Crop Insurance ? Are you a farmer, get your crops insured

The United States federal crop insurance program has become the number one risk management tool for American farmers. The amount of coverage and crops is significant—some 128 crops in a range of coverage levels, with more than 80 percent coverage of planted acreage for the top ten crops (See Table 1). The program's beginnings were more humble.

During the Great Depression and Dust Bowl era, President Franklin Roosevelt signed into law the Agricultural Adjustment Act of 1938:

The purpose of the Agricultural Adjustment Act was to promote the national welfare by improving the economic stability of agriculture through a sound system of crop insurance and providing the means for research and experience helpful in devising and establishing such insurance.
Subsequently renewed key legislation in the history of U.S. federal crop insurance:
1980 - Public-private partnership established

2000 - The Agricultural Risk Protection Act enacted increased farmer participation through increased premium subsidies; provided for private sector development of insurance policies
2007 - Farm Bill - crop insurance used to pay for other programs
2012-13 - Crop insurance at the center of Farm Bill proposals.

The crop insurance program is administered by the Risk Management Agency (RMA) of the U.S. Department of Agriculture (USDA), and a nine-member Federal Crop Insurance Corporation (FCIC) Board of Directors of USDA, farm, and regulatory and state insurance personnel that review/approve policies. The Standard Reinsurance Agreement (SRA) is the financial and regulatory link between USDA and 17 private Insurers and more than 12,000 Insurance agents, in a unique federal-private partnership.

RMA renegotiated the SRA in 2005 and 2011, which together with the 2007 Farm Bill obtained approximately $16 billion in savings over time through reduced underwriting gains for the insurers and administrative and operating reimbursements that are an inducement to companies' participation in the program. Yet because of widespread use among farmers and increases in commodity prices, program costs continue to grow (See Table 2).

The private sector's role remains essential as it enables non-government funds and resources, i.e., reinsurance, to provide a backstop and stability, helping the U.S. program remain the largest and most innovative. One key product that originated from the private sector was revenue insurance, which ties liability to the commodity exchanges and tracks true market value of a farmer's crop or commodity. This was a particularly useful insurance tool in 2012 during the severe drought. The Harvest Price Option provides upside protection from the expected insurance price calculation in Spring to the higher price in Fall because of the low production and increased commodity prices for corn and soybeans last year.