Federal Crop Insurance: Background and
Issues
Dennis A. Shields
Specialist in Agricultural Policy
December 13, 2010
Congressional Research Service
7-5700
www.crs.gov
R40532
CRS Report for Congress
P
repared for Members and Committees of Congress

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Federal Crop Insurance: Background and Issues

Summary
In preparation for the next farm bill, the 112th Congress will likely continue reviewing the
effectiveness and operations of the federal crop insurance program as part of the farm safety net.
In 2010, the House Committee on Agriculture sought input from farmers and others on the
program, and the U.S. Department of Agriculture (USDA) revised its agreement with the crop
insurance industry to deliver crop insurance to farmers following a rapid rise in government costs
of the program. This report provides a primer on the federal crop insurance program.
The federal crop insurance program began in 1938 when Congress authorized the Federal Crop
Insurance Corporation. The current program, which is administered by the U.S. Department of
Agriculture’s Risk Management Agency (RMA), provides producers with risk management tools
to address crop yield and/or revenue losses on their farms. In purchasing a policy, a producer
growing an insurable crop selects a level of coverage and pays a portion of the premium—or none
of it in the case of catastrophic coverage—which increases as the level of coverage rises. The
federal government pays the rest of the premium (averaging about 60% of the total). Insurance
policies are sold and completely serviced through 16 approved private insurance companies. The
insurance companies’ losses are reinsured by USDA, and their administrative and operating costs
are reimbursed by the federal government.
In 2010, federal crop insurance policies covered 255 million acres. Major crops are covered in
most counties where they are grown. Four crops—corn, cotton, soybeans, and wheat—accounted
for three-quarters of total acres enrolled in crop insurance. Most crop insurance policies are either
yield-based or revenue-based. For yield-based policies, a producer can receive an indemnity if
there is a yield loss relative to the farmer’s “normal” (historical) yield. Revenue-based policies
protect against crop revenue loss resulting from declines in yield, price, or both. Other insurance
products protect against losses in whole farm revenue (rather than just for an individual crop) or
gross margins for livestock enterprises.
Government costs for crop insurance have increased substantially in recent years. After ranging
between $2.1 and $3.6 billion during FY2000-FY2006, costs rose to $7.3 billion in FY2009 as
higher policy premiums from rising crop prices drove up premium subsidies to farmers and
expense reimbursements (which are based on total premiums) to private insurance companies. In
FY2010, total costs declined to $3.7 billion following a decline in crop prices. Reimbursements
and risk-sharing between USDA and private insurance companies are spelled out in a Standard
Reinsurance Agreement (SRA), which plays a large role in determining program costs. In 2010,
USDA renegotiated the SRA for the 2011 reinsurance year (which began July 1, 2010) to save
money and make adjustments to improve program delivery.
Over the next 10 years, federal spending on crop insurance is projected to outpace spending on
traditional commodity programs by about one-third, which might capture the attention of budget
cutters looking for potential sources of savings. Insurance companies, farm groups, and some
Members of Congress are concerned that additional reductions in federal support will negatively
impact the financial health of the crop insurance industry and possibly jeopardize the delivery of
crop insurance. A main concern for most is saving federal dollars without adversely affecting
farmer participation, policy coverage, or industry interest in selling and servicing crop insurance
products to farmers. From a farm policy standpoint, policymakers and observers alike remain
concerned about how the crop insurance program interacts with farm commodity programs and
whether together they provide a cost-effective means for helping farmers deal with business risk.
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Federal Crop Insurance: Background and Issues

Contents
Crop Insurance History ............................................................................................................... 1
Program Basics ........................................................................................................................... 1
Types of Insurance ................................................................................................................ 3
Yield-Based Insurance .................................................................................................... 3
Revenue-Based Insurance ............................................................................................... 4
Crop Insurance Premium Subsidies ....................................................................................... 7
Geographic Distribution of Program Participation and Indemnities........................................ 7
Distribution of Producer Subsidies ........................................................................................ 9
Federal Program Costs .............................................................................................................. 11
Private Company Reimbursement and Risk Sharing .................................................................. 12
Standard Reinsurance Agreement (SRA) ............................................................................. 12
Trends in A&O Reimbursement and Underwriting Gains .................................................... 14
Intersection with Other Government Programs .......................................................................... 15
Farmer Concerns with Crop Insurance....................................................................................... 16
Rice and Other Crops Produced in the South ....................................................................... 16
More Affordable Premiums ................................................................................................. 17
Nursery Products................................................................................................................. 17
“Shallow” Losses and Other Concerns ................................................................................ 18
Issues for the 112th Congress ..................................................................................................... 18

Figures
Figure 1. Insured Acres ............................................................................................................... 2
Figure 2. Types of Crop Insurance Policies.................................................................................. 3
Figure 3. Acres Enrolled in Crop Insurance, 2007........................................................................ 8
Figure 4. Crop Insurance Indemnities .......................................................................................... 8
Figure 5. Estimated Average Crop Insurance Premium Subsidy Per Farm in 2009 ....................... 9
Figure 6. Crop Insurance Premium Subsidies by Crop in 2009................................................... 10
Figure 7. Crop Insurance Premium Subsidies for Top 20 States in 2009 ..................................... 10

Tables
Table 1. Crop Insurance Premium Subsidies ................................................................................ 7
Table 2. Government Cost of Federal Crop Insurance ................................................................ 11
Table 3. Share of Crop Insurance Company’s Gains/Losses by Fund and Loss Ratio.................. 13
Table 4. Federal Crop Insurance Program and Company Data.................................................... 14

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Federal Crop Insurance: Background and Issues

Contacts
Author Contact Information ...................................................................................................... 20

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Federal Crop Insurance: Background and Issues

he 112th Congress will likely continue reviewing the effectiveness and operations of the
federal crop insurance program in preparation for the next farm bill. In 2010, the House
T Committee on Agriculture sought input from farmers and others on the program, and the
U.S. Department of Agriculture (USDA) revised its agreement with the crop insurance industry to
deliver crop insurance to farmers following a rapid rise in government costs of the program. This
report provides a primer on the federal crop insurance program and discusses related issues.
Crop Insurance History
Farming is generally regarded as a financially risky enterprise. Most agricultural production is
subject to the vagaries of weather, and the nature of agricultural supply and demand often results
in volatile market prices. Farm financial risk, periods of low returns, and the importance of
agriculture in the nation’s economy during the early to mid-1900s led to the development of
federal policies that financially supported farmers, primarily through commodity price
mechanisms. Today’s farm commodity policies—authorized in the 2008 farm bill—have their
roots in the 1930s.1
During the same era, Congress also first authorized federal crop insurance as an experiment to
address the effects of the Great Depression and crop losses seen in the Dust Bowl. In 1938, the
Federal Crop Insurance Corporation (FCIC) was created to carry out the program, which focused
on major crops in major producing regions. The federal crop insurance program remained limited
until passage of the Federal Crop Insurance Act of 1980 (P.L. 96-365), which expanded crop
insurance to many more crops and regions of the country. Congress enhanced the crop insurance
program in 1994 and again in 2000 in order to encourage greater participation. The changes also
expanded the role of the private sector in developing new products that would help farmers
manage their risks.2 Today, many banks, when making operating loans, require that farmers
purchase crop insurance.
The federal crop insurance program is permanently authorized by the Federal Crop Insurance Act,
as amended (7 U.S.C. 1501 et seq.). It is periodically modified, most recently in the 2008 farm
bill (P.L. 110-246). Congress chose to revise the legislation in the 2008 farm bill to achieve
budget savings and to supplement crop insurance with a permanent disaster payment program.3
The U.S. Department of Agriculture’s (USDA’s) Risk Management Agency (RMA) operates and
manages the FCIC.
Program Basics
The federal crop insurance program provides producers with risk management tools to address
crop yield and/or revenue losses on their farms.4 Insurance policies are sold and completely

