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Veteran Advisor

Cost of Federal Crop Insurance is Staggering

if the numbers from the EWG website are correct, the total net cost (after subtracting what we farmers pay for premiums) is an almost incomprehensible $36 Billion dollars over the period in question. Personally, I usually debate whether or not to take the coverage, and ponder if it really helps me in the long run since it is something that ends up driving costs up in farming since the big boys are free to bid up rents without fear of going broke. The $22 Billion to administer the program ($12 billion plus $10 Billion) seems hard to believe too, until you find out that a typical agent, if my memory serves me right, collects about 30% of the premium as his cut to handle the guaranteed checks. This is obscene and one more example of government waste.

 

Here is the link:

 

 Crop Insurance in the United States

Federally subsidized crop insurance is available to farmers if their crop is an eligible crop for their area. The government provides 50% catastrophic coverage to farmers at no cost to the farmer. However, farmers can upgrade their coverage by purchasing additional insurance through crop insurance companies.

Government Expenses of the Crop Insurance Program in the United States (1995-2009) Government Revenue of the Crop Insurance Program in the United States (1995-2009) Cost of the Crop Insurance Program in the United States (1995-2009)
IndemnitiesIndemnities are the amount of money that is paid out by the Federal Government to farmers...$47,182,410,612 
Administrative and Operating Expense ReimbursementsAmounts paid by the Federal Government to insuran...$12,435,279,099 
Other Federal ExpensesIncludes Federal administration and program costs as well as Emergency Financi...$2,475,503,796 
Expenses to the Government$62,093,193,507
Farmer PremiumsAmount paid by farmers for insurance premiums$24,808,747,536 
Government Earned Interest$613,910,002 
Revenue to the Government$25,422,657,538
Cost to the Government*
Underwriting Gains paid by the government to crop insurance companies are not included in this total - see methodology. Crop insurance companies were paid $9.6 billion nationally by the government in underwriting gains from 1995-2009 and is a cost not shown in this table.
$36,670,535,969
METHODOLOGY: EWG obtained county level crop insurance information from USDA Risk Management Agency which shows premium subsidies, indemnities and farmer premiums at the county/crop level by crop year. Administrative and Operating Expense Reimbursements to crop insurance companies (A+O), Other program fund costs, Other administrative and operating fund costs expenses, and Government earned interest were allocated to the crop/county level by using the national expenditures/revenue of the Crop Insurance program (available here for 2001-2008 and from RMA previous to 2001) in each category and attributing them the crop/county level by total premiums. EWG was unable to attribute underwriting gains to the county/crop level. Underwriting gains (or losses) are paid to insurance companies when the insurance companies collect more in total subsidies than are paid out in indemnities. Since underwriting gains are paid by company on the basis of all of their policies, EWG was unable to allocate underwriting gains by crop or by region. The total underwriting gains for 1995-2009 is $9.6 billion.

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5 Replies
Advisor

Re: Cost of Federal Crop Insurance is Staggering

   Have you projected your income for 2010 and '11?   Those numbers are staggering also.

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Veteran Advisor

Re: Cost of Federal Crop Insurance is Staggering

Conservatism- - at it's finest hour --- 

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Frequent Contributor

Re: Cost of Federal Crop Insurance is Staggering

How much money was paid out in claims?

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Veteran Advisor

Excellent point, and it ties in with the solution

Something that was looked at 20 years ago and still makes sense. Instead of a costly crop insurance system, ripe with fraud and abuse, and one that enriches the insurance industry, let farmers insure themselves. In good years like 2009, 2010, 2011, etc. let us take a portion of our crop proceeds and put the money into an IRA like account that we do not pay taxes on, do not have to buy equipment with, do not have to hand over to landlords, but still own. In leaner times, we then draw out of these accounts, and pay the taxes as we reclaim our own money.

 

No premium, no fraud, no abuse, no cost to the taxpayer except for deferred taxes.

 

Sure , my crop insurance agent is a good fellow, but does he deserve $10,000 to $15,000 of the premium to handle the checks? Not from me, but from the American taxpayer?

 

Maybe the 30% is not true anymore, I do know that some reforms were supposed to have been made to the programs, does anyone else have current information on this?

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Re: Cost of Federal Crop Insurance is Staggering

It is hard to know if there is some sort of game changing event in our future but as it stands now I expect more of the same in the next farm bill a cut to the direct payment and to crop insurance subsidies but mostly just same 'ol.

 

The failure to do anything with the blenders credit in the December budget compromise seems to say it all- we'll talk about budget cuts but not really do anything that offends any imprtant constitutency.

 

 

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