The Federal Crop Insurance Program (FCIP) provides insurance coverage for the production of most U.S. agricultural commodities against financial losses caused by adverse growing and market conditions. This insurance coverage helps stabilize farm business incomes, which can help farmers to repay debt, reduce farm bankruptcies, and thus avoid disruptions to food, livestock feed, and other markets for agriculture commodities, including export markets.

The FCIP supplies insurance coverage that is not otherwise available from the private sector and is a central component of the federal farm safety net, a collection of programs that provide risk protection and financial support to farmers in times of low farm prices and natural disasters. Farmers can choose from a variety of insurance coverage options to customize the coverage to the specific needs of their farm business. The federal government subsidizes the policy premiums to encourage participation.

An Experiment Becomes Policy

Even though crop insurance did not become federally administered until 1938, crop insurance has been recorded to have existed in the United States since 1899 when a private company in Minneapolis introduced the first “all-risk” crop insurance as an experiment. In 1917, more private “all-risk” crop insurance policies were written in North Dakota, South Dakota, and Montana. It wasn’t until 1922 that the United States Department of Agriculture (USDA) published data on causes of crop damages, which is also when Senator Charles McNary and the Secretary of Agriculture Henry Wallace cite crop insurance as a national problem.

1938: Federal Crop Insurance Act

The 1930s brought many challenges as well as initiatives to help agriculture recover from the combined effects of the Great Depression and the Dust Bowl. While federally administered crop insurance was not included in the first farm bill, the Agricultural Adjustment Act (AAA) of 1933, it did become a presidential campaign issue in 1936 as Franklin D. Roosevelt supported federal crop insurance. In 1937, President Roosevelt tasked a Committee on Crop Insurance to release a report on crop insurance for wheat production. Shortly after, Senate and House bills for the Federal Crop Insurance Act (FCIA) were passed. In 1938, Roosevelt signed the FCIA into law, introducing the first federally administered crop insurance program for wheat in the United States.

1940 to 1980: Expansion of Crop Eligibility

The period from 1940 to 1980 marked a rather large expansion of eligible crops. The primary reason wheat was the first eligible crop was because there was crop yield data available from government support programs enacted under the AAA of 1933. This yield data provided the basis for assessing actuarial performance and rating actuarial sound crop insurance. In other words, premium rates were to be established which would cover administrative expenses and indemnities paid to producers. However, as new crops were introduced, the program was not actuarially sound in practice as indemnities exceed premiums with insurance underwriting losses recorded at $11 million in 1943. The introduction of more eligible crops began with cotton in 1941. Corn and tobacco became eligible for crop insurance on a trial basis in 1945, and soybeans became eligible in 1955. By 1956, 24 different crops across 948 counties were made eligible for U.S. crop insurance.

1980: Federal Crop Insurance Act

In response to a period of high disaster support payments in the 1970s and low crop insurance participation, Congress enacted the Federal Crop Insurance Act (FCIA) in 1980. FCIA expanded the crop insurance program to many more crops and regions of the country, introduced premium subsidies, and aligned the FCIP with other USDA programs and agricultural policy goals. Although more farmers took part in the program after passage of the 1980 Act, it did not achieve the level of participation that Congress had hoped for.

1994: Federal Crop Insurance Reform Act

The Federal Crop Insurance Reform Act of 1994 not only authorized a major increase in premium subsidy rates, but made participation in the crop insurance program mandatory for farmers to be eligible for deficiency payments under price support programs, certain loans, and other benefits. Because participation was mandatory, catastrophic or CAT coverage was created. In 1996, Congress repealed the mandatory participation requirement. However, farmers who accepted other benefits were required to purchase crop insurance or otherwise waive their eligibility for any disaster benefits that might be made available for the crop year. These provisions are still in effect.

Also in the Federal Crop Insurance Reform Act of 1994, the Risk Management Agency (RMA) was created to administer Federal Crop Insurance Corporation (FCIC) programs and other non-insurance-related risk management and education programs that help support U.S. agriculture. Participation in the crop insurance program increased significantly following enactment of the 1994 Act.

2000: Agricultural Risk Protection Act

After receiving ad hoc premium subsidies in 1999, there was another statutory change in the premium subsidy rates in 2000 through the Agricultural Risk Protection Act. The primary motivation for these rate increases was not just increasing participation but also to reduce ex post disaster assistance. The Act of 2000 further expanded FCIP by authorizing sales of crop revenue insurance and insurance for livestock.

2008, 2014, 2018 – Farm Bills

Prior to the FCIA of 1980, all eligible crops could be insured under an area policy which provided coverage for county-average yields. All policies after this were largely individual policies insuring farm-level yields based on actual production history (APH). Despite area-based policies created in the 1990 farm bill, individual policies still dominate insured acreage. However, in spite of the lack of popularity in area plans, USDA-RMA introduced endorsements or products which offer supplemental protection based on county-level measures. These endorsements were designed to add-on to underlying individual protection, although a few function as a stand-alone insurance policy. These endorsements are intended to provide protection against “shallow losses”, or those losses not triggered by traditional crop insurance plans (i.e., losses less than 15% of insurable revenue). The first of these endorsements was the Supplemental Coverage Option (SCO) which provides additional coverage for a portion of the producer’s individual insurance deductible. The Enhanced Coverage Option (ECO) introduced in 2018, provides an even higher amount of coverage for the producer’s underlying deductible and may be purchased with SCO.

Summary

The Federal Crop Insurance Program (FCIP) offers farmers the opportunity to purchase insurance coverage against financial losses caused by a wide variety of perils, including certain adverse growing and market conditions. The federal government subsidizes the premiums that farmers pay for these insurance policies to encourage farmer participation. Farmers can choose among many types of policies and policy options to customize the coverage to their farm business’s specific needs. While the private-sector companies sell and service the policies, the U.S. Department of Agriculture (USDA) plays critical roles in subsidizing, regulating, and reinsuring the policies.

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References:
Biram, H.D. & Coble, K.H. 2018. “A Brief History of Crop Insurance.” University of Arkansas Cooperative Extension Service. FSA70-PD-07-2023N.
Federal Crop Insurance: A Primer. 2021. Congressional Research Service report. Retrieved September 20, 2023 from https://sgp.fas.org/crs/misc/R46686.pdf

This material was developed by the University of Wisconsin–Madison Division of Extension in cooperation with the U.S. Department of Agriculture and Wisconsin counties. This material is based upon work supported by USDA/NIFA under Award Number 2021-70027-34694.