1 For details on farm programs, see CRS Report RL34594, Farm Commodity Programs in the 2008 Farm Bill, by Jim
Monke.
2 For more on the history of federal crop insurance, see http://www.rma.usda.gov/aboutrma/what/history.html. Law
citations are the Federal Crop Insurance Act of 1980 (P.L. 96-365), the Federal Crop Insurance Reform Act of 1994
(P.L. 103-354), and the Agriculture Risk Protection Act (ARPA) of 2000 (P.L. 106-224).
3 For more information, see CRS Report RL34207, Crop Insurance and Disaster Assistance in the 2008 Farm Bill, by
Ralph M. Chite and Dennis A. Shields, and CRS Report R40452, A Whole-Farm Crop Disaster Program:
Supplemental Revenue Assistance Payments (SURE), by Dennis A. Shields.
4 Portions of this section are from CRS Report RL30739, Federal Crop Insurance and the Agriculture Risk Protection
(continued...)
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Federal Crop Insurance: Background and Issues

serviced through 16 approved private insurance companies. Independent insurance agents are
paid sales commissions by the companies. The insurance companies’ losses are reinsured by
USDA, and their administrative and operating costs are reimbursed by the federal government
(see “Federal Program Costs,” below).
In purchasing a policy, a producer growing an insurable crop selects a level of coverage and pays
a portion of the premium, which increases as the level of coverage rises. The remainder of the
premium is covered by the federal government (about 60% of total premium, on average, is paid
by the government).5 In the case of catastrophic coverage, the government pays the full premium.
In the absence of subsidies, farmer participation in the crop insurance program would be
substantially lower. A major benefit for producers is the timely payment for crop losses (about 30
days after the farmer signs the claim form).
Figure 1. Insured Acres
In 2010, crop insurance policies covered 255
million acres (Figure 1). Major crops are
Million acres
covered in most counties where they are
300
grown. Four crops—corn, cotton, soybeans,
250
and wheat—accounted for three quarters of
200
total enrolled acres. For these major crops, a
150
100
large share of plantings is covered by crop
50
insurance: corn at 83% of plantings; cotton,
0
91%; soybeans, 84%; and wheat, 86%.
1996
1998
2000
2002
2004
2006
2008
2010
Policies for less widely produced crops are

available in primary growing areas. Examples
Source: U.S. Department of Agriculture, Risk
include dry peas, blueberries, citrus,
Management Agency.
pumpkins, and walnuts. In total, policies are
available for more than 100 crops (including coverage on a variety of fruit trees, nursery crops,
pasture, rangeland, and forage).6 Many specialty crop producers depend on crop insurance as the
only “safety net” for their operation, unlike field crop producers, who are also eligible for farm
commodity program payments (see “Intersection with Other Government Programs”).7 Crop
insurance covers about 75% of total area for selected specialty crops.8
Crop insurance is not necessarily limited to crops; livestock coverage has recently become
available. Relatively new or pilot programs protect livestock and dairy producers from loss of
gross margin or price declines.

(...continued)
Act of 2000 (P.L. 106-224), by Ralph M. Chite.
5 In practice, the crop insurance company bills the farmer for the producer’s portion of the premium (i.e., excluding the
government portion). The company then sends the entire producer-paid premium to RMA. When a producer files a
claim and the company pays an indemnity, RMA reimburses the company in full for the loss. At the end of the
reinsurance year, there is an annual settlement where the company’s proportion of any underwriting gain or loss is
determined and paid.
6 A complete list of 2010 crops is available at http://www.rma.usda.gov/policies/2010policy.html#3. For previous
years, see http://www.rma.usda.gov/policies/08croplist.html.
7 Carey Frick, “Frick: Not So Peachy,” The State, May 26, 2010, http://www.thestate.com/2010/05/26/1302654/frick-
not-so-peachy.html.
8 Federal Crop Insurance Corporation, Report to Congress: Specialty Crop Report, Washington, DC, November 2010,
http://www.rma.usda.gov/pubs/2010/specialtycrop.pdf.
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Federal Crop Insurance: Background and Issues

The availability of crop insurance for a particular crop in a particular region is an administrative
decision made by USDA. The decision is made on a crop-by-crop and county-by-county basis,
based on farmer demand for coverage and the level of risk associated with the crop in the region,
among other factors. In areas where a policy is not available, farmers may request that RMA
expand the program to their county. The process usually starts with a pilot program in order for
RMA to gain experience and test the program components before it becomes more widely
available. Alternatively, a policy can be reviewed and later discontinued if it fails to perform at an
acceptable level (e.g., low participation or high losses). RMA also regularly responds to requests
from commodity organizations or industry representatives for enhancements to existing coverage,
such as adding revenue coverage.
Current law requires that RMA strive for actuarial soundness for the entire federal crop insurance
program (that is, indemnities should equal total premiums, including premium subsidies).9
Types of Insurance
Federal crop insurance policies are generally either yield-based or revenue-based. For most yield-
based policies, a producer can receive an indemnity if there is a yield loss relative to the farmer’s
“normal” (historical) yield. Revenue-based policies were developed after yield-based policies, in
the mid-1990s, to protect against crop revenue loss resulting from declines in yield, price, or both.
The most recent addition has been products that protect against losses in whole farm revenue
rather than just for an individual crop. These two basic forms—yield-based and revenue-based—
are discussed below. The text boxes in this report entitled “Crop Insurance Examples: Yield-
Based vs. Revenue-Based” and “Federal Crop Insurance: Range of Coverage and Policies”
explain program operation within these two broad categories.
Two million crop insurance policies were sold
Figure 2. Types of Crop Insurance Policies
in 2010, with revenue-based policies
(total policies sold in 2010 = 2.03 million)
accounting for 56% of the total (Figure 2),
and the remainder being yield-based policies.
On a premium basis, revenue policies account
for three-quarters of all policies.
Yield-
based
Yield-Based Insurance
(44%)
Revenue-
When purchasing a crop insurance policy, a
based
producer is assigned (1) a “normal” crop yield
(56%)
based on the producer’s actual production
history, and (2) a price for his commodity
based on estimated market conditions. The

producer can then select a percentage of his
Source: U.S. Department of Agriculture, Risk
Management Agency.
normal yield to be insured and a percentage
of the price he wishes to receive when crop losses exceed the selected loss threshold. The level of
crop yield coverage is viewed by farmers as a critical feature of crop insurance, and a major
determinant of whether a farmer will purchase insurance.10

