Last Updated 1/31/2024

Issue: Crop insurance is an important risk management tool for farmers and ranchers that helps protect them against declines in crop yields and/or revenue. Crop insurance is divided into two categories, the federally subsidized multiple-peril crop insurance (MCPI) and the state-regulated private crop insurance. In 2022, nearly $19 billion in premiums were written for MCPI and over $1.4 billion in premiums were written for private crop insurance.

Background: In 1938 the Federal Crop Insurance Corporation (FCIC) was established to execute the first federal crop insurance program and other relevant initiatives. The focus of the program was to help the agriculture industry recover from the negative impacts of the Great Depression and the Dust Bowl. Before the federal crop insurance program was established, private insurers had difficulty providing affordable insurance products because of the inherent risks and potential for widespread catastrophic losses associated with agricultural production.

The size and scope of the federal crop insurance program has expanded dramatically since its inception. The passage of the Federal Crop Insurance Act of 1980 encouraged participation by authorizing a subsidy for premiums and included coverage for additional crops and regions of the country. Natural disasters precipitated ad hoc disaster assistance bills in 1988, 1989, 1992, and 1993. Participation in the program drastically grew with the passage of the Federal Crop Insurance Reform Act of 1994, which increased subsidies and mandated coverage for certain benefits previously offered for free. In 1996 the requirement for mandatory enrollment was lifted and the USDA created the Risk Management Agency (RMA) to operate and manage the FCIC. Additionally, the Food, Conservation, and Energy Act of 2008 modified the legislation to reduce the overall cost and create a permanent disaster assistance program.

The Agricultural Act of 2014 made major changes in commodity programs, added new crop insurance options, and expanded programs for specialty crops, organic farmers, bioenergy, and rural development. The Agricultural Act of 2014 also introduced new products, including Supplemental Coverage Option (SCO) and the Stacked Income Protection Plan (STAX), to help producers expand their protection against losses due to natural disasters or price declines.

The federal crop insurance program was most recently reformed with the 2018 Farm Bill, which made improvements to product pricing through the use of additional USDA data from the National Agricultural Statistics Service (NASS) and Farm Service Agency (FSA). The 2018 Farm Bill also expanded coverage options to specialty crops, such as industrial hemp, and expanded coverage to include farm operations in multiple counties. In addition, the 2018 Farm Bill created a Veteran Farmer or Rancher category to allow for additional benefits to Veterans.

MPCI covers a broad range of perils (e.g., drought, excessive moisture, freeze, disease, and other natural causes) and must be purchased before planting begins. MPCI does not cover damage to farm infrastructure, such as grain bins and livestock barns. For a company to write federal MPCI, they must sign a Standard Reinsurance Agreement (SRA), which is a contract with the FCIC establishing the terms and conditions under which the FCIC will provide subsidies and reinsurance on eligible crop insurance contracts sold by that company.

By contrast, crop/hail insurance is coverage offered by the private market and regulated by the state insurance departments. It covers a narrower variety of perils, such as hail and fire, and is not reinsured by the FCIC. Some of the advantages of crop/hail insurance are the availability and flexibility; these products are offered by multiple companies and are available for purchase at any time during the growing season.

Status: The NAIC published an overview of the 2014 Farm Bill to provide consumers and agriculture professionals with a comprehensive understanding of crop insurance. Additionally, the Property and Casualty Insurance (C) Committee continues to monitor the activities of the FCIC and provide a forum for the discussion of issues surrounding the interaction of federal crop insurance programs with state insurance regulation.

On August 10, 2020, a derecho hit Iowa and caused an estimated $7.5 billion in damages. Federally-insured corn and soybean liability in the hardest hit counties in Iowa totals nearly $6 billion, making it potentially one of the most damaging storm events on record according to the RMA.

In November 2023, President Biden extended the provisions of the 2018 Farm Bill by signing the Further Continuing Appropriations and Other Extensions Act, 2024 into law.