Farm Bill Primer: Federal Crop Insurance Program

Farm Bill Primer: Federal Crop Insurance Program

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August 26, 2022
Farm Bill Primer: Federal Crop Insurance Program
The federal crop insurance program (FCIP) helps make
pay an increasing share of premiums for higher levels of
insurance coverage available to farmers from private sector
coverage, up to a maximum of 62% of the total premium.
insurers to help mitigate potential financial consequences of
adverse growing and market conditions. The U.S.
FCIP policies insure agricultural commodities against
Department of Agriculture (USDA) regulates the policies
losses due to unavoidable natural events. Certain policies
offered and subsidizes the premiums that farmers pay in
also insure against losses from seasonal market price
order to encourage farmer participation in the program.
declines. Covered perils or “causes of loss” include adverse
Premium subsidies covered about 62% of the total premium
weather conditions (e.g., hail, frost, drought, flooding);
on average for all policies sold in 2021. Since its inception
failure of irrigation water supply; fire; plant diseases; and
in 1938, the FCIP has grown from an ancillary program
insect and wildlife damage. Farmers are required to follow
with low participation to a central pillar of federal farm
USDA’s guidance on good farm management practices in
support, with more than 444 million acres and $150 billion
order to maintain coverage eligibility.
in crop and livestock value insured in 2021 (Figure 1).
Authorized insurance companies, called Approved
Figure 1. Acres and Value Insured by the Federal
Insurance Providers (AIPs), sell and service FCIP policies.
Crop Insurance Program, 2000-2021
USDA regulates the policies offered and their pricing.
USDA also provides program delivery subsidies to the AIPs
to compensate for the cost of selling and servicing FCIP
policies and reinsures a portion of the policies sold as per
the terms of two annual agreements between USDA and the
AIPs: the Standard Reinsurance Agreement (SRA) and the
Livestock Price Reinsurance Agreement (LPRA).
Appropriations and Program Outlays
The Federal Crop Insurance Corporation—the agency that
finances FCIP operations—is funded with mandatory
appropriations of “such sums as necessary.” Annual federal
program outlays averaged $9.1 billion for FY2012-FY2021,

adjusting for inflation (Figure 2).
Source: CRS using data from U.S. Department of Agriculture
(USDA) Risk Management Agency Summary of Business database,
Figure 2. Federal Crop Insurance Program Outlays
downloaded August 19, 2022.
FY2000-FY2021
Notes: Values not adjusted for inflation. Years are crop years.
The FCIP is permanently authorized under the Agricultural
Adjustment Act of 1938 (P.L. 75-430, 52 Stat. 72) and the
Federal Crop Insurance Act of 1980 (P.L. 96-365, 7 U.S.C.
§§1501 et seq.), as amended. Title XI of the Agriculture
Improvement Act of 2018 (2018 farm bill; P.L. 115-334)
made minor modifications to the FCIP to expand coverage
offerings and reduce program outlays.
Program Overview
The FCIP offers insurance coverage for most field crops, a
wide variety of specialty crops, certain types of livestock