9 U.S. Department of Agriculture, Risk Management Agency, http://www.rma.usda.gov/help/faq/basics.html.
10 A number of university and Extension Service offices provide information to farmers when making crop insurance
(continued...)
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Federal Crop Insurance: Background and Issues

In determining what a normal production level is for an insurable farmer, USDA requires the
producer to present actual annual crop yields (usually stated on a bushel-per-acre basis) for the
last 4 to 10 years. The simple average of a producer’s annual crop yield over this time period then
serves as the producer’s actual production history (APH). If a farmer does not have adequate
records, he can be assigned a transition yield (T-yield) for each missing year of data, which is
based on average county yields for the crop.
The most basic policy is called catastrophic (CAT) coverage. The premium for this level of
coverage is completely subsidized by the federal government. The farmer pays an administrative
fee for CAT coverage ($300 per crop per county under the 2008 farm bill, up from $100
previously), and in return can receive a payment on losses in excess of 50% of normal yield,
equal to 55% of the estimated market price of the crop (called 50/55 coverage).
Coverage levels that are higher than CAT are called “buy-up” or “additional” coverage.11 For an
additional premium paid by the producer, and partially subsidized by the government, a producer
can “buy up” the 50/55 catastrophic coverage to any equivalent level of coverage between 50/100
and 75/100 (i.e., up to 75% of “normal” crop yield and 100% of the estimated market price). In
limited areas, production can be insured up to the 85/100 level of coverage.
APH policies account for more than 90% of yield-based policies sold. The remaining policies,
including the Group Risk Plan and Dollar Plan (see box on page 6), are not widely used but can
be important for certain crops. Some of these policies use an area-wide index—county-level yield
in the case of the Group Risk Plan—to measure losses.
Revenue-Based Insurance
Revenue insurance accounts for more than half of all crop insurance policies (Figure 2). It began
in 1997 as a buy-up option on a pilot basis for major crops. By 2003, acreage under revenue-
based insurance exceeded acreage covered by APH policies. Revenue insurance combines the
production guarantee component of crop insurance with a price guarantee to create a target
revenue guarantee.
Under revenue insurance programs, participating producers are assigned a target level of revenue
based on market prices for the commodity and the producer’s yield history. A farmer who opts for
revenue insurance can receive an indemnity payment when his actual farm revenue (crop-specific
or entire farm, depending on the policy) falls below a certain percentage of the target level of
revenue, regardless of whether the shortfall is caused by low prices or low production levels.

(...continued)
decisions. Some examples include http://www.agmanager.info/crops/insurance/risk_mgt/default.asp,
http://www.ag.ndsu.nodak.edu/aginfo/cropmkt/cic.htm, http://www.farmdoc.uiuc.edu/cropins/index.asp, and
http://extension.umaine.edu/cropinsurance/default.htm.
11 Participation at the CAT level has steadily decreased, particularly since subsidies on buy-up levels were increased in
the Agriculture Risk Protection Act (ARPA) of 2000. In 2008, only about 11% of insured acres were insured at the
CAT level.
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Federal Crop Insurance: Background and Issues

Crop Insurance Examples: Yield-Based vs. Revenue-Based
Two basic forms of crop insurance are yield-based and revenue-based. Yield-based insurance provides an indemnity
when the actual yield falls below the guarantee level. Revenue-based insurance provides an indemnity when the
revenue (actual yield x price) fal s below the guarantee.
Actual Production History (APH) Example:
A loss occurs when the bushels of soybeans produced for the insurance unit (insurable acreage) fal below the
production guarantee as a result of damage from a covered cause of loss. Assumptions: “normal” production = 48
bushels / acre; yield coverage level = 75%; established price coverage = 100%; price election = $9.90 / bushel; actual
production = 20 bushels per acre.
48 bushels per acre APH yield
x .75 coverage level
36.0 bushel / acre guarantee
- 20.0 bushels / acre actual y produced
16.0 bushels / acre of covered loss
x $9.90 per-bushel price election
$158.40 per-acre gross indemnity payment
- $6.00 estimated producer-paid premium per acre (varies)
$152.40 per-acre net indemnity

Revenue Product Example:
36.0 bushels / acre guarantee (see prior example)
x $11.00 per-bushel base price (announced in March)
$396.00 per-acre guarantee

20 bushels / acre actual y produced
x $10.00 per-bushel harvest price (announced in November)
$200.00 per-acre revenue

$196.00 per-acre gross indemnity payment ($396.00 - $200.00)
- $13.00 estimated producer-paid premium (varies)
$183.00 per-acre net indemnity
Source: U.S. Department of Agriculture, Risk Management Agency, 2009 Commodity Insurance Fact Sheet - Soybeans -
Iowa, January 2009, http://www.rma.usda.gov/fields/mn_rso/2009/2009iasoybeans.pdf.

After years of development, USDA’s Risk Management Agency issued the “COMBO” rule in late
March 2010 to consolidate several crop insurance plans into a single “Common Crop Insurance
Policy” beginning with the 2011 crop year.12 Yield-based plans (APH) continue, with the addition
of a Yield Protection policy that functions like APH but uses a projected price based on the
futures market (rather than a price determined by RMA). The biggest change is the consolidation
of several previous revenue products (Crop Revenue Coverage, Income Protection, Indexed
Income Protection and Revenue Assurance) into a single revenue product called Revenue
Protection and its companion, Revenue Protection With Harvest Price Exclusion.13 RMA expects
the move to greatly simplify the insurance process for agents and promote better understanding of
the options available for producers.

