The Vital Role of Crop Insurance: Protecting Farmers, Ensuring Food Security, and Strengthening Rural Economies
August 6, 2023 by Jim Korin
Crop insurance is more than just a risk management tool for farmers — it is a vital component of the American agricultural sector, supporting price stability, promoting food security, strengthening rural economies, and reducing reliance on government aid. It’s also part of the Farm Bill, the federal government’s primary agriculture and food policy legislation, which is up for renewal this year.
Dating back to the Federal Crop Insurance Act of 1980, crop insurance has thrived as a result of the enduring partnership between the Federal Government, the private sector, and the American farmer. Today, this collaboration ensures that approximately 90% of production agriculture in the United States is safeguarded by crop insurance, covering nearly 400 million acres across 135 crops. Without crop insurance, rural communities nationwide would not be as vibrant as they are today.
In a recent testimony before the U.S. Senate Committee on Agriculture, Nutrition and Forestry-Subcommittee on Commodities, Risk Management, and Trade, I had the privilege of highlighting the indispensable role that crop insurance plays in supporting the American farmer and preserving the vitality of rural communities.
Although crop insurance serves as a financial safety net, protecting farmers against losses caused by various threats that can adversely affect crops, its significance extends far beyond individual farmers’ well-being. One of the key contributions of crop insurance is maintaining price stability in the agricultural sector. Fluctuations in crop yields due to weather events or other unforeseen circumstances can lead to price volatility, which ultimately affects consumers. By safeguarding farmers’ incomes and providing stability in the face of unpredictable conditions, crop insurance facilitates a consistent and affordable food supply for the American people.
Furthermore, crop insurance plays a crucial role in promoting food security. With over 90% coverage of production agriculture in America, it supports farmers of all sizes and financial situations. Flexibility is a crucial principle of crop insurance, allowing farmers to tailor coverage to their unique operational and risk management needs. Plans range from individual-field to whole-farm to county-based coverage, ensuring accessibility for farmers across the country. Affordable premiums, made possible through a public-private partnership and premium support from the government, enable farmers to obtain the coverage they require and maintain a safe and affordable food supply for consumers.
In addition to its impact on farmers and consumers, crop insurance strengthens rural economies. Companies like NAU Country invest billions of dollars in rural communities, including hiring employees, contracting with agents, and expanding technologies, while also assuming significant capital risks for the insurance policies issued. These investments not only create jobs but also provide crucial financial support to the nation’s food producers.
When claims are made, funds are available promptly, helping farmers quickly recover from losses and continue their operations. This financial stability translates into a thriving rural economy, with ripple effects that benefit local businesses, schools, and infrastructure.
While crop insurance has proven effective, we must continue to explore avenues for improvement and expansion to meet evolving needs. As I highlighted in my testimony, the future of crop insurance should include a variety of advancements, including these mentioned below.
Enhanced coverage options. Collaboration between insurers, developers, and the USDA’s Risk Management Agency has resulted in innovative policies such as the Enhanced Coverage Option (ECO) policy and the Hurricane Insurance Protection-Wind Index (HIP-WI). These policies provide higher coverage levels, reduce deductibles, and address the financial fallout from natural disasters. Further efforts to enhance affordability and increase coverage for future disasters can minimize reliance on ad hoc assistance.
Refinement of the 508(h) Process. The 508(h) process, which allows for the introduction of new crop insurance policies, offers flexibility and innovation. However, refinement of this process is needed to improve market uptake and reduce the cost of new product introduction. By streamlining the timing and development of new policies, we can enhance the program’s effectiveness and ensure that it remains responsive to evolving challenges.
Fair Administrative Reimbursement. Ensuring fair administrative reimbursements is crucial for the sustainability of the crop insurance industry. Since 2015, administrative reimbursements have remained stagnant while the industry has experienced significant wage inflation and cost increases. Adjusting for inflation would ensure equitable relief and provide beneficial program delivery for all farmers.
Incentivize Environmental Initiatives Separately. American farmers have already adopted various environmentally friendly practices, such as no-till farming, cover crops, variable-rate fertilizer and chemical application, and the use of cleaner-burning tractors. Farmers purchasing crop insurance must certify compliance with land management practices for highly erodible lands and wetlands administered by the USDA’s Natural Resources Conservation Service (NRCS). While further adoption of carbon-sequestering farming practices is seen as beneficial, non-market incentives should come from separately funded initiatives to avoid detracting from the crop insurance program.
Actuarial Soundness. Changes that exclude individuals from eligibility would undermine the program’s actuarial soundness. Crop insurance’s effectiveness relies on the diversity of the risk pool, including farmers and ranchers of all sizes from every county in the country. Narrowing the risk pool could increase premiums for those who remain eligible.
As the Farm Bill is up for renewal, it is important to recognize the indispensable role of crop insurance and continue to support its growth and development so we can secure the future of American agriculture, support our farmers, and ensure food security for generations to come.
Korin is president of NAU Country Insurance Co.