and animal products, and grazing lands. FCIP coverage is
Source: CRS using data from USDA, Federal Crop Insurance
available for purchase in all U.S. counties, although
Corporation/Risk Management Agency’s Financial Statements, audit
coverage for some crops may be limited in certain areas.
reports, various fiscal years.
Farmers can choose among many types of policies and
Notes: Adjusted for inflation using the U.S. Bureau of Economic
policy options to customize coverage to their farm
Analysis Implicit Price Deflators for Gross Domestic Product where
businesses’ specific needs. The amount of premium subsidy
2021=100, updated July 28, 2022.
farmers receive depends on the coverage purchased. USDA
fully subsidizes premiums for catastrophic-only (CAT)
Outlays tend to increase with the number of policies sold
coverage; farmers pay only an administrative fee. Farmers
and with increases in commodity prices. Between 2012 and
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Farm Bill Primer: Federal Crop Insurance Program
2021, premium subsidies for corn, soybeans, wheat, and
subsidies to farmers who planted cover crops in 2021
cotton averaged 78% of all premium subsidies paid.
and/or 2022.
2018 Farm Bill Changes
Issues for Congress
The crop insurance title in the 2018 farm bill was nearly
The FCIP is a central component of the federal farm safety
budget neutral, with small increases and decreases across
net, a collection of programs that provide risk protection
several provisions. Changes that were projected to increase
and financial support to farmers in times of low farm prices
budgetary outlays included authorizing CAT coverage for
and natural disasters. In the last three farm bills, Congress
grazing crops and grasses; allowing separate coverage for
has expanded the FCIP to cover more commodities and
crops that are grazed and mechanically harvested in the
more types of risks. Although crop insurance market
same season; redefining the term beginning farmer or
penetration for field crops has been high historically,
rancher for whole-farm revenue protection policies; and
opportunities exist to expand participation, especially for
waiving certain requirements for hemp coverage proposals
specialty crops, livestock, and animal products.
submitted by the private sector. Changes that were
projected to reduce budgetary outlays included increasing
Numerous stakeholders have proposed reducing the cost of
the administrative fee for CAT coverage; authorizing
the FCIP by capping underwriting gains for AIPs, reducing
multicounty enterprise units; reducing funds for certain
premium subsidies for producers, introducing premium
research and development contracts and partnerships;
subsidy eligibility criteria based on the producer’s adjusted
reducing funds for review, compliance, and program
gross income, among other proposals. Additionally, the
integrity; as well as changes in how producer benefits are
SRA has been in effect since 2011. In 2017, the
reduced when planting on native sod.
Government Accountability Office recommended that
Congress repeal Section 11012 of the Agricultural Act of
The 2018 farm bill also added hemp to the list of crops
2014 (P.L. 113-79)—which requires SRA renegotiations to
eligible for FCIP premium subsidies and post-harvest
be budget neutral—and that it direct USDA to renegotiate
coverage; established a specialty crops coordinator;
the SRA to achieve additional cost savings. Congress could
amended the rules for cover crop termination; expanded the
consider whether existing authorities and the terms of the
definition of underserved producers; and directed USDA to
SRA and LPRA are sufficient to achieve desired cost
conduct research for developing FCIP coverage for priority
control aims for the program.
items, among other changes. In response to research
priorities identified in the 2018 farm bill, USDA updated
The PACE endorsement and the PCCP provide incentives
Whole Farm Revenue Protection policies and introduced
within the FCIP for farmers’ use of conservation practices.
coverage for hurricanes, quality losses, water conservation
Some environmental stakeholders have proposed to
practices for irrigated rice production, and micro farms.
enhance the FCIP’s role in promoting conservation and
improving soil health. Congress may consider the potential
Non-Farm Bill Changes Since 2018
environmental benefits of these proposals and what their
Since 2018, USDA has used administrative authorities to
effects might be on the actuarial soundness of the program.
make additional changes to the FCIP. Using the FCIP’s
authority to adopt coverage developed by the private sector
The number of private-sector insurers participating in the
(7 U.S.C. §1508(h)), USDA introduced the Enhanced
FCIP has decreased over time, largely due to consolidation
Coverage Option (ECO)—an area-based insurance policy
in the insurance industry. Congress may choose to examine
that covers a portion of a farmer’s deductible not otherwise
the drivers of this consolidation, as well as any implications
insurable with FCIP coverage—and the Post-Application
of consolidation on outreach to producers in underserved
Coverage Endorsement (PACE) for farmers who apply
areas and on insurers’ willingness to market new types of
certain fertilizers in both the fall and spring. USDA used
crop insurance coverage.
administrative authorities to make changes to grazing rules
on land that was prevented from planting during the crop
For additional background, see the following CRS reports:
season due to adverse weather and to increase premium
subsidies available for certain livestock policies. Prior to
 CRS Report R46686, Federal Crop Insurance: A
2018, the Agricultural Risk Protection Act of 2000 (P.L.
Primer
106-224, §132) limited the funds available for premium
subsidies for livestock. Section 60101(c) of the Bipartisan
 CRS Report R46874, Federal Crop Insurance Program
Budget Act of 2018 (P.L. 115-123) removed this limitation.
(FCIP): Replanting, Delayed Planting, and Prevented
Planting
In addition, USDA made other changes to the FCIP in
response to provisions from annual and supplemental
 CRS Report R45291, Federal Crop Insurance: Delivery
appropriations acts. USDA used funds provided by the
Subsidies in Brief
Additional Supplemental Appropriations for Disaster Relief
Act, 2019 (P.L. 116-20) to provide additional payments to
 CRS In Focus IF11919, Federal Crop Insurance for
insured acres that were prevented from being planted in
Hemp Crops
2019. USDA used funds appropriated by Congress in the
Consolidated Appropriations Act, 2021 (P.L. 116-260) to
Stephanie Rosch, Analyst in Agricultural Policy
create the Pandemic Cover Crop Program (PCCP). The
PCCP provided up to $5 per acre in additional premium
IF12201
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Farm Bill Primer: Federal Crop Insurance Program

Disclaimer
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