12 USDA, Risk Management Agency, “RMA Releases New Common Crop Insurance Policy Basic Provisions,” press
release, March 31, 2010, http://www.rma.usda.gov/news/2010/03/combo.html.
13 Crop are barley, canola, corn, cotton, grain sorghum, rapeseed, rice, soybeans, sunflowers, and wheat.
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Federal Crop Insurance: Range of Coverage and Policies
I. Catastrophic Coverage (CAT) pays 55% of the established price of the commodity on crop losses in excess of
50%. The premium on CAT coverage is paid by the federal government; however, producers must pay a $300
administrative fee (as of the 2008 farm bill, up from $100) for each crop insured in each county. Limited-resource
farmers may have this fee waived. CAT coverage is not available on all types of policies.
II. Buy-up Coverage (any coverage level higher than CAT)
Yield-based policies:
Actual Production History (APH) and Yield Protection policies insure producers against yield losses due to
natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. The farmer selects the
amount of average yield he or she wishes to insure; from 50% to 85%. The farmer also selects the percentage of the
projected price he or she wants to insure—between 55% and 100% of the crop price (for APH, the price is
established annual y by RMA; for Yield Protection, the price is based on futures market prices). If the harvest is less
than the yield insured, the farmer is paid an indemnity based on the difference. Indemnities are calculated by
multiplying this difference by the insured percentage of the selected price.
Group Risk Plan (GRP) insures against widespread loss of production based on county average yields. When the
county yield for the insured crop, as determined by the National Agricultural Statistics Service, falls below the trigger
level chosen by the farmer, an indemnity is paid regardless of the individual farmer’s actual yield. Yield levels are
available for up to 90% of the expected county yield. GRP protection involves less paperwork and costs less than the
farm-level coverage described above. However, individual crop losses may not be covered if the county yield does not
suffer a similar loss. This insurance is suitable for farmers whose crop losses typically follow the county pattern.
Dollar Plan provides protection against declining value due to damage that causes a yield shortfall. (Crop examples
include cherries, chili peppers, citrus, and nursery crops.) Amount of insurance is based on the cost of growing a crop
in a specific area. A loss occurs when the annual crop value is less than the amount of insurance. The maximum dol ar
amount of insurance is stated on the actuarial document. The insured may select a percentage of the maximum dollar
amount equal to CAT (catastrophic level of coverage), or additional coverage levels.
The Vegetation Index and Rainfall Index do not measure direct production or loss; rather the farmer is insuring
against an index that is expected to estimate production. The Pasture, Rangeland, and Forage (PRF) pilot program and
the Apiculture pilot program (for beekeepers) use an index for different parts of the country.
Revenue-based policies:
Revenue Protection insures producers against yield losses due to natural causes such as drought, excessive
moisture, hail, wind, frost, insects, and disease, and revenue losses caused by a change in the harvest price from the
projected price. The producer selects the amount of average yield he or she wishes to insure; from 50% to 75% (in
some areas to 85%). The projected price and the harvest price are 100% of the price determined by futures
contracts. The amount of insurance protection is based on the greater of the projected price or the harvest price. If
the harvested plus any appraised production multiplied by the harvest price is less than the amount of insurance
protection, the producer is paid an indemnity based on the difference.
Revenue Protection With Harvest Price Exclusion insures producers in the same manner as Revenue
Protection, except the amount of insurance protection is based on the projected price only (i.e., the amount of
insurance protection is not increased if the harvest price is greater than the projected price).
Actual Revenue History (ARH) insures an average of historical grower revenues instead of insuring historical
yields as done under APH. Like other revenue coverage plans, ARH protects growers against losses from low yields,
low prices, low quality, or any combination of these events.
Group Risk Income Protection (GRIP) makes indemnity payments only when the average county revenue for
the insured crop falls below the revenue chosen by the farmer.
Adjusted Gross Revenue (AGR) and AGR-Lite insure revenue of the entire farm rather than an individual crop
by guaranteeing a percentage of average gross farm revenue, including a small amount of livestock revenue. The plan
uses information from a producer's Schedule F tax forms, and current-year expected farm revenue, to calculate the
policy revenue guarantee.
Livestock Policies insure against declining market prices or gross margins. Policies are available for swine, cattle,
lambs, and milk.
Source: USDA’s Risk Management Agency, http://www.rma.usda.gov/policies/.
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Crop Insurance Premium Subsidies
The producer’s premium for a policy increases as the levels of insurable yield and price coverage
rise, and the premium on buy-up coverage is subsidized by the government at amounts ranging
from 38% to 80%, depending on the coverage level (Table 1). The subsidy rate declines as the
coverage level rises, but the total premium subsidy in dollars increases because the policies are
more expensive.
Table 1. Crop Insurance Premium Subsidies
(government-paid portion of premium as a percent of total premium)
Yield coverage level (%)
CAT
50
55
60
65
70
75
80
85
Premium subsidy (%) for
most polices (including those
100 67 64 64 59 59 55 48 38
using basic and optional
units)
Premium subsidy (%) for
enterprise units
80 80 80 80 80 77 68 53
Premium subsidy (%) for
whole farm units
80
80
80
71
56
Source: USDA, Risk Management Agency (http://www.rma.usda.gov/data/premium.html).
Notes: Separate schedules apply for Group Risk Plan, Group Risk Income Protection, and livestock policies. A
basic unit covers land in one county with the same tenant/landlord. An optional unit is a basic unit divided into
smaller units by township section. An enterprise unit covers all land of a single crop in a county for a producer,
regardless of tenant/landlord structure. A whole farm unit covers more than one crop.
Subsidy rates range from 38% to 67% for policies using either “basic” units or “optional” units.
Basic units cover all plantings in a single county of a crop with the same tenant/landlord.
Optional units are basic units divided into smaller units by township section. As newly authorized
under the 2008 farm bill, a higher subsidy rate (up to 80%) is provided for policies using
enterprise units (all land for a single crop in a county, regardless of the tenant/landlord structure).
Because the premium for policies using enterprise units is lower (i.e., a discount is given because
the combined unit has greater geographic diversity and hence is less risky), a higher subsidy rate
for enterprise units provides for an equal dollar amount of premium subsidy regardless of the type
of unit used. Overall, the average subsidy rate was 58% in 2008, 61% in 2009, and 62% in 2010.
The rising trend results from a shift to policies using enterprise units by some farmers.
Geographic Distribution of Program Participation and Indemnities
With widespread use of crop insurance products for major crops (corn, cotton, soybeans, and
wheat), the geographic distribution of acreage enrolled in crop insurance mirrors that of major
producing areas (Figure 3). Crop insurance indemnities follow the same pattern, but with an
emphasis on producing areas with less rainfall and more variable crop-weather conditions. For
example, Figure 4 shows crop insurance indemnities by county. In 2010, relatively high
indemnities were paid in the Great Plains, a region with generally low but variable rainfall.14 In
other years, the distribution of indemnities is similar, especially with respect to payments across
the Great Plains. However, the concentration of payments shifts within major producing areas,
primarily depending upon the prevalence of local weather problems.

14 Adverse weather can affect crops in various ways. For example, in some North Dakota counties in 2009, the cause of
loss was drought for some wheat policies, while it was excess moisture for other wheat policies in the same county.
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Figure 3. Acres Enrolled in Crop Insurance, 2007

Source: USDA, National Agricultural Statistics Service, 2007 Census of Agriculture.

Figure 4. Crop Insurance Indemnities
2010 Crop Indemnities by County

Source: USDA, Risk Management Agency, http://www.rma.usda.gov/data/indemnity/.
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Distribution of Producer Subsidies
Producer subsidies for crop insurance are proportional to the value of the premiums and
underlying liability of the policies. Compared with small farms, larger operations have greater
crop liability, which increases the total costs of insurance and value of the government-paid
portion of the total premium. Based on the distribution of insurance costs from USDA’s
Agricultural Resource Management Survey (ARMS) and actual premium subsidies from RMA
($5.4 billion in 2009), CRS estimates that the producer subsidy in 2009 averaged $2,500 per farm
(the calculation includes all U.S. farms, not just those purchasing crop insurance). By farm size,
the calculated average ranged from $400 per farm for operations with less than $100,000 in sales
to $32,000 for farms with more than $1 million in sales (see Figure 5). Farms in the largest sales
category accounted for an estimated $1.6 billion, or 29% of the total producer subsidy in 2009.
Unlike farm commodity programs, subsidies received under the crop insurance program are not
subject to payment limits.
Figure 5. Estimated Average Crop Insurance Premium Subsidy Per Farm in 2009
$1,000 per farm
35
30
25
20
15
10
5
0
$99,999 or less
$100,000 to
$250,000 to
$500,000 to
$1,000,000 or more
$249,999
$499,999
$999,999
Farm Sales Class

