Federal Crop Insurance: Background
Dennis A. Shields
Specialist in Agricultural Policy
December 6, 2012
Congressional Research Service
7-5700
www.crs.gov
R40532
CRS Report for Congress
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epared for Members and Committees of Congress
Federal Crop Insurance: Background
Summary
As part of the ongoing farm bill debate, Congress continues to review the effectiveness and
operations of the federal crop insurance program as part of the farm safety net. This report
describes the current federal crop insurance program as background for crop insurance provisions
in House and Senate versions of the farm bill proposed in the 112th Congress (see CRS Report
R42759, Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083).
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 (62%, on average, in 2012). Insurance policies
are sold and completely serviced through 15 approved private insurance companies. The
insurance companies’ losses are reinsured by USDA, and their administrative and operating costs
are reimbursed by the federal government (i.e., farmers do not pay delivery costs).
In 2012, federal crop insurance policies covered 282 million acres. Major crops are covered in
most counties where they are grown. Four crops—corn, cotton, soybeans, and wheat—accounted
for nearly 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 $3.9 billion during FY2000-FY2007, costs rose to $7 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.
Costs rose further to $11.3 billion in FY2011 and $14.1 billion in FY2012 when crop prices
surged again and poor weather resulted in program losses.
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.
In the coming years, outlays for crop insurance are expected to exceed commodity programs,
making crop insurance a potential target for deficit reduction. 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 industry and possibly jeopardize the delivery of crop
insurance to farmers. A main goal is saving federal dollars without adversely affecting farmer
participation, policy coverage, or industry interest in selling and servicing 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 means for helping farmers deal with business risk at a cost that is
acceptable to taxpayers.
Congressional Research Service
Federal Crop Insurance: Background
Contents
Crop Insurance History .................................................................................................................... 1
Program Basics ................................................................................................................................ 2
Types of Insurance ..................................................................................................................... 5
Yield-Based Insurance ......................................................................................................... 5
Revenue-Based Insurance ................................................................................................... 6
Whole Farm Insurance ........................................................................................................ 9
Crop Insurance Premium Subsidies ........................................................................................... 9
Geographic Distribution of Program Participation and Indemnities ....................................... 10
Distribution of Producer Subsidies .......................................................................................... 12
Federal Program Costs ................................................................................................................... 14
Private Company Reimbursement and Risk Sharing ..................................................................... 16
Standard Reinsurance Agreement (SRA) ................................................................................ 16
Trends in A&O Reimbursement and Underwriting Gains ....................................................... 19
Crop Insurance and 2012 Farm Bill Proposals .............................................................................. 20
Concluding Comments .................................................................................................................. 20
Figures
Figure 1. Federal Crop Insurance Program ...................................................................................... 2
Figure 2. Insured Acres .................................................................................................................... 3
Figure 3. Types of Crop Insurance Policies ..................................................................................... 5
Figure 4. Acres Enrolled in Crop Insurance, 2007 ......................................................................... 10
Figure 5. Crop Insurance Indemnities in 2011 ............................................................................... 11
Figure 6. Crop Insurance Indemnities in 2012 (preliminary) ........................................................ 11
Figure 7. Estimated Average Crop Insurance Premium Subsidy Per Farm in 2009 ...................... 12
Figure 8. Crop Insurance Premium Subsidies by Crop in 2009..................................................... 13
Figure 9. Crop Insurance Premium Subsidies for Top 20 States in 2009 ...................................... 13
Figure 10. Locations of Participating Farmers Receiving Premium Subsidies of More
Than $40,000 in 2011 ................................................................................................................. 14
Figure 11. Government Cost of Federal Crop Insurance ............................................................... 15
Figure 12. Risk Sharing for the Commercial Fund ........................................................................ 18
Tables
Table 1. Crop Insurance Premium Subsidies ................................................................................... 9
Table 2. Government Cost of Federal Crop Insurance................................................................... 15
Table 3. Share of Crop Insurance Company’s Gains/Losses by Fund and Loss Ratio .................. 18
Table 4. Federal Crop Insurance Program and Company Data ...................................................... 19
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Federal Crop Insurance: Background
Contacts
Author Contact Information........................................................................................................... 21
Congressional Research Service
Federal Crop Insurance: Background
ongress continues to review the effectiveness and operations of the federal crop insurance
program in preparation as part of the ongoing farm bill debate. For many farmers, crop
C insurance is the most important component of the farm safety net, given the breadth of
commodity coverage and capability to reimburse producers for crop losses.
