Crop Insurance Subsidizes Insurance Companies as Much as Farmers

Tuesday, April 24, 2012
Washington’s effort to help protect the American farmer has proven to be a billion-dollar bonanza for insurance companies and agents.
According to a report from the Environmental Working Group, the federal government’s crop insurance program has cost about $50 billion. But only half of this money has actually gone to farmers. The rest, about $25 billion, has been paid to insurance companies to cover premiums and to insurance agents in the form of commissions. The annual cost has more than tripled in the past ten years.
The crop insurance program has become so costly because its subsidies give farmers “irresistible incentives to buy more insurance, and more expensive types of insurance, than they would buy if they had to spend their own money,” states the report.
“Another reason the program costs so much is that insurance companies have to be paid large subsidies to induce them to take on a small portion of the risk of having to make large payouts,” the report continues. “And finally, the agents who sell these policies earn commissions far in excess of what a competitive market would pay.”
The Environmental Working Group suggests reforming the program by simply giving away the insurance to farmers for free, which, the group contends, would actually save the government more money than to continue the current arrangement.
The author of the study, Bruce Babcock of Iowa State University, proposes a “single, simple and free yield protection policy covering 70 percent of average crop yield. The policy would compensate producers for a financial loss caused by bad weather–at 100 percent of the crop’s market price. Farmers would be asked to pay a small fee to cover the much lower costs of delivering this program.”
-Noel Brinkerhoff
To Learn More:
Giving It Away Free (by Bruce Babcock, Environmental Working Group) (pdf)

'Free' Crop Insurance Might Save Taxpayers $18.5 Billion (American Agriculturist) 


CJensen 6 years ago
this article is very ignorant. first off the system does not work the way it is defined in this article. the annual cost has risen because he commodity price has risen. crop insurance is used as a safety net to assure that farmers can sustain during bad crop years, without crop insurance many farmers would be out of business and i speak from experience. this article says "insurance companies have to be paid large subsidies to induce them to take on a small portion of the risk of having to make large payouts,” wrong! runs at almost a 50/50 ratio with the insurance company paying roughly 95% of the outside labor as well as office staff and the cost of operating the locations of those offices furthermore as far as the comment about the agents......"and finally, the agents who sells these policies earn commmissions far in excess of what a competitive market would pay"...this is a complete falsehood, the agents compensation is justified as the majority of the agents are specialists in the crop insurance arena, they understand farming, the farmers and the needs of those farmers and for the 2011 year the agents compensation was cut at a minimum of 50% right off the top, 50%!...i do not know one solid business entity that can survive that type of cut to their overall gross operating budget because there is not one. while reading this article i became upset because i speak first hand as a farmer that had crop insurance for my family business that was already implemented when i began farming therefore i maintained the crop insurance because i was following our management protocal and while i was working with my family i went out on my own and farmed away from my family and did not buy crop insurance because i was ignorant and did not understand the dynamics of crop insurance and i lost money farming for 4 years in row and only farmed for 3, yes i said that right...had i purchased crop insurance for my own crops i would still be farming the entity that did not have crop insurance and most likely would have farmed many many more acres but because i did not have crop insurance i went out of business and was forced to close that entity. while we are on this subject i wonder why crop insurance is bein picked on overall as it does not make sence to me....what i feel should be mentioned/questioned is how come no one is mentioning the u.s.a. giving $160,000,000.00 to moracco for moracco's olive program......moracco grows olives, sells to spain and they in turn sell to the u.s.a....99% of all commercially grown olives are in the state of california, does it not make sence to help the crop industry in the u.s.a. first?....what about that enviormental working group?

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