Source: CRS calculation using total premium subsidies reported by USDA’s Risk Management Agency and the
distribution of crop insurance expenses by farm sales class from USDA’s Agricultural Resource Management
Survey.
Notes: Total producer subsidy was $5.4 billion for crop year 2009. The calculated average was $2,500 per farm
(calculation includes all U.S. farms, not just those purchasing crop insurance).
By crop, the bulk of producer subsidies are for corn, wheat, soybeans, and cotton, which together
account for more than 80% of the subsidies and about three-quarters of total acres enrolled in the
program (Figure 6). By state, premium subsidies are greatest in states where these crops are
grown, primarily across the Great Plains, Corn Belt, and parts of the South (Figure 7).
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Figure 6. Crop Insurance Premium Subsidies by Crop in 2009
$ billion
2.5
2.0
1.5
1.0
0.5
0.0
Corn
Soybeans
Wheat
Cotton
Rice
Fruit, Veg.,
Other
Tree Nuts,
Nursery

Source: USDA’s Risk Management Agency, Summary of Business.
Notes: Total is $5.4 billion in crop year 2009. Corn, soybeans, wheat, and cotton account for 84% of the total.
Other includes minor oilseeds, other feed grains, tobacco, peanuts, sugar beets and sugar cane, pasture, and
other crops.
Figure 7. Crop Insurance Premium Subsidies for Top 20 States in 2009
FL
AR
MI
NC
OK
MT
CO
WI
OH
CA
MO
IN
NE
SD
MN
IL
TX
IA
KS
ND
$ million
0
100
200
300
400
500

Source: USDA’s Risk Management Agency, Summary of Business.
Notes: Total producer subsidy was $5.4 billion in crop year 2009. The states shown in chart accounted for 87%
of the total.
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Federal Program Costs
The annual agriculture appropriations bill traditionally makes two separate appropriations for the
federal crop insurance program. It provides discretionary funding for the salaries and expenses of
the RMA. It also provides “such sums as are necessary” for the Federal Crop Insurance Fund,
which finances all other expenses of the program, including premium subsidies, indemnity
payments, and reimbursements to the private insurance companies.
Government costs for crop insurance have increased substantially in recent years. After ranging
between $2.1 and $3.6 billion during FY2000-FY2006, costs rose to $5.7 billion in FY2008 and
$7.3 billion in FY2009 as higher policy premiums from rising crop prices drove up premium
subsidies and expense reimbursements to private insurance companies. Costs declined to $3.7
billion in FY2010 following a decline crop prices. Expenditures in a particular fiscal year mainly
reflect the previous crop year (since fall harvest overlaps with the beginning of the fiscal year).
The largest cost component is the subsidy on policy premiums for producers, which totaled $4.7
billion in FY2010 (Table 2). The next largest item is reimbursement of administrative and
operating (A&O) expenses to private insurance companies ($1.4 billion in FY2010). With
premiums reflecting only costs associated with policy risk, the A&O reimbursement is meant to
pay delivery costs. In recent years, the federal government also has realized underwriting gains
(premiums received in excess of indemnities), which has partially reduced total costs. The
underwriting gains (or losses) are derived in part from the federal government’s role in providing
the first level of reinsurance—that is, insurance for insurance companies.
Table 2. Government Cost of Federal Crop Insurance
(millions of dollars)
Program
Federal
Private Company
Total
Losses or
Premium
A&O Expense
Other
Government
Fiscal Year
(Gains)a
Subsidy
Reimbursementsb
Costsc
Cost
2000 196
1,353
540
86
2,175
2001 725
1,707
648
82
3,162
2002 1,182
1,513
656
115
3,466
2003 822
1,874
743
149
3,588
2004 (305)
2,387
900
143
3,125
2005 (293)
2,070
783
139
2,699
2006 (31)
2,517
960
125
3,571
2007 (1,068)
3,544
1,341
123
3,940
2008
(1,717)
5,301
2,016
137
5,737
2009
108
5,198
1,602
131
7,039
2010
(2,523)
4,680
1,371
143
3,671
Source: U.S. Department of Agriculture, Risk Management Agency.
a. Government’s underwriting loss (gain if negative) = the difference between total indemnity payments for
crop losses and total premiums (farmer and government paid), plus or minus any private company
underwriting gains or losses.
b. A&O = administrative and operating.
c. Other costs primarily include federal salaries of USDA’s Risk Management Agency and, beginning in 2002,
various research and development initiatives mandated by the Agriculture Risk Protection Act of 2000 (P.L.
106-224).
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Private Company Reimbursement and Risk Sharing
A&O reimbursements to the companies and risk sharing between USDA and the private
companies and are spelled out in a Standard Reinsurance Agreement (SRA), which plays a large
role in determining program costs. The current SRA was completed in summer 2010.15
Standard Reinsurance Agreement (SRA)
Under the SRA and cuts specified in the 2008 farm bill, the reimbursement rate for A&O
expenses averaged 18% of total premiums in 2009.16 This means that for every $100 in premiums
collected, the companies receive a reimbursement of $18 from the federal government. The
reimbursement rate varies by insurance product, depending on whether it is for a yield-based or a
revenue insurance product.
The SRA places a maximum for A&O reimbursements at $1.3 billion per year (adjusted annually
for inflation) and a minimum at $1.1 billion. The cap controls government costs when crop prices
rise (price levels directly affect policy premiums), while the minimum is intended to protect
companies against low market prices.
The SRA also defines risk-sharing between the government and private insurance companies.
Under the SRA, insurance companies may transfer some liability associated with riskier policies
to the government and retain profits/losses from less risky policies.17 This transfer of risk is
accomplished through a set of reinsurance funds maintained by FCIC. Within 30 days of the sales
closing dates for each crop, companies allocate each policy they sell to one of two funds that are
maintained for each company by state: Assigned Risk or Commercial. (The previous SRA had
three funds.) Each company then decides what proportion of premiums (and potential for
losses/gains) to retain within each reinsurance fund, subject to required retention limits of
individual funds. The by-state retention requirements are 20% for the Assigned Risk Fund and at
least 35% for the Commercial Fund. The ceded (i.e., not retained) portion of premiums goes to
the government.
The assigned risk fund is used for policies believed to be high-risk because it provides the most
loss protection to insurance companies through “stop-loss” coverage that reinsures against state-
level disasters. For producers, it helps ensure that benefits of the federal crop insurance program
are extended to all eligible farmers, regardless of risk. Because companies retain only 20% of
their business as specified in the SRA, the federal government assumes a large portion of liability
associated with high-risk policies. The SRA also specifies a 75% limit (by state) on the proportion
of a company’s business that may be placed in the Assigned Risk Fund.

