To Insure or Not to Insure. That is the Question.

Monday March 15th was the application deadline for farmers in our area to sign up for the Federal Crop Insurance Program.  This program is a public/private partnership between the federal government and private insurance companies.  In essence, the feds and the private insurance industry share the risk of liability (and reward of underwriting gains if they receive more premium than are paid out in claims).  The private insurers "deliver" the product to farmers and the feds pay the companies a fee for administration and overhead.  In addition, the feds subsidize a portion of the premiums paid by farmers.  In most instances farmers pay the majority of the premium and have the freedom to choose whether or not they wish to participate at all.  They can choose among several different types of insurance as well as different deductibles as well.  Generally speaking the insurance products are based on crop yields alone or some combination of crop yields x price (in other words gross revenue).

Full disclosure here -- besides being a user of crop insurance (as a farmer) I am also a purveyor (as an agent).  But being both gives me a somewhat unique view.  Over the past several years, the feds have been reducing the premium (and delivery) subsidies.  Doing so is steadily making the insurance program costlier to deliver and to utilize by farmers.  We are seeing more and more farmers taking less and less insurance as their costs escalate.  Don't get me wrong, on the one hand I get it.  Federal budget deficits being what they are we all have to tighten our belts.  On the other hand, as taxpayers and food consumers we need to understand that ultimately farmers must be profitable to stay in business.  Historically, in farm-disaster situations, Congress would often pass ad-hoc disaster assistance legislation.  This type of assistance was wholly taxpayer funded, fairly inefficient, and too often politically motivated.  There were often "disasters" every year (especially in hotly contested Congressional districts).

That's why I think private/public partnerships like the current crop insurance program are better.  Everybody shares in the risks and rewards.  Taxpayer/consumers, farmers, private industry and the feds are all in the same boat.  Run well, crop insurance can help maintain a safe and affordable food supply, help keep farmers in business and result in long term savings to taxpayers and the federal government.  Shift the burden too much to any one party and the whole thing could fall apart.  That would be a shame.