Crop Insurance Why Private Sector Delivery
October 5th, 2007 by David Graves
Why don’t we have federal crop insurance program delivered by the federal government and save all that money we are paying to crop insurance companies and agents?
History has also demonstrated that without the private sector delivery system, the federal government could never sell and service the program efficiently. Government delivery cost twice as much and never successfully served farmers.
From 1938 until 1981, the USDA was solely responsible for delivering the federal crop insurance program. It was only a token program available in a few counties in a few states. The only policies offered by the private sector were crop hail policies.
Beginning in 1981 and continuing until the late 1980s, Congress began a transition period when the federal crop insurance program 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 never insured more that a third of the eligible acreage in the country. Not until the program became completely delivered by the private sector did it become successful.
A study released in September, 1989, by Arthur Andersen & Company concluded that USDA experienced delivery costs twice the amount of the private sector participants, on average. Specifically, the study reported that for 1987 total delivery cost by private sector companies equaled 43.17 percent of premium while for master marketers the total was 85.30 percent.