CROP INSURANCE: Just the Facts is a web-based question and answer series that provides easy to access answers to some of the most commonly asked questions about farmers’ favorite risk management tool. One of those questions and answers will be highlighted in each new edition of the Bi-Weekly Crop Insurance Update.
What is crop insurance?
There are two types of crop insurance. First, U.S. multi-peril crop insurance is a risk management tool that producers purchase to protect against the loss of their crops due to natural disasters such as hail, drought, freezes, floods, fire, insects, disease and wildlife, or the loss of revenue due to a decline in price. Crop insurance is federally supported and regulated and is sold and serviced by private-sector crop insurance companies and agents. In 2013, 1.2 million polices were sold protecting more than 120 different crops covering 296 million acres, an area larger than Texas and California combined, with an insured value of $124 billion.
Second, Crop-Hail policies, which are not part of the Federal Crop Insurance Program, are sold by private insurers to farmers and regulated by individual state insurance departments. Many farmers purchase Crop-Hail coverage because hail has the unique ability to totally destroy a significant part of a planted field while leaving the rest undamaged. In areas of the country where hail is a frequent event, farmers often purchase a Crop-Hail policy to protect high-yielding crops. In 2013, Crop-Hail liability was $39.5 billion, and premium was $956 million.
The Federal program came to prominence following years of costly, inefficient ad hoc disaster bills as a way to speed assistance to farmers when they need it most while reducing taxpayer risk exposure. Today, crop insurance is the cornerstone of farmers and ranchers risk management portfolios.
To read more about the history of crop insurance, click here.