This report provides a primer on the federal crop insurance program. For a review of proposed
changes to the crop insurance program, farm commodity programs, and disaster assistance, see
CRS Report R42759, Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240 and H.R. 6083
and CRS Report R42813, Federal Crop Insurance for Specialty Crops: Background and
Legislative Proposals.
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 availability of federal crop insurance 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, including greater subsidy levels, 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.
1 For details on farm programs, see CRS Report RL34594, Farm Commodity Programs in the 2008 Farm Bill.
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, and
CRS Report R40452, A Whole-Farm Crop Disaster Program: Supplemental Revenue Assistance Payments (SURE).
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Federal Crop Insurance: Background
Program Basics
The federal crop insurance program provides producers with risk management tools to address
crop yield and/or revenue losses on their farms. Insurance policies are sold and completely
serviced through 15 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 Figure 1 and “Federal Program Costs,” below).
Figure 1. Federal Crop Insurance Program
Farmers
• 1.2 mil ion policies purchased in 2012
• 282 million acres insured
• $117 billion in loss coverage (total liability)
Within approximately
Farmers pay a portion
30 days of loss,
of total premium to
indemnity is paid to
insurance companies,
farmer by FCIC
who forward funds to
through insurance
FCIC
companies’ claims
adjustment and
payment process
15 Private Insurance Companies
•
sell crop insurance policies through 12,500 agents
•
collect and forward premiums to FCIC
•
determine individual crop losses through 5,000 adjusters
•
pay claims with funds from FCIC
•
share gains/losses with federal government
FCIC pays A&O
In an annual settlement for each
expense
company, FCIC determines and
reimbursement to
pays (receives) the company
each company for
portion of any underwriting gain
delivery costs
(loss)
(subsidy to farmer)
Federal Crop Insurance Corporation (FCIC)
• sets standards and premium rates
• approves new products
• subsidizes farmer premiums (62% on average in 2012)
• pays 100% of delivery costs through Administrative and Operation (A&O)
reimbursement to companies
• shares gains/losses with private companies
• reinsures insurance company losses
• USDA’s Risk Management Agency operates the program (employees: 77 in
DC Headquarters and 406 in field offices)
Source: CRS, adapted from U.S. Department of Agriculture and industry sources.
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Federal Crop Insurance: Background
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 62% of total premium, on average, is paid
by the government).4 In the case of catastrophic coverage, the government pays the full premium.
In the absence of premium subsidies, farmer participation in the crop insurance program and/or
purchased coverage levels would be lower. A major benefit for producers is the timely payment
for crop losses (about 30 days after the farmer signs the claim form).
In 2012, crop insurance policies covered 282 million acres (Figure 2). Major crops are insurable
in most counties where they are grown. Four crops—corn, cotton, soybeans, and wheat—
accounted for nearly three quarters of total enrolled acres. For these major crops, a large share of
plantings is covered by crop insurance: corn at 84% of plantings; cotton, 94%; soybeans, 84%;
and wheat, 83%.
Figure 2. Insured Acres
Million acres
300
250
200
150
100
50
0
1996
1998
2000
2002
2004
2006
2008
2010
2012
Source: U.S. Department of Agriculture, Risk Management Agency.
Policies for less widely produced crops are available in primary growing areas. Examples include
dry peas, blueberries, citrus, 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).5 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.6 Crop insurance covers about 75% of total area for selected specialty crops.7 For more
4 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 whereby the company’s proportion of any underwriting gain or loss is
determined and paid.
5 A complete list of 2012 crops is available at http://www.rma.usda.gov/policies/2012policy.html.
6 Carey Frick, “Frick: Not So Peachy,” The State, May 26, 2010.
7 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
information, see CRS Report R42813, Federal Crop Insurance for Specialty Crops: Background
and Legislative Proposals.
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.8 Livestock producer can also insure against hay and forage losses
through the Pasture, Rangeland, and Forage program, which uses a rainfall index or vegetative
index to determine loss.9
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.10 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.
