Crop Insurance: How the Taxpayer Loses

Federal crop insurance has overtaken disaster relief payments as the main safety net for America's farmers. Most major crops are insured – with some polices guaranteeing that payouts will be tied to commodity prices that surge when severe weather triggers failures. Taxpayers shelled out a record $14 billion in payouts and subsidies in 2012.

Published Sept. 9, 2013

Farmer opts into insurance program

A farmer must apply for coverage for spring crops by contacting an agent for one of the 18 private insurance providers approved by the USDA’s Risk Management Agency.

Determines policy type with agent

Farmers typically buy a Multiple Peril Crop Insurance policy, guarding against insect infestations, diseases and a variety of severe weather events.

Federal coverage is widespread

Over 80 percent of the nation's acreage for major crops – including corn, cotton, soybeans, wheat and tobacco – is covered by federal crop insurance.

Chooses how protection is measured

Farmers may choose among polices that protect their yield (the size of their crop) or their revenue (the income the crop generates). Revenue protection plans accounted for two-thirds of sales in the 2012 crop year.

Taxpayers cover majority of premium

The farmer typically pays the insurance company a portion of the premium; in 2012, insurance companies billed the U.S. government for 62 percent of the premium.

Coverage is split by county

Insurance coverage is apportioned by county – so larger farmers may have several policies covering their land across multiple jurisdictions. Last year, almost 1.2 million policies were sold.

In the event of a crop failure

An insurance adjuster typically makes an on-site inspection to confirm a harvest failure. The payment trigger depends on the type of policy: a 16% failure rate will draw a disbursement for a farmer who has a policy with an 85% coverage level.

Government pays companies' costs

Farmers are typically paid within 30 days of a reported loss by the insurer. Private insurance companies received $1.4 billion last year in federal assistance to cover "administrative and operating" costs.

Payout based on coverage type

Most payouts that farmers recieve are based on yield histories or the actual price at harvest, depending on the policy purchased.

Source: Bloomberg reporting