Crop insurance in the U.S. began in the early 1880s, when private firms began offering insurance policies to protect farmers from the damage caused by hail storms. While private crop-hail policies are still sold in the U.S., most crop insurance programs are administered by the U.S. Department of Agriculture’s Risk Management Agency (USDA/RMA), which works with private-sector firms to sell and service policies for individual producers. Learn more about the crop insurance public-private partnership:
Federal involvement in crop insurance began in the 1930s and has greatly evolved over the years to form the foundation of U.S. agriculture policy. In fact, in 2019, Federal crop insurance programs administered by USDA/RMA covered over $110B in crop value (liabilities) across 130+ different crops grown on over 310 million U.S. acres. Corn and soybeans are the most widely insured crops, together comprising 64% of 2017 liabilities. When added with wheat and cotton, the four crops comprise 74% of covered 2019 liabilities. Crop insurance program availability varies by state, with programs generally offered for each state’s most commonly grown crops.
As discussed in the previous lesson, farmers and ranchers must manage a variety of production and market risks to ensure consistent profitability. Crop insurance programs are designed to help producers these production and market perils. Production perils include mainly weather events that reduce crop yields. The list of weather perils can be summed up as follows: too hot, too cold, too wet, too dry, too windy; policies may also cover perils like fire, hail, insects, etc. The story of market perils is less complex – it’s simply an unexpected decline in market prices.
Federal Multi-Peril crop insurance programs address only yield issues and are available for many dozens of crops. Federal Revenue crop insurance programs help to cover losses due to both production and market losses. Revenue policies are available for the most common U.S. crops, including corn, cotton, soybeans, and wheat.
USDA/RMA also offers a Whole Farm Revenue Protection (WFRP) policy that covers a farm’s total expected annual revenue from all commodities produced on the farm. If a farm’s revenue for the year falls below the insured level of revenue, the farm receives an indemnity payment to help make up for the revenue loss. WFRP covers losses caused by both production and market perils. WFRP works especially well for diversified farms growing a range of crops, including livestock.
Unlike most other types of insurance, premiums for Federal crop insurance programs are subsidized, meaning a substantial portion, often around 60%, of the premium is covered by the U.S. government. Naturally, this subsidy value substantially influences producer participation decisions.
Insurance programs are governed by very specific rules that define coverage terms and the responsibilities of both the insurer and the insured. When considering any insurance coverage, a smart buyer will carefully consider an available program’s costs and expected coverage terms. Because Federal crop insurance must be purchased through a local crop insurance agent, most producers learn to rely on their agent’s expertise as they evaluate a given program’s benefits and limitations.
The RMA website provides an agent locator tool to help producers find a list of local agents who can help them evaluate and purchase a crop insurance policy.