Crop Insurance and Private Sector Delivery

ReportCrop Insurance and Private Sector Delivery

Agriculture  | Research & Analysis
Dec 14, 2016  | 2 min read | Print Article

Private-public risk sharing has been an important and unique feature of the federal crop insurance program since 1981. Under the Federal Crop Insurance Act of 1980, the Federal Crop Insurance Corporation was encouraged to privatize delivery functions to the maximum extent possible. Private sector involvement was seen as critical to ensuring a rapid expansion of the program. Today, the program is delivered entirely by private crop insurance companies and independent insurance agents.

It is this unique public-private partnership, and the subsidies that make it possible, that Dr. Glauber’s report evaluates. With nearly 300 million acres insured and annual projected taxpayer costs of $9 billion, federally subsidized crop insurance is the cornerstone of the federal financial safety net for agriculture. Yet debates about the future of the program too often involve one camp defending the program from any potentially cost saving changes whatsoever and a second camp attempting to mandate a “fair” rate of return for the private crop insurance companies.

This paper, instead, offers the view that the correct answer can be best determined by opening up the delivery system to more competition and to allow “fair” compensation to be set by the market rather than federal regulators. Allowing companies to compete on price will ensure that companies have incentives to deliver insurance at costs reflecting their true marginal costs. By injecting more market forces into the program, lawmakers can produce a more efficient, cost-effective program while ensuring we are getting the best deal possible for farmers and taxpayers.