Crop Insurance Reconsidered

Abstract

During the late 1980s and early 1990s, there was much debate over how to fix what were perceived as the “failures” of the Federal crop insurance program. The Federal Crop Insurance Improvement Act of 1980 made crop insurance the primary form of disaster protection for agricultural producers, replacing a standing disaster assistance program with subsidized crop insurance. To encourage sales, private companies were enlisted to deliver the product and significantly share in the underwriting risks. Almost overnight, the crop insurance program was converted from a pilot program offering limited coverage to a limited number of crops nationwide, to a nationwide program covering most major field crops in most major growing regions.1 The perceived failures of crop insurance were many. At the time of passage of the 1980 Act, Congress envisioned a participation rate approaching 50% of eligible acres by the end of the decade. Despite premium subsidies and expanded coverage, crop insurance participation grew very slowly. When a major drought struck the Midwest in 1988, only 25% of eligible acreage was enrolled in the program nationwide and participation was even less in states such as Illinois and Indiana (Chite). Widespread crop losses and poor participation in the insurance program prompted Congress to pass supplemental disaster legislation throughout the decade including almost $5 billion in disaster assistance to cover crop losses in 1988 and 1989 alone (Glauber and Collins). In addition to its failure to replace disaster assistance, the actuarial performance of the