Crop Insurance Why A Federal Subsidy
October 4th, 2007 by David Graves
Home owners and other businesses buy insurance from the private sector. Why does crop insurance need a federal subsidy?
Insurance, as a general, commercial product, is founded on the principle of uncorrelated losses, which means only one or a few policyholders suffer a loss from any specific disaster.
Agriculture production and marketing disasters result in highly correlated losses, which mean a large number of farmers experience losses from the same disaster. Thus, crop insurance, especially on a multi-peril basis, cannot be priced attractively enough to be marketed successfully as a fully commercial product. Therefore, a federal program is necessary to have crop insurance widely available to farmers, ranchers and growers across the nation. This is especially true when we provide insurance to farmers regardless of size, location and financial status.