When crop insurance is not available, USDA’s noninsured crop disaster assistance program
(NAP) provides the equivalent of 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). No premiums are required.11
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).12 As a
result, RMA must set premium rates to only cover expected losses and a reasonable reserve. The
agency is also required to conduct periodic reviews of its rate-setting methodology, which sets
premium rates according to the average historical rate of loss (e.g., if policies pay out 10% of
their value, on average, then the rate should be 10%). Based on a review completed in July 2011,
RMA adjusted its methodology for several major commodities to give more weight to recent
years and to make other changes.13
8 For descriptions of Livestock Gross Margin (margin protection) and Livestock Risk Protection (price protection), see
http://www.rma.usda.gov/livestock/.
9 For more information, see http://www.rma.usda.gov/policies/pasturerangeforage/. Also see Monte Vandeveer,
Pasture, Rangeland, and Forage Insurance: A Risk Management Tool for Hay and Livestock Producers, University of
Nebraska-Lincoln, October 2012, http://cropwatch.unl.edu/c/document_library/get_file?uuid=3f25e3ef-68d1-4489-
a7dd-7daba3c2d385&groupId=1841&.pdf.
10 A producer may also request a written agreement, which is a document designed to provide crop insurance for
insurable crops when coverage or rates are unavailable. See the FCIC “Written Agreement Handbook,”
http://www.rma.usda.gov/handbooks/24000/2013/24020.pdf.
11 For more information on NAP, see the USDA fact sheet at http://fsa.usda.gov/Internet/FSA_File/nap09.pdf.
12 U.S. Department of Agriculture, Risk Management Agency, http://www.rma.usda.gov/help/faq/basics.html.
13 For a detailed discussion, see U.S. Department of Agriculture, Risk Management Agency, Premium Rate Adjustment,
November 2012, http://www.rma.usda.gov/news/2012/11/2013premiumrateadjustment.pdf.
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Federal Crop Insurance: Background
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, followed by a
brief explanation of whole farm insurance. 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 the two broad categories.
Nearly 1.2 million crop insurance policies were active in 2012, with revenue-based policies
accounting for 71% of the total (Figure 3), and the remainder being yield-based policies. On a
premium basis, revenue policies account for more than 80% of all policies.
Figure 3. Types of Crop Insurance Policies
(policies earning premiums in 2012 = 1.2 million)
Yield-
based
(29%)
Revenue-
based
(71%)
Source: U.S. Department of Agriculture, Risk Management Agency.
Notes: When calculated by share of premiums paid, yield-based policies account for 12% of total policies and
revenue-based policies account for 82%. Index and “Dollar” policies are included in yield-based total.
Yield-Based Insurance
When purchasing a crop insurance policy, a producer is assigned (1) a “normal” crop yield 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 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.14
14 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
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.15 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), 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 3). 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.
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.16 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
(...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, and http://www.farmdoc.uiuc.edu/cropins/index.asp.
15 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 2011, only about 11% of insured acres were insured at the
CAT level.
16 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.
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Federal Crop Insurance: Background
futures market (rather than a price determined by RMA). The biggest change was 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.17 The change
was designed to greatly simplify the insurance process for agents and promote better
understanding of the options available for producers.
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) falls 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.
17 Crops 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 annually 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 dollar
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 (RP) 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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Federal Crop Insurance: Background
Whole Farm Insurance
Adjusted Gross Revenue (AGR) and AGR-Lite policies insure revenue of the entire farm rather
than an individual crop. AGR first appeared in 1999 to protect against production or market
losses. Compared with AGR, AGR-Lite has higher coverage levels available for producers who
have multiple commodities. Both use a producer’s five-year historical farm average revenue as
reported on the Internal Revenue Service (IRS) tax return form (Schedule F or equivalent forms).
Also required is an annual farm report as a base to provide a level of guaranteed revenue for the
insurance period (a one-year period corresponding with the producer’s IRS tax period). Coverage
levels range from 65% to 80% of historical revenue.18
In general, the AGR products are designed to protect specialty crops and/or commodities which
might not be covered by individual policies. Historically, though, whole-farm insurance has seen
limited participation. With individual crop insurance policies already providing significant
protection for many producers, combined sales of AGR and AGR-Lite are usually less than 1,000
policies, a small fraction of the more than 1 million crop insurance policies sold. Also, observers
say the AGR products are complicated in terms of compiling the information needed to consider
purchasing the insurance and completing the application. Others also have noted that for such a
policy to be widely adopted, coverage levels need to be substantially higher than individual crop
insurance policies (i.e., higher than the current 80% level) in order to provide an amount of risk
protection equivalent to that afforded by individual crop policies. A delay in indemnity payment
also has been cited by producers as a drawback to those policies.