15 The 2008 farm bill allows USDA to renegotiate the SRA once every five years starting with the 2011 reinsurance
year (the 12-month period beginning July 1, 2010). For more information on the SRA and related issues, see CRS
Report R40966, Renegotiation of the Standard Reinsurance Agreement (SRA) for Federal Crop Insurance.
16 The 2008 farm bill (Sec. 12016(E)) reduced the A&O reimbursement by 2.3 percentage points beginning with the
2009 reinsurance year (July 1, 2008). Also, the farm bill reduced the A&O reimbursement rate to 12% for any plan of
insurance that is based on area-wide losses. The farm bill also reduced the target loss ratio (indemnities paid divided by
premiums collected of the entire program) from 1.075 to 1.00.
17 Dmitry V. Vedenov et al., “Portfolio Allocation and Alternative Structures of the Standard Reinsurance Agreement,”
vol. 31, no. 1 (April 2006), pp. 57-73, http://ageconsearch.umn.edu/bitstream/10145/1/31010057.pdf.
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The Commercial Fund is for policies that the companies expect to have the greatest opportunity
for profit and only a small amount of losses. While the profit potential is greater compared with
the Assigned Risk Fund, so is the loss potential.
Once the policies are allocated to one of the two funds, the gain/loss sharing for a company’s
retained business is based on loss ratios (indemnities paid divided by premiums collected) as
established in the SRA. As a general rule, the higher the loss ratio, the lower the company share
of gains or losses (and vice versa, except at very low loss ratios when the company share of gains
declines). See Table 3 for the schedule contained in the current SRA.
Table 3. Share of Crop Insurance Company’s Gains/Losses by Fund and Loss Ratio
(share of gains/losses in percent)
Share of
Share of Company’s Gains/Losses in

Company’s
Commercial Fund (%)
Gains/Losses in
Loss Ratio
Assigned Risk
(%)
Fund (%)
Group1 states
All other states
0 to 50
3
5
5
>50 to 65
13.5
40
40
>65 to 100
22.5
75
97.5
>100 to 160
7.5
65
42.5
>160 to 220
6
45
20
>220 to 500
3
10
5
>500 0 0 0
Source: U.S. Department of Agriculture, Risk Management Agency, Standard Reinsurance Agreement dated
June 30, 2010, http://www.rma.usda.gov/news/2010/06/630sra.pdf.
Notes: Loss ratio is indemnities divided by total premiums. Group 1 states include Illinois, Indiana, Iowa,
Minnesota, and Nebraska.
For the Commercial Fund, policies from states with historically lower underwriting gains have a
more favorable gain/loss sharing structure for insurance companies than policies sold in five
states with better underwriting performance (Illinois, Indiana, Iowa, Minnesota, and Nebraska).
The provision is expected to provide insurance companies with more financial incentives than in
the past to sell and service policies in the areas of the country that have historically attracted less
interest because companies had expected fewer underwriting gains in those areas.
The final risk-sharing component of the SRA is the “net book quota share,” defined as the
proportion of a company’s overall gain or loss over its entire “book of business” that is ceded to
the government after all other reinsurance provisions in the SRA have been applied. Under the
SRA, companies must cede a 6.5% share of their cumulative underwriting gains/losses to the
government. During years in which there are underwriting gains, 1.5% of this share is distributed
back to companies that sell and service policyholders in 17 underserved states. Through the net
book quota share, the government receives a portion of underwriting gains from a company’s
retained business (but will also pay a portion of the losses, if realized). Since the company’s total
book includes a higher proportion of policies with lower risk, this portion is generally a positive
value, which offsets part of the government costs of the program.
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Trends in A&O Reimbursement and Underwriting Gains
Since A&O reimbursements are based on a percentage of premiums, the dollar amount of A&O
reimbursement has risen sharply in recent years as premiums have risen to reflect higher crop
prices. The A&O reimbursement increased from an average of $881 million during 2004-2006 to
$2.0 billion in 2008. A&O reimbursements declined to $1.6 billion in FY2009 following a decline
in crop prices. RMA data also indicate that A&O reimbursement per policy increased from $750
in 2004-2006 to $1,749 in 2008 and $1,373 in 2009.18 Similarly, company underwriting gains (the
amount by which a company’s share of retained premiums exceeds its indemnities) have
increased substantially in recent years as weather has been generally favorable for growing crops
(Table 4). During this period, increases in insured acreage and higher crop prices have also
increased gross liability. Liability represents total exposure of the program, meaning that if all
participating farmers suffer losses to the full extent of coverage, program indemnities would be
the total liability.
Table 4. Federal Crop Insurance Program and Company Data
Private
Private
Company
Re-
Gross
Gross
Company
Underwriting
insurance
Premiuma
Liabilityb
Gross Loss
Loss
Gain (Loss)d
Year
($ million)
($ million)
Ratioc
Ratioc
($ million)
2000 2,538
34,000
1.02 0.70 282
2001 2,979
37,000
1.00 0.73 346
2002 2,911
37,000
1.39 0.91 (47)
2003 3,436
41,000
0.95 0.76 381
2004 4,087
47,000
0.79 0.62 691
2005 3,945
44,000
0.52 0.43 917
2006 4,709
55,000
0.75 0.54 819
2007 6,548
67,000
0.53 0.49 1,572
2008
9,852
89,000
0.88
0.85
1,102
2009 (est.)
8,950
80,000
0.58
0.59
2,194
Source: U.S. Department of Agriculture, Risk Management Agency.
a. Farmer-paid premium plus government-paid premium subsidy.
b. Liability represents total exposure of the program, meaning that if all participating farmers suffered losses to
the full extent of coverage, program indemnities would be the total liability.
c. Indemnities divided by premiums. Gross loss ratio is for the program in total (government plus private
companies).
d. The underwriting gains represent the amount by which the company’s share of retained premiums exceeds
its indemnities (vice versa for underwriting losses).

18 USDA, Risk Management Agency, “Federal Crop Insurance Program History” data sheet, Washington, DC, March
1, 2010.
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Prior to the 2010 renegotiation of the SRA, some observers argued that the reimbursement rate
should be pegged to something other than premium value, such as the number of policies sold, to
better reflect actual costs and to help reduce federal expenditures. If premiums are actuarially
sound, the administrative costs of writing a policy are likely not proportional to the value of the
policy (e.g., whether 10 acres or 1,000 acres, or $3 per bushel or $9 per bushel). In order to
control costs, A&O reimbursement under the current SRA is still based on premiums (which are
directly affected by crop prices) but it is limited to approximately $1.3 billion in 2011 and
adjusted upward in subsequent years with an inflation factor. The private crop insurance
companies remain concerned that limits on the A&O reimbursement will negatively affect the
crop insurance industry and possibly jeopardize the delivery of crop insurance, particularly in
high-risk areas.
Part of the criticism on the A&O stemmed from a study by the Government Accountability Office
(GAO) on costs associated with administering the crop insurance program.19 In 2009, GAO
concluded that the structure of A&O reimbursements “present[s] an opportunity to reduce
government spending without compromising the crop insurance program’s safety net for
farmers.” According to GAO, the method for calculating the A&O reimbursement should be
redesigned to better reflect reasonable business expenses, in terms of dollars per policy, rather
than crop prices. Using crop prices, GAO said, generated a “kind of windfall” for many insurance
agencies/agents as insurance companies, using funds from increased levels of A&O
reimbursements, pay higher commissions to compete for each other’s “book of business” and
associated underwriting gains. In response, the crop insurance industry contended that overall
agent compensation was consistent with compensation paid in related insurance industries.20
Intersection with Other Government Programs
The intersection between crop insurance and other government programs varies by commodity.
For “program crops” such as wheat, corn, and soybeans, eligible producers receive government
payments from several programs. These include the direct/counter-cyclical payment program
(with fixed payment rates/price-dependent rates, respectively), the average crop revenue election
(ACRE) program (revenue-dependent), and the marketing assistance loan program (price-
dependent).21 These programs (except for direct payments) have elements of risk reduction (i.e.,
reducing the variability of farm income or the “effective” farm price of a commodity).22 They can
also enhance farm income for participating producers. Compared with these national farm
programs, with the exception (to some extent) of the ACRE program and its state yield
component, crop insurance provides a more exact (i.e., location-specific) benefit to farmers trying
to manage price and income risk. For the other major farm programs (direct/counter-cyclical and

