ABOUT CROP INSURANCE
Crop Insurance: A Look Back
Because of the inherent risks and potential for widespread catastrophic losses associated with agricultural production, insuring farmers and ranchers has always posed a challenge.
Early 20th Century
Before the Federal Crop Insurance Program was established, private insurers had difficulty providing affordable insurance products to producers. In 1938, Congress passed the Federal Crop Insurance Act, which established the first Federal Crop Insurance Program. These early efforts were not particularly successful due to high program costs and low participation rates among farmers. The program had difficulty amassing sufficient reserves to pay claims and was not financially viable.
Congress recognized that other ways of assisting farmers through direct payments and disaster assistance needed to be created.
Federal Crop Insurance Act of 1980
In 1980, Congress passed legislation to increase participation in the Federal Crop Insurance Program and make it more affordable and accessible. This modern era of crop insurance was marked by the introduction of a public-private partnership between the U.S. government and private insurance companies. Bringing the efficiencies of a private sector delivery system together with the regulatory and financial support of the federal government formed the basis of a new and innovative approach to solving a long-standing problem.
While the 1980 Act expanded the program by increasing the number of commodities insured, participation remained lower than Congress had hoped for. Members of Congress were growing weary of repeated requests for ad hoc disaster assistance and emergency loans that served to undermine the crop insurance program. Even as late as the early 1990′s, crop insurance participation rates hovered in the 30 percent range and Congress was often spending considerably more each year in disaster relief expenditures than it was on crop insurance.
The Federal Crop Insurance Reform Act of 1994 and the Creation of the Risk Management Agency
The Federal Crop Insurance Reform Act of 1994 dramatically restructured the program. And in 1996, the Risk Management Agency (RMA) was created in the U.S. Department of Agriculture to administer the Federal Crop Insurance Program. Through subsidies built into the new program guidelines, participation increased dramatically. By 1998, more than 180 million acres of farmland were insured under the program, representing a three-fold increase over 1988.
The Agricultural Risk Protection Act (ARPA)
In May of 2000, Congress approved another important piece of legislation: the Agricultural Risk Protection Act (ARPA). The provisions of ARPA made it easier for farmers to access different types of insurance products including revenue insurance and protection based on historical yields. ARPA also increased premium subsidy levels to farmers to encourage greater participation and included provisions designed to reduce fraud, waste and abuse.