Crop Insurance Premium Subsidies
The producer’s premium for a policy increases as the levels of coverage rise, and the premium on
buy-up coverage is subsidized by the government at amounts ranging from 38% to 100%,
depending on the coverage level (Table 1). The subsidy rate declines as the coverage level rises
(i.e., deductible declines), but the total subsidy in dollars increases because policies are more
expensive.
Table 1. Crop Insurance Premium Subsidies
(government-paid portion of premium as a percent of total premium)
Coverage level (%)
CAT
50 55 60 65 70 75 80 85
Premium subsidy (%) for most polices
(including those using basic and optional units)
100 67 64 64 59 59 55 48 38
Premium subsidy (%) for enterprise units
n/a
80
80
80
80
80
77
68
53
Premium subsidy (%) for area plans (yield)
n/a
n/a
n/a
n/a
n/a
59
59
55
55
Premium subsidy (%) for area plans (revenue)
n/a
n/a
n/a
n/a
n/a
59
55
55
49
Premium subsidy (%) for whole farm units
n/a
n/a
n/a
n/a
80
80
80
71
56
Source: 7 U.S.C. §1508(e).
Notes: n/a = not applicable. A basic unit covers land in one county with the same tenant/landlord. An optional
unit is a basic unit divided into smal er units by township section. An enterprise unit covers al 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.
18 For more information, see USDA fact sheet at http://www.rma.usda.gov/pubs/rme/agr-lite.pdf.
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Federal Crop Insurance: Background
Subsidy rates range from 38% to 67% for policies using either “basic” 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 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 (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% for 2010-2012. The rising trend
results in part 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 4). 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 5 shows crop insurance indemnities by county in 2011. Relatively high
indemnities were paid in the Great Plains, where drought reduced crop yields in the south and
central areas while excessive moisture affected plantings and production in the north.19 In 2012, a
major drought affected a large portion of the United States, resulting in significant losses across
the country (Figure 6).
Figure 4. Acres Enrolled in Crop Insurance, 2007
Source: USDA, National Agricultural Statistics Service, 2007 Census of Agriculture.
19 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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Federal Crop Insurance: Background
Figure 5. Crop Insurance Indemnities in 2011
2011 Crop Indemnities by County
Source: USDA, Risk Management Agency, http://www.rma.usda.gov/data/indemnity/.
Figure 6. Crop Insurance Indemnities in 2012 (preliminary)
2012 Crop Indemnities by County
Source: USDA, Risk Management Agency, http://www.rma.usda.gov/data/indemnity/.
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Federal Crop Insurance: Background
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 nearly $6,000
per farm for farms purchasing crop insurance.20 By farm size, the calculated average ranged from
$1,300 per farm for operations with less than $100,000 in sales to $37,000 for farms with more
than $1 million in sales (see Figure 7). Unlike farm commodity programs, subsidies received
under the crop insurance program are not subject to payment limits.
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 8). 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 9). An
analysis by the Government Accountability Office shows a similar geographic distribution for
farmers receiving at least $40,000 in producer premium subsidies (Figure 10).
Figure 7. Estimated Average Crop Insurance Premium Subsidy Per Farm in 2009
$ per farm
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
All
$99,999 or less
$100,000 to
$250,000 to
$500,000 to
$1,000,000 or
$249,999
$499,999
$999,999
more
Farm sales class
Source: CRS calculation using total premium subsidies from USDA’s Risk Management Agency and 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 $5,958 per farm
(calculation includes only farms purchasing crop insurance).
20 The producer subsidy in 2009 averaged $2,500 per farm when 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.
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Federal Crop Insurance: Background
Figure 8. 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 9. 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. States in chart accounted for 87% of the total.
Congressional Research Service
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Federal Crop Insurance: Background
Figure 10. Locations of Participating Farmers Receiving Premium Subsidies of More
Than $40,000 in 2011
Source: U.S. Government Accountability Office, Crop Insurance: Savings Would Result from Program Changes and
Greater Use of Data Mining, GAO-12-256, March 2012, p. 45, http://www.gao.gov/assets/590/589305.pdf.
