As a risk-management program, crop insurance touched more farmers and acres than any other single farm program, covering an estimated 487 million acres of cropland, pasture range, and forest land in 2022.
While that’s a testament to the value of crop insurance, it’s also the second most expensive farm program behind the $120 billion nutrition program spending, according to Tara Smith, executive vice president for the Torrey Advisory Group.
“So if nutrition program spending has a target on its back, guess who's next with the target on its back? That would be us,” Smith warned Michigan Farm Bureau members attending the organization’s annual Washington Legislative Seminar.
According to Smith, detractors to crop insurance include environmental special interest groups on the left, such as the Environmental Working Group, and detractors on the right, such as The Heritage Foundation, questioning the estimated $11.63 billion in federal subsidies of crop insurance premiums in 2022.
“We've had more than $70 billion go out the door since the last farm bill in ad-hoc, off-the-book disaster program assistance — that's a lot of money,” Smith said. “That's more money than we've spent on crop insurance.”
Even though those ad-hoc disaster funds covered two black-swan events — Market Facilitation Payments and the Coronavirus Food Assistance Program — Smith said it’s raising eyebrows and questions about what's wrong with the existing safety nets within the farm program.
Smith predicts reductions in crop insurance premium subsidies will be a top priority of critics, ultimately making crop insurance more expensive for producers.
“It, quite frankly, is the bulk of the money within the crop insurance program,” she said.
Reductions to private-sector insurance company services fee, administrative costs and attempts to recoup a larger portion of underwriting gains for companies are also expected, according to Smith.
Finally, Smith anticipates renewed discussion on means testing in the way of Adjusted Gross Income (AGI) thresholds to establish either a cap on premium subsides to producers, or to cap crop insurance indemnity payments.
“We've opposed those proposals in the past,” she said, adding two important factors need to be recognized.
“Number one is the farmers are purchasing those policies. So, if a farmer is purchasing a policy where they should get an indemnity check of $70,000, how do you tell that farmer who purchased that policy that, ‘No, sorry. We're only going to give you $40,000, even though you were responsible in your risk management plan’?”
“Secondly, there are studies and numbers that show those larger farms trigger indemnity payments less often.
In other words, they're very low risk in the insurance pool. So kicking them out is sort of the equivalent of kicking healthy people out of your health insurance pool.”
Smith warned an AGI concept would ultimately increase crop insurance premium rates for every single producer.
Discussions are also growing to tie stricter climate-related conservation program requirements into crop insurance, Smith said, noting that crop insurance companies have drawn some “bright red lines” about the possible intersection of conservation and crop insurance programs.
“The program has to be fundamentally actuarially sound – meaning the premiums that go in need to equal the indemnity payments that go out the door. That's in statute, that's by law,” Smith said. “Secondly, we don't want any mandates placed on farmers. We’ve heard proposals that since we already have conservation compliance, let's make it stricter.”