Crop insurance

Crop insurance is purchased by agricultural producers, including farmers, ranchers, and others to protect themselves against either the loss of their crops due to natural disasters, such as hail, drought, and floods, or the loss of revenue due to declines in the prices of agricultural commodities. The two general categories of crop insurance are called crop-yield insurance and crop-revenue insurance.

A farmer or grower may desire to grow a crop associated with a particular defined attribute that potentially qualifies for a premium over similar commodity crops, agricultural products, or derivatives thereof. The particular attribute may be associated with the genetic composition of the crop, certain management practices of the grower, or both. However, many standard crop insurance policies do not differentiate between commodity crops and crops associated with particular attributes. Accordingly, farmers have a need for crop insurance to cover the risk of growing crops associated with particular attributes.

In the United States, a subsidized multi-peril federal insurance program, administered by the Risk Management Agency, is available to most farmers. The program is authorized by the Federal Crop Insurance Act (which is actually title V of the Agricultural Adjustment Act of 1938, P.L. 75-430), as amended. Federal crop insurance is available for more than 100 different crops, although not all insurable crops are covered in every county. With the amendments to the Federal Crop Insurance Act made by the Federal Crop Insurance Reform Act of 1994 (P.L. 103-354, Title I) and the Agriculture Risk Protection Act of 2000 (P.L. 106-224), USDA is authorized to offer basically free catastrophic (CAT) coverage to producers who grow an insurable crop. For a premium, farmers can buy additional coverage beyond the CAT level. Crops for which insurance is not available are protected under the Noninsured Assistance Program (NAP). Federal crop insurance is sold and serviced through private insurance companies. A portion of the premium, as well as the administrative and operating expenses of the private companies, is subsidized by the federal government. The Federal Crop Insurance Corporation reinsures the companies by absorbing some of the losses of the program when indemnities exceed total premiums. Several revenue insurance products are available on major crops as a form of additional coverage.

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