19 U.S. Government Accountability Office, Crop Insurance—Opportunities Exist to Reduce the Costs of Administering
the Program, Washington, DC, April 2009, http://www.gao.gov/new.items/d09445.pdf.
20 On June 1, 2009, 14 organizations affiliated with the crop insurance industry wrote to Congress to comment on the
crop insurance program performance and the need for maintaining current subsidies and A&O reimbursements. See
http://www.farmpolicy.com/wp-content/uploads/2009/06/gaocropinsuranceletter.pdf.
21 For more on USDA commodity programs, see CRS Report RL34594, Farm Commodity Programs
in the 2008 Farm Bill, by Jim Monke; and CRS Report R40422, A New Farm Program Option: Average Crop Revenue
Election (ACRE), by Dennis A. Shields.
22 For an overview of government programs designed to support farmers and help manage risk, see CRS Report
R41317, Farm Safety Net Programs: Issues for the Next Farm Bill, by Dennis A. Shields, Jim Monke, and Randy
Schnepf.
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marketing assistance loan), payments are independent from crop insurance indemnities, but the
same market factors may play a role in triggering payments in some instances. For crops not
receiving payments under federal commodity programs, crop insurance serves as a primary risk
management tool for farmers, particularly with respect to losses in yields.23
Crop insurance and other government programs for farmers are also linked via disaster programs.
The Supplemental Revenue Assistance Payments Program (SURE) requires the purchase of crop
insurance for program eligibility.24 For participation in commodity programs listed above, there is
no crop insurance requirement. Generally, ad-hoc disaster bills in the past have not required crop
insurance for eligibility, although most required future crop insurance purchases (or participation
in the noninsured assistance program) and/or linked payment rates to crop insurance participation.
In 2010, USDA implemented a disaster program (Crop Assistance Program) for producers of rice,
upland cotton, soybeans, and sweet potatoes in designated disaster counties. Program eligibility
did not require prior (or future) purchase of crop insurance.25
When crop insurance is not available, USDA’s noninsured crop disaster assistance program
(NAP) provides catastrophic coverage if purchased by the producer. To be eligible for a NAP
payment, a producer first must apply for coverage under the program by the application closing
date, which varies by crop, but is generally about 30 days prior to the final planting date for an
annual crop. Like catastrophic crop insurance, NAP applicants pay an administrative fee
(currently $250 per crop).
Farmer Concerns with Crop Insurance
The House Agriculture Committee held hearings in spring 2010 to review agricultural policy
ahead of the next farm bill debate. Comments on crops insurance surfaced as farmers, academics,
other panelists, and Members discussed the farm safety net and the role of crop insurance.
Previously, in spring 2009, the Subcommittee on General Farm Commodities and Risk
Management of the House Agriculture Committee held a hearing to receive input on the crop
insurance program from farmers. Based on the testimony, farmers appear to be generally satisfied
with the overall crop insurance program and do not seek major changes. However, producer
groups point to several issues that need attention.
Rice and Other Crops Produced in the South
While the crop insurance program receives favorable marks from farmers in general, producers of
some crops, such as rice, contend that current policies are of little value to them. According to
rice producers in California and the southern United States, drawbacks include high premiums
relative to the insurance guarantee levels and low historical yields that adversely affect
guarantees. Also, rice producers say crop insurance does not protect them against one of their

23 In some cases, a farmer’s price risk can also be managed by contracting production with buyers or by using the
futures market to lock in selling prices.
24 For more details on agricultural disaster programs, see CRS Report RS21212, Agricultural Disaster Assistance, by
Dennis A. Shields and Ralph M. Chite, and CRS Report R40452, A Whole-Farm Crop Disaster Program:
Supplemental Revenue Assistance Payments (SURE), by Dennis A. Shields.
25 CRS Report RS21212, Agricultural Disaster Assistance, by Dennis A. Shields and Ralph M. Chite.
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biggest risks—fluctuations in the cost of energy-related inputs, particularly fertilizer, fuel, and
irrigation pumping. The rice industry is working with RMA to develop a policy to address input
risk.26
Some farmers in southern U.S. producing regions and elsewhere also contend that their insurance
guarantees are too low because the calculation uses 10 years of data, which gives insufficient
weight to recent yield gains or the potential for such gains given improved seeds or management
practices. As a result, producers say insurance does not fully cover total production, and they
must self-insure the remainder.27
More Affordable Premiums
Some southern producers also feel that premiums for buy-up coverage or revenue products are
not affordable, leaving catastrophic policies (with minimal coverage) as the only viable option for
many farmers. More broadly, some farm groups have requested that current subsidies be
maintained or increased so premiums would be more affordable. 28 Corn producers want their
premiums reduced because the loss ratio has been well below 1.0 (indemnities paid divided by
premiums). RMA is reviewing the use of historical loss data, specifically whether all historical
loss should be given the same weight in determining premium rates given current crop production
technology. According to RMA, such consideration might result in lower premium rates in
several parts of the country, especially the Corn Belt.29
Nursery Products
The nursery program is an asset-based form of insurance that insures against declines in asset
values rather than insuring a percentage of average historical yield or revenue.30 Approximately
25,500 plants are listed as insurable, and coverage is available for either field-grown or container
products.
Similar to organizations representing field crop producers, the American Nursery and Landscape
Association say that the nursery industry considers the federal crop insurance program to be a
valuable component of risk management practices. According to the association, incremental
program enhancements have been made in recent years, including the use of a grower’s wholesale

