January 13, 2010 A Snapshot Of The Federal Crop Insurance Program

Crop insurance companies earn excessive profits at taxpayers’ expense

U.S. crop insurance companies, especially those subsidized mainly by tax dollars, are doing quite well from their perspective—revenue is skyrocketing. 

However, the Risk Management Agency of the USDA (United States Department of Agriculture) points to excessive gains on the part of those companies that rely greatly on taxpayers for their revenue, proportions of it that would otherwise be paid by actual customers in those companies unsupported by the government.  In essence, the federal crop insurance industry is getting extremely rich at the expense of people whose relationship to it is at best indirect.

A Crop Insurance Program Behaving Badly

This is not to say that tax dollars shouldn’t be spent to help some of the businesses that help the farmers. After all, each and every one of us depends on farmers for the food in our pantries.  However, when an organization is so reliant upon federal subsidies, one has to wonder what’s going on when they begin to report disproportionate increases in revenue that are, as implied, not accounted for by inflation or other legit factors.

Iowa State University’s Center for Agricultural and Rural Development discussed the RMA’s criticisms of the federal crop insurance program in its Iowa Ag Review (Fall 2009, Vol. 15 No. 4) – Examining the Health of the U.S. Crop Insurance Industry. 

IAR

According to the Iowa Ag Review analysis, the conclusion the RMA reached is equivalent to the one we all would reach if we looked at the reports surrounding federal crop insurance’s finances:  something strange is going on.  As is often the case when large amounts of money passes through a large amount of hands, finding out who did what and why is not the easiest of tasks.

“Insurance companies obtain revenue from premiums paid by their customers and obtain additional revenue from invested capital. This revenue must cover claims paid out, the cost of adjusting claims, any cost of reinsurance, as well as other overhead costs such as salaries. Profits are positive when total revenue exceeds total costs. The big difference between the crop insurance industry and unsubsidized insurance industries is that about 80 percent of the premium revenue that would be paid by customers is actually paid by taxpayers. This 80 percent number consists of the 60 percent of premiums that are paid by taxpayers and the 20 percent expense reimbursement. In addition, taxpayers provide crop insurance companies subsidized reinsurance in exchange for the requirement that the companies must sell insurance to all farmers in areas in which they do business.

That such a large portion of premium is paid by taxpayers heightens the importance of determining whether the RMA report of a 72 percent excessive rate of return does, in fact, accurately describe the current situation.”

Why Live Asset Insurance Is Not Like Federal Crop Insurance

In the interest of fairness, Live Asset Insurance does not cover row crops like corn, wheat or soybeans. The one portion of the agriculture market we do cover is nurseries. That being said, our policies and coverage function much differently and more efficiently than federal crop insurance models.

Since Live Asset Insurance relies exclusively upon individuals for revenue, this kind of scenario is extremely unlikely to occur, and it actually highlights the advantage that we bring. 

An increased price for your policy means a more encompassing policy—a rule that was apparently violated in the case of those companies receiving tax dollars. The quality of the policies sold remained the same while their prices soared.  If any merchant, tax funded or not, just suddenly demanded a heightened price/budget for a service or product without any corresponding gain on your end, you would rightly wonder about the legitimacy of the exchange. 

Live Asset Insurance provides simple, easy, effective crop insurance coverage where federally subsidized policies fall short.  This critical assessment of federal crop insurance programs is more reason to consider Live Asset and explore the difference between federal coverage and our crop insurance.