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 (Figure 11 and
Table 2). After ranging between $2.1 and $3.9 billion during FY2000-FY2007, costs rose to $5.7
billion in FY2008 and $7.0 billion in FY2009 as higher policy premiums from rising crop prices
drove up premium subsidies and expense reimbursements to private insurance companies. After a
decline in FY2010 following a drop in crop prices and good weather, program costs rose sharply
to $11.3 billion in FY2011 and $14.1 billion in FY2012, when crop prices surged again and poor
weather resulted in program losses.
The largest cost component is the subsidy on policy premiums for producers, which totaled $7.1
billion in FY2012. Historically, the next largest item is reimbursement of administrative and
operating (A&O) expenses to private insurance companies ($1.4 billion in FY2012). With
premiums reflecting only costs associated with policy risk, the A&O reimbursement is meant to
pay delivery costs. In four of the last 10 years, the federal government also has realized
underwriting losses (indemnities in excess of premiums received). In the other six years, the
government has realized gains, 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.
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Federal Crop Insurance: Background
Figure 11. Government Cost of Federal Crop Insurance
Producer premium subsidy
Admin. & operating expenses
Other (incl. RMA salaries)
Program loss (gain if negative)
$ bil ion
16
Total government cost
14
12
10
8
6
4
2
0
-2 2000
2002
2004
2006
2008
2010
2012
-4
Fiscal year
Source: CRS using data from U.S. Department of Agriculture, Risk Management Agency,
http://www.rma.usda.gov/aboutrma/budget/fycost2003-12.pdf.
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 (32)
2,517
960
125
3,570
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
2011 2,392
7,376
1,383
144
11,295
2012 5,370
7,149
1,411
141
14,071
Source: U.S. Department of Agriculture, Risk Management Agency, http://www.rma.usda.gov/aboutrma/budget/
fycost2003-12.pdf.
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 include federal salaries of USDA’s RMA 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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Federal Crop Insurance: Background
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 2010.21
Standard Reinsurance Agreement (SRA)
Under the current SRA and cuts specified in the 2008 farm bill, the reimbursement rate for A&O
was approximately 11% of total premiums in both 2011 and 2012, compared with an average of
19% in 2006-2009.22 This means that for every $100 in premiums collected, the companies
receive a reimbursement of $11 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.
Method for Calculating A&O Reimbursements
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 stil 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 will
negatively affect the crop insurance industry and possibly jeopardize the delivery of crop insurance, particularly in
high-risk areas. Part of the criticism of the A&O stemmed from a study by the Government Accountability Office
(GAO) on costs associated with administering the crop insurance program.23 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 dol ars 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.24
21 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.
22 The 2008 farm bill (§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.
23 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.
24 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
(continued...)
Congressional Research Service
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Federal Crop Insurance: Background
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.25 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
maintained 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.
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. Figure 12 illustrates risk
sharing for the Commercial Fund.
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.
(...continued)
http://www.farmpolicy.com/wp-content/uploads/2009/06/gaocropinsuranceletter.pdf.
25 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. See also Joseph
W. Glauber, “Crop Insurance Reconsidered,” American Journal of Agricultural Economics, vol. 86, no. 5 (2004), pp.
1179-1195.
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Federal Crop Insurance: Background
Table 3. Share of Crop Insurance Company’s Gains/Losses by Fund and Loss Ratio
(share of gains/losses in percent)
Share of Company’s Gains/Losses in
Commercial Fund (%)
Share of Company’s
Loss Ratio
Gains/Losses in Assigned Risk
Group1
(%)
Fund (%)
(IL, IN, IA, MN, NE)
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. See figure below for illustration.
Figure 12. Risk Sharing for the Commercial Fund
(for Group I states of IL, IN, IA, MN, NE)
Share of Gains/Losses
Company
USDA
Percent
Gains
Losses
100
75
50
25
0
0 to 0.5
>0.5 to
>0.65 to
>1.0 to
>1.6 to
>2.2 to
>5.0
0.65
1.0
1.6
2.2
5.0
Loss ratio (Indemnities / Premiums)
Source: CRS, using data from 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: The USDA share of gains and losses is lowest when the loss ratio (indemnities divided by premiums) is
near 1.0. Insurance companies place “less risky” policies in the Commercial Fund. Separate schedules apply to
the Commercial Fund in all other states and for the Assigned Risk Fund (policies that companies consider to be
higher risk).
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Federal Crop Insurance: Background
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.
