Blog » The U.S. Crop Insurance Program: Recent Developments

The U.S. Crop Insurance Program: Recent Developments

Created Mar 04 2020, 1:07 PM by Fotios Stravoravdis
  • Agrifinance
  • Insurance

The Federal Crop Insurance Corporation (FCIC) was created in 1938 to carry out the crop insurance program to help agriculture recover from the combined effects of the Great Depression and the Dust Bowl. Initially, the program was started as an experiment, and did not take off until passage of the Federal Crop Insurance Act of 1980, along with significant reforms in 1994 and 2000. In recent years the crop insurance has grown to cover over $100 billion of crop value with the subsidies of $8 billion per year most of which partially covers the premium. During the discussion, Mr. Worth, Chief Actuary of USDA, emphasized that the US agriculture insurance program took 40-50 years to grow based on the continuous learning from the mistakes. Lessons and challenges of the program discussed in the session include:

  • Insurance helps farmers to have a long-term view by covering short-term production risks. This encourages them to make long-term investments in climate smart agriculture and other technologies.
  • Revenue protection insurance is the most popular product and easily structured for corn thanks to the availability of the price data from the commodity exchange.
  • Basis risk related to index insurance products is difficult to reduce. It also takes time to establish actual loss and makes payments for the area yield products.