Crop Insurance Unique Partnership
April 26th, 2007 by David Graves
Crop insurance works well because it is a unique public-private partnership. History has demonstrated that without Government subsidies and reinsurance, farmers could not afford to pay the premiums that would be necessary for a national crop insurance program. History has also demonstrated that without the private sector delivery system, the federal government could never sell and service the program efficiently.
From 1938 until 1981, the USDA was solely responsible for delivering the federal crop insurance program. However, in those years, crop insurance was not a very extensive program and certainly not the national program that it is today. In fact, it was more or less only a token program – one that was available only for a few commodities in a few counties in a few states. In this time period, the private insurance industry marketed only crop hail policies.
Beginning in 1981 and continuing until the late 1980s, Congress authorized a transition period for the federal crop insurance program, during which it was delivered both by USDA, through a structure known as “master marketers,” as well as private sector companies, through a structure known as the “standard reinsurance agreement” (SRA). During this period, the program was not considered successful and it never insured more than a third of the eligible acreage in the country. Not until it was completely delivered by the private sector and after receiving increased funding in the 1994 crop insurance legislation did the program begin to approach its current level of success.
Congressional funding for the program has also played a significant role in helping achieve the program’s current level of success. Increases in premium subsidies have resulted in increased participation levels and increased coverage levels. Increases in coverage and participation have been shown to be directly linked to the amount of program funding. It can be assumed that any reduction in funding for the program will have negative impacts on farmers’ participation and coverage under the program, resulting in an increased demand and need for other less efficient forms of Federal assistance.