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 during the last decade,
reflecting higher crop prices. The A&O reimbursement increased from an average of $881 million
during 2004-2006 to $2.0 billion in 2008 (Table 2). A&O reimbursements declined to $1.6 billion
in FY2009 following a decline in crop prices. Under changes in the 2010 SRA, an inflation-
adjusted cap is expected to limit future gains in A&O.
Company underwriting gains (the amount by which a company’s share of retained premiums
exceeds its indemnities) have increased substantially in recent years as weather has been
generally favorable for growing crops (Table 4). In 2012, though, a major drought across major
producing regions led to sharply higher indemnities, which resulted in losses for the 2012 crop
year.
Table 4. Federal Crop Insurance Program and Company Data
Private Co.
Net Acres
Gross
Gross
Underwriting
Crop
Insured
Premiuma
Liabilityb
Gross Loss
Gain (Loss)d
Year
(mil. acres)
($ million)
($ million)
Ratioc
($ million)
2000 206
2,540
34,444
1.02 282
2001 211
2,962
36,729
1.00 346
2002 215
2,916
37,299
1.39 (10)
2003 217
3,431
40,621
0.95 381
2004 221
4,186
46,602
0.79 696
2005 246
3,949
44,259
0.60 915
2006 242
4,580
49,919
0.77 825
2007 272
6,562
67,340
0.54
1,574
2008
273
9,851
89,893
0.88
1,098
2009
265
8,951
79,572
0.58
2,277
2010 256
7,594
78,102
.56 1,929
2011
266
11,966
114,221
.91
1,666
2012 (est.)
282
11,056
116,648
1.85
(2,186)
Congressional Research Service
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Federal Crop Insurance: Background
Source: For premium, liability, and loss ratio (except 2012), Summary of Business Report, FCIC,
http://www.rma.usda.gov/data/sob.html. For underwriting gain/loss (and loss ratio in 2012), Crop Year Premium
and Other Income, FCIC, http://www.rma.usda.gov/aboutrma/budget/cycost2003-12premiumbreakout.pdf
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).
During the last decade, 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, indemnities would be the total liability.
Crop Insurance and 2012 Farm Bill Proposals
The federal crop insurance program is permanently authorized. Hence, periodic reauthorization of
the program, including premium subsidies, is not needed. In contrast, the farm commodity
provisions of the Food, Conservation, and Energy Act of 2008 (P.L. 110-246, the 2008 farm bill)
expire with the 2012 crop year. Consequently, the 112th Congress has been considering an
omnibus farm bill that would establish the direction of agricultural policy for the next five years.
The Senate passed its version of the new farm bill (S. 3240) on June 21, 2012, and the House
Committee on Agriculture passed its version (H.R. 6083) on July 11, 2012.
Both bills would make a number of enhancements to the crop insurance program, including the
establishment of the Supplemental Coverage Option (SCO). SCO would be available for purchase
by crop producers as an additional policy to cover part of the deductible under the producer’s
underlying policy. For more information on the crop insurance provisions in the proposed
legislation, see CRS Report R42759, Farm Safety Net Provisions in a 2012 Farm Bill: S. 3240
and H.R. 6083.
Crop insurance baseline funding for FY2013-FY2022 is estimated by the Congressional Budget
Office (CBO) at $89.8 billion. H.R. 6083 would increase federal spending on crop insurance by
$9.5 billion over the 10-year period and S. 3240 would increase spending by $4.7 billion,
according to CBO projections. Two new insurance products—Supplemental Coverage Option
(SCO) and the Stacked Income Protection Plan (STAX) for cotton—account for most of the
additional cost.
Concluding Comments
For many farmers, crop insurance is the most important component of the farm safety net, given
the large number of crops available for coverage and the fact that commodity support programs
currently offer less protection from price declines than they did previously. In the coming years,
outlays for crop insurance are expected to exceed commodity programs, making crop insurance a
potential target for deficit reduction.
Congressional Research Service
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Federal Crop Insurance: Background
For policymakers, a main goal when contemplating modifications to the crop insurance program
would likely be saving federal dollars without adversely affecting farmer participation or policy
coverage. A concern from the industry is that any cuts could adversely affect company interest in
selling and servicing crop insurance products to farmers, although some say that compensation is
more than adequate. Separately, environmental groups are concerned that premium subsidies
might encourage production on environmentally fragile land.
Author Contact Information
Dennis A. Shields
Specialist in Agricultural Policy
dshields@crs.loc.gov, 7-9051
Congressional Research Service
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