NSAC's Blog
LSP Releases White Paper on Government Subsidies to Large Corporate Crop Insurance Companies
November 25, 2014
On November 24, the Land Stewardship Project released a new white paper, Crop Insurance – The Corporate Connection, part of a three-part series entitled How a Safety Net Became a Farm Policy Disaster. The first white paper outlines the profits being obtained by a few corporations from the multiple subsidies provided them by the federal government through the federal crop insurance program. Two other reports in the series will be released on December 2 and December 8.
White Paper Findings
The first LSP paper includes a number of key findings:
- Between 1989 and 2009 the crop insurance industry received returns of 17 percent costing the federal government $58.7 billion for just 2003-2012.
- In addition to premium subsidies amounting to $42.1 billion between 2003 and 2012, equivalent to a subsidy of 71 cents for every dollar of premium, federal taxpayers also covered $4.1 billion of underwriting losses and $12.5 billion in administrative costs provided to the insurance companies over the same period.
- There is a disconnect between what insurance companies are paid for servicing policies and the actual costs associated with the policies. Between 2008 and 2013 when corn and soybean prices were at historic highs, reimbursements for administrative expenses were also up. Logically the reimbursements should have been lower, if there was any connection between reimbursements and actual costs. For revenue protection insurance policies, which represent the vast majority of crop insurance policies, high prices mean fewer claims. Fewer claims should mean fewer expenses for the crop insurance companies and in turn lower costs for the federal crop insurance program. However, that is clearly not what happened.
- Crop insurance companies are able to offload their liability for the riskiest policies to the federal government and keep the most profitable for themselves. They do this by sending each policy to either a risk pool maintained by the government or one maintained by the company. The companies make this choice based how much risk they choose to take on. This practice has allowed these companies to accumulate $10 billion in gains over the last 10 years while sticking the taxpayer with $2.8 billion in losses. In fact, in all but three years in the last 21 crop insurance companies have had a gain.
According to Paul Sobocinski, an LSP member and crop and livestock farmer, “Through crop insurance, they’ve privatized the profits and passed the costs onto the public….It’s time we returned crop insurance to its original intent – as a fiscally sound safety net that supports family farmers and is accountable to the public.”
Federal Crop Insurance Program
Farming is inherently a risky business. Weather, pests, variable costs for inputs, and wild fluctuations in market prices for farm products create a volatile business environment and can cause farm income to vary significantly from year to year.
Traditionally, farmers managed risk by growing multiple crops and raising a variety of livestock. If one crop failed or prices for cattle or hogs were low, then sales of other products would make up the difference.
Additionally, a healthy farm and food system depends on public policies that help farmers manage risk effectively. A federal crop insurance program that is accessible to all types of farmers and provides a basic safety net can part of good farm and food system.
However, the current federal crop insurance program is skewed in favor of less diverse crop production systems that are not only more vulnerable to markets, weather, and pests, but that also have serious environmental impacts. The GAO recently published a report outlining the federal crop insurance programs vulnerabilities to climate change.
NSAC will continue to advocate for an accessible, environmentally sound, and fair crop insurance system.
Categories: Commodity, Crop Insurance & Credit Programs
Three years ago when the Senate was working in the 2012 Farm Bill,which got postponed to 2014, delivered a written statement to Senator Stabenow’s office urging her as chair of the Senate Ag Committee to propose making crop insurance a single payer system administered by an insurance/risk management office within USDA. Farmers would pay into the risk sharing pool at lower rate than ins. corps charge now and USDA would respond to any claims. Premium prices would vary by the risks the insured’s crops and location might incur, but administration costs would be lower than ins corps. incur and risk estimates would probably be more realistic than Ins. Corporations make now. Some subsidy to cover losses might be needed, but certainly less than the 60-80% that the companies are getting now to cover risks of factory farms now.
I didn’t go into the risk management part in my letter to the Senator. At the time I could not either see or Chris Adamo, her Ag Committee staff person so I left with the receptionist. I assume both the Senator and Chris saw it. I don’t recall seeing
a response. I would think that a producer could opt for either ARG or Price Loss coverage under such a system.