Crop Insurance Reconsidered.pdf

CROP INSURANCE RECONSIDERED JOSEPH W. GLAUBER 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 Insur- ance Improvement Act of 1980 made crop insurance the primary form of disaster pro- tection for agricultural producers, replacing a standing disaster assistance program with sub- sidized crop insurance. To encourage sales, pri- vate companies were enlisted to deliver the product and significantly share in the under- writing risks. Almost overnight, the crop in- surance program was converted from a pilot program offering limited coverage to a lim- ited number of crops nationwide, to a nation- wide 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 participa- tion rate approaching 50% of eligible acres by the end of the decade. Despite premium subsidies and expanded coverage, crop insur- ance 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 par- ticipation in the insurance program prompted Congress to pass supplemental disaster legis- lation 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 disas- ter assistance, the actuarial performance of the Waugh Lecture. Joseph W. Glauber is deputy chief economist, U.S. Department of Agriculture. The author acknowledges the helpful comments of Keith Coble, Keith Collins, Robert Dismukes, Jim Hrubovcak, Jerry Skees, Vince Smith, and Tom Worth. The views expressed are the author’s and do not reflect those of USDA or the Federal Crop Insurance Cor