26 U.S. Congress, House Committee on Agriculture, Testimony of Frank Rehermann, hearing to review U.S.
agriculture policy in advance of the 2012 farm bill, 111th Cong., 2nd sess., May 3, 2010, http://agriculture.house.gov/
testimony/111/h050310/Rehermann.pdf.
27 U.S. Congress, House Committee on Agriculture, Testimony of David Waide, hearing to review U.S. agriculture
policy in advance of the 2012 farm bill, 111th Cong., 2nd sess., May 15, 2010, http://agriculture.house.gov/testimony/
111/h051510/Waide.pdf.
28 Statements from witnesses are available at http://agriculture.house.gov/hearings/statements.html. U.S. Congress,
House Committee on Agriculture, Subcommittee on General Farm Commodities and Risk Management, hearing to
review producers’ views on the effectiveness and operations of the federal crop insurance program, 111th Cong., 1st
sess., April 22, 2009.
29 U.S. Congress, House Committee on Agriculture, Subcommittee on General Farm Commodities and Risk
Management, Testimony of William J. Murphy, Administrator of the Risk Management Agency, 111th Cong., 2nd sess.,
July 22, 2010, http://agriculture.house.gov/testimony/111/h072210/Murphy.pdf.
30 The insured causes of loss include adverse weather but not price declines. For more information on the nursery
program, see http://www.rma.usda.gov/pubs/rme/nursery.pdf.
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price list for the basis of coverage. However, they contend that the program falls short of
adequately addressing the extreme diversity and unique situations found in the industry because
production practices are less uniform than for major field crops. Producers say there is a great
degree of variation in program management across the country, depending upon agents’ and claim
adjustors’ familiarity with industry practices. A certification program would be helpful, they say.
“Shallow” Losses and Other Concerns
Farmers have several general concerns about crop insurance voiced by national farm
organizations representing a cross-section of American agriculture. The American Farm Bureau
Federation (AFBF) and others would like USDA to address shallow losses, which occur when
losses are significant for the farmer but not enough to trigger an indemnity.31 Also, this group and
others point out a need to address declines in actual production history (APH), which is used for
determining the insurance guarantee. Some farmers are subject to a declining insurance guarantee
because of recent repeated disasters. (The American Sugar Cane League has commented on the
inadequacy of the APH for sugar cane because it is adversely affected by an old variety that is no
longer being planted.)
Another broad-based farm organization, the National Farmers Union (NFU), contends that crop
insurance remains inadequate for those with multi-year disasters, and that crop quality loss
discounts applied in insurance contracts do not reflect realities of the marketplace. The
organization also wants insurance companies to offer coverage in all areas and not “cherry pick”
regions that are most profitable, a concern that USDA attempted to address in the Standard
Reinsurance Agreement signed in 2010. Finally, the organization requests a revised auditing
procedure that could avoid duplicative reviews of records. Currently, RMA requires an automatic
review if a farmer receives an indemnity exceeding $100,000.
Farm groups also have identified the need for better information management. The National
Association of Wheat Growers wants streamlined acreage reporting between crop insurance and
other USDA farm programs, while the AFBF has asked Congress to push for USDA’s completion
of the Comprehensive Information Management System (CIMS) project. The project is designed
to manage data used for both crop insurance and farm commodity programs, thereby reducing
duplicative efforts by both producers and USDA personnel.
Issues for the 112th Congress
A general policy question as Congress considers the next farm bill is whether or not there is
overlap in program benefits between crop insurance and other farm programs that together form
the farm safety net. Most critically, some observers have noted that ACRE and crop insurance can
provide duplicate coverage in certain instances and question why taxpayers should fund both
programs.32 To some extent, the potential for overpayment is reduced in SURE by including crop

31 Under the 2008 farm bill, the new Supplemental Revenue Assistance Payments Program (SURE) has provisions to
partially address the shallow loss problem, at least at the whole-farm level, by applying factors to the individual farm
program guarantee level (115% of insured value of each insurable commodity and 120% of value of non-insurable
commodity).
32 U.S. Congress, House Committee on Agriculture, Testimony of Bruce A. Babcock, hearing to review U.S. agriculture
policy in advance of the 2012 farm bill, 111th Cong., 2nd sess., May 13, 2010, http://agriculture.house.gov/testimony/
(continued...)
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insurance indemnities (and other program payments) in its farm revenue calculation for individual
producers. However, the ACRE program includes producer-paid crop insurance premiums in the
producer’s farm benchmark revenue guarantee. This helps trigger a payment earlier than would
otherwise occur, but does not alter the program payment rate, which is based on state-level yields
and national prices.
For the broader farm community, given that many farmers and ranchers who do not benefit from
commodity programs use crop insurance as their primary or perhaps only federal risk
management tool, policymakers may consider how effective federal crop insurance has been for
producers of specialty crops and livestock.
Across the federal government, controlling or reducing program costs continues to be an issue.
Over the next 10 years, federal spending on crop insurance is projected to outpace spending on
traditional commodity programs by about one-third, which might capture the attention of budget
cutters looking for potential sources of savings.
Both congressional and Administration estimates show that the renegotiation of the Standard
Reinsurance Agreement (SRA) in 2010 reduced crop insurance program costs by $6 billion over
10 years. The Administration designated $4 billion of the total for deficit reduction. However,
because changes to the SRA, and resultant cost savings, were established through administrative
and not congressional action, the implied funding changes were not captured in the budget
baseline and hence do not count as budget savings in congressional scoring of future legislation.
As a result, if there is a call for reduction in mandatory spending, including funds for agriculture,
these cuts made administratively by USDA under the SRA signed in 2010 will not be credited
toward any reductions that the House and Senate Agriculture Committees might need to make to
agricultural spending.
Insurance companies, farm groups, and some Members of Congress remain concerned that any
additional reductions to crop insurance spending will negatively impact the financial health of the
crop insurance industry and possibly jeopardize the delivery of crop insurance, particularly in
high-risk areas.33 If policymakers conclude that savings from the 2010 changes in program
delivery costs and reinsurance are sufficient, they might focus on finding potential savings within
the crop insurance program by seeking cuts in the premium subsidy for producers, which is set as
high as 80%, and totals about $5 billion annually. For example, a reduction in the average
producer subsidy from 60% to 50% is among many budget-cutting ideas in a November 2010
report by the nonprofit Bipartisan Policy Center.34
For policymakers, a main concern when contemplating financial changes to the crop insurance
program would likely be saving federal dollars without adversely affecting farmer participation,
policy coverage, or industry interest in selling and servicing crop insurance products to farmers.
For many farmers, crop insurance is the most important component of the farm safety net, given

(...continued)
111/h051310/Babcock.pdf.
33 For farm bill changes, see CRS Report RL34207, Crop Insurance and Disaster Assistance in the 2008 Farm Bill, by
Ralph M. Chite and Dennis A. Shields.
34 Bipartisian Policy Center, The Debt Reduction Task Force, Restoring America’s Future—Reviving the Economy,
Cutting Spending and Debt, and Creating a Simple, Pro-Growth Tax System, Washington, DC, November 2010, p.
113, http://bipartisanpolicy.org/sites/default/files/FINAL%20DRTF%20REPORT%2011.16.10.pdf.
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the breadth of commodity coverage and, compared with previous periods, less protection from a
decline in prices because other farm program parameters remain generally below market prices,
which reduces the potential for farm payments when prices decline.

Author Contact Information

Dennis A. Shields

Specialist in Agricultural Policy
dshields@crs.loc.gov, 7-9051


Congressional Research Service
20

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