Tuesday, August 7, 2012

Romina Boccia suggests in her characterization of crop insurance that American taxpayers should be outraged (“The Farm Bill’s secret handout to big corporate farms,” Politics, Thursday). Quite the contrary. Because of crop insurance, American taxpayers should be relieved: Prior to the investments made in the modern crop-insurance program, taxpayers would have been on the hook for most, if not all, the crop losses resulting from the 2012 drought.

Prior to development of the modern program, response and reaction to agriculture disasters came in the form of 42 supplemental ad-hoc disaster bills, measures that have cost taxpayers $70 billion since 1989 and took up to 18 months to reach growers.

Contrast that to today’s modern crop-insurance program, in which last year 84 percent of eligible acres were protected by private crop-insurance policies purchased by farmers. When a string of natural disasters struck last year, there was not a single call from farmers for disaster aid.

Again this year, most farmers will be able to rebound from historic drought, thanks to crop insurance. Unlike in the past, taxpayers will not stand alone to shoulder the costs. Farmers will pay more than $4 billion in premiums, and insurance companies will incur billions in underwriting losses.

Crop-insurance premium subsidies are not direct cash transfers to farmers. Farmers pay a reduced amount for their premiums and receive an indemnity payment only in the event of an insurable loss. They do not receive “subsidy” payments from crop insurance.

Under this system, the federal government serves as a reinsurer, an insurance company for insurance companies. As such, it shares in the gains and the losses of the policy. Those gains have returned about $3.5 billion to federal coffers in the last decade, which can and will be used to offset losses in years like this one.

Crop insurance has been applauded by farmers, bankers and elected officials for one reason: It works.


President, National Crop Insurance Services

Overland Park, Kan.

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