WICHITA, Kan. – Thousands of farmers are filing insurance claims this year after drought and triple-digit temperatures burned up crops across the nations Corn Belt, and some experts are predicting record insurance losses – exacerbated by changes that reduced some growers premiums.
G.A. Art Barnaby, a Kansas State University extension specialist in risk management, estimates underwriting losses on taxpayer-subsidized crop insurance will hit nearly $15 billion this year. He expects a staggering $25 billion in crop insurance claims to be filed by growers across the nation, driven primarily by one of the worst droughts in the U.S. decades. His loss estimate is based on a loss ratio of $2.50 for every dollar paid in premium.
The U.S. Department of Agricultures Risk Management Agency made changes to the insurance program in the past year which are expected to increase the underwriting losses from the drought. The changes meant farmers in some states paid smaller premiums this year for corn and soybeans. Not only that, the agency adjusted yields for those crops upwards to reflect recent trends, Barnaby said.
The rate reductions were based on the assumption that new technology, such as genetically modified, drought-resistant seeds, would eliminate or reduce big losses, Barnaby said. So it is ironic they got hit the first year out.
Under taxpayer-subsidized crop insurance, farmers pay about 40 percent of the premium cost and the federal government picks up the rest. The government sets the rates and the underwriting rules, but the private companies get to pick the contracts they want to take a risk on. Coverage is based on both yield and price. An underwriting loss or gain represents the difference between premiums paid and amount of claims paid.
For the past decade, the crop insurance program has actually had an underwriting gain, Barnaby said.