Don't Fret About Crop Insurance Payments

Claims will get paid, it's just a question of when.

Published on: Sep 13, 2012

The first question farmers ask Purdue Extension Economist Chris Hurt these days is if crop insurance companies will pay off or go broke. He reminds these farmers that this is exactly the type of year that federally-backed crop insurance was designed to cover.

The final guarantor on crop insurance is the U.S. Treasury. The Risk Management Agency provides guidelines for private crop insurance companies to follow.

Based on payout ratios in 1988, farmers could collect about $30 million in crop insurance for this year’s crop. However, if you subtract roughly $12 billion in insurance payments paid in, the gap will be about $18 billion. Hurt expects companies will be asked to cover $4 to $5 billion, and the government will pick up the tab for the rest.

Claims will get paid, its just a question of when.
Claims will get paid, it's just a question of when.

It could reopen debates about whether the government should back crop insurance among the urban public. But Hurt is confident farmers with crop insurance will get paid.

When the government first initiated federally-backed crop insurance, the logic offered by Congress was that if farmers bought crop insurance, they wouldn’t need extra money that wasn’t budgeted for during natural disasters. It should also be possible to wean them off of other USDA payments, the logic went.

That very debate was and is going on during the 2012 farm bill debate. So far Congress has not passed a farm bill.

Hurt is not the only one reassuring farmers that if they have crop insurance, they will get paid. It’s estimated that about 75% of the corn acres and 65% of the soybean acres in Indiana are covered by some form of crop insurance. There are varying types and levels of coverage that farmers carry, depending on how much they were willing to pay.

Officials from Diversified Services, an Illinois-based company that sells federally-backed crop insurance, assured farmers at meetings last month that whether or not they would get paid was not an issue. How long it takes to process claims may be a different matter, since there will be so many claims to process.