opinon, we should not have a crop insurance subsidy, but as long as we have one, I'll use it when it makes sense to me.

0 Kudos
Senior Advisor

Re: Cost of Crop Insurance Subsidies

I haven't experience in other FSA office, but what is noticable in ours is that everyone is well trained and have been for several decades. That goes back to management at the local level in that the director made sure that his top staff people knew the policies and educated those beneath them.

 

Can you imagine dealling with people every day with limited understanding of the farm programs the rules and regulations? And having the patience to deal with them and make them understand. I think the women in our office are exceptional in understanding and patience.

 

I don't do much face to face interacting any more but we do use the phone and fax machine a lot.

0 Kudos
Veteran Contributor

Re: Cost of Crop Insurance Subsidies

Yeah i can imagine, everytime i walk into the FSA or NRCS office and ask a question. 

0 Kudos