Crop Insurance Talking Points

Crop Insurance Talking Points

Compiled by Illinois Farm Bureau®

` March 1, 2013

Background: Last summer’s drought, coupled with ongoing efforts to complete the next Farm Bill, are leading to increased interest in crop insurance. Many on the political right and left are critical of crop insurance, especially the portion of premiums that is covered by the federal government. These talking points are intended to serve as background for Farm Bureau leaders as they talk with the media and the general public about the subject.

·  The 2012 crop year in Illinois should have demonstrated once and for all that crop insurance is the most valuable and critical farm program for Illinois farmers. Farmers spent roughly $330 million out of pocket to cover more than 17 million acres of production in Illinois valued at more than $12 billion last year. The worst drought in decades reduced corn yields considerably and as of February 25, Illinois farmers received $2.6 billion in crop insurance indemnities. Our loss ratio of 3.43 leads the nation, or $3.43 cents in losses for every $1 paid in premiums. In the previous 10 years, the average loss ratio was 0.49.

·  Prior to the development of the modern crop insurance program, response and reaction to agricultural disasters came in the form of 42 supplemental ad-hoc disaster bills which cost taxpayers $70 billion since 1989 and took as long as 18 months to reach farmers with claims. The average crop insurance claim takes about 30 days to process.

·  Crop insurance premium subsidies are not direct cash transfers to farmers. Farmers receive a discount on their premiums and receive an indemnity payment only in the event of an insurable loss. The federal government serves as reinsurer and shares in the underwriting gains or losses of each policy. Those gains returned about $4 billion to the federal government in the past decade, which can and will be used to offset losses in years like 2012.

·  The farmer’s share of the premium represents a significant annual expense with no guarantee of a return other than peace of mind. The out-of-pocket expense for farmers, based on average per-acre premiums for corn and soybeans, can run in the neighborhood of $20,000 per year for an Illinois farm operator with approximately 1,000 acres. Over the past decade, Illinois farmers have paid $2.5 billion out of pocket for crop insurance policies. It is estimated that 90 percent of Illinois grain farmers take crop insurance, covering 80- to 85 percent of the state’s corn and soybean acres.

·  It is vital to our national security that farmers stay in business. History shows that a hungry nation – or a nation dependent on others for food – is vulnerable and unstable. During the dust bowl of the 1930s, American citizens literally starved to death. In the years since then, Congress has taken seriously the need to support American agriculture to ensure a stable and abundant food supply.

·  Crop insurance is very expensive because of the inherent risks in farming, including the weather, global markets, government policies and other factors. Taking all of those risks into account, actuaries establish crop insurance premiums annually. If premiums are not set accurately, insurers and re-insurers would not participate.

·  Just as many employers share in the cost of health and life insurance premiums for their employees, the government shares in the premium cost to insure crops. The government’s share is NOT a handout to the farmer. It is a discount to the total crop insurance premium.

·  A number of entities work together and share the responsibility for ensuring the crops that are our nation’s food supply, including farmers, private crop insurance companies, private reinsurance companies and the federal government.

·  $15.4 billion in underwriting gains total from last 10 years offsets this years expected $16 billion in claims especially when you add in 2012 premiums which aren’t on the slide;

·  The 16 licensed companies were in a position to capture 73% of the underwriting gains meaning they were also responsible for that much of the claims had those been large loss years. It is then proper to estimate that 2012 numbers would similarly indicate that the companies face the majority of the losses not the federal government and taxpayers as some have portrayed. Companies don’t get to keep the premiums if they don’t keep the risks that go along with those premiums. Farmers are the first line of loss since at a minimum they have a 15% deductible on personal policies; and

·  The federal government shared in $4 billion of the underwriting gains the last 10 years helping offset their costs in administering the program.