Crop Insurance Industry Prepares For More Scrutiny

Further investigation by GAO is expected.

Published on: Jan 7, 2009

Former USDA Chief Economist Keith Collins has been hired by the crop insurance industry as a consultant in anticipation of another investigation by the Governmental Accounting Office. According to a GAO investigation of the industry conducted in 2007, the industry made inflated profits and had high administrative and operating expenses, which indirectly led to cuts in crop insurance subsidies in the 2008 Farm Bill.

Calculating subsidies for premiums and the cost of delivering the policies has always been difficult. Because the risk to a specific crop can not be spread over a large enough geographic area to be commercially viable at the premium rates farmers are willing to pay, multi-peril crop insurance has been subsidized since the 1930s.

The hiring of Collins and release of a study of its expenses and profitability is the industry's attempt to be proactive in anticipation of another investigation by GAO. In its new study, the crop insurance industry argues GAO made inappropriate comparisons between federal crop insurance and the property and casualty industry. The study, released in December by National Crop Insurance Services, contends that federal crop insurance was less profitable from 1991 to 2007 than the property and casualty industry and had lower expense-to-premium ratios as well.

Because the agriculture economy, including crop insurance, is cyclical in nature Collins says long periods of time are needed to examine crop insurance.