Crop Insurance Analysis:

Indemnities for the U.S.

Premium Subsidies for the U.S.

Crop Insurance in Sutter County, California

The Federal Crop Insurance Program is a federally subsidized program that pays farmers when their crop yields or revenues decline, expending billions of taxpayer dollars each year.

A crop insurance premium is what farmers and taxpayers pay for a farmer to get a crop insurance policy, and an indemnity is what farmers receive when they have a reduction in yield or revenue. Premiums are highly subsidized by taxpayers. On average, premium subsidies paid by taxpayers are about 60 percent of total premiums, so farmers pay only 40 percent of the actual cost of their crop insurance policy. And if losses are big enough that premiums do not fully cover indemnity payments, taxpayers are also on the hook for some of the additional indemnities.

In some recent years, the program has spent over $7 billion on crop insurance premium subsidies. Indemnity payouts have rapidly risen from just over $1.5 billion in 1995 to $8.5 billion in 2020, even as the climate crisis increases extreme weather events across the country.

Total indemnities and premium subsidies of the crop insurance program in the U.S., 1995-2020

Indemnities: $143,500,120,375
Premium subsidies: $103,547,323,840

The driving force behind a decline in crop yield or revenue that triggers an indemnity payment is called the “cause of loss” – an event or circumstance that damages crop yield, such as drought, hail or too much rain, or that damages the price side of farmer revenues, like a decline in crop price (see the table below).

Top 10 national causes of loss with the largest indemnity payments, 1995-2020

Cause of lossIndemnities paid
1995-2020
Percent of total indemnities
Drought$48,633,395,48033.9%
Excess Moisture/Precipitation/Rain$38,984,412,13927.2%
Hail$9,704,733,9326.8%
GRP/GRIP/ARPI/SCO/STAX/MP/HIP WI Crops Only *$8,156,944,2285.7%
Decline in Price$7,770,562,6535.4%
Heat$6,345,151,2404.4%
Freeze$4,137,767,9402.9%
Wind/Excess Wind$2,944,078,9932.1%
Cold Wet Weather$2,911,869,6462.0%
Hurricane/Tropical Depression$2,154,466,8511.5%

Source: EWG, from USDA Risk Management Agency, Cause of Loss Historical Data Files.
* Types of insurance policies; details on the RMA website. Indemnities for GRP/GRIP crops between 1995-2013; indemnities for ARPI, SCO, STAX, MP, HIP, WI crops 2014-2020..

Since many causes of loss are weather conditions, the climate crisis is already affecting crop insurance and will have an outsize impact in the future. The federal Crop Insurance Program doesn’t encourage or require farmers to adapt to or mitigate climate change, because it often pays farmers for the same type of loss year after year, like multiple years of payments due to drought. More extreme weather from changing climate conditions will lead to larger crop insurance premium subsidies and indemnities, and thus a larger financial burden for taxpayers.

This is already happening. Drought conditions throughout the Midwest in 2012 caused record high crop insurance indemnities. Between 1995 and 2020, drought and excess moisture, precipitation or rain were the top two causes of loss.

With forecasts predicting more extreme drought in some regions of the country and heavier precipitation in others where agriculture is big business, the climate crisis is expected to increase the cost of the crop insurance program.

This database lets you explore crop insurance indemnity payments and premium subsidies down to the county level. You can also look at the causes of loss that have been most influential in driving up payments and premium subsidies between 1995 and 2020. (See EWG’s Crop Insurance Primer for more specific information about the crop insurance program.)

The indemnity data come from the USDA Risk Management Agency’s Cause of Loss Historical Data Files. The premium subsidy data by cause of loss come from the same source. All summary data for premium subsidies, such as subsidies by year, crop, state and county, that do not mention the cause of loss specifically come from the agency’s Summary of Business reports.

In the cause of loss files, the USDA Risk Management Agency reports premium subsidies by cause of loss only for policies that paid an indemnity. Non-indemnified policies and their associated premium subsidies are not reported by cause of loss. EWG used the two different sources of data to accurately portray premium subsidies, because the premium subsidies by cause of loss do not add up to the total subsidies included in the summary of business files.

 

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