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| What if I told you that crop insurance makes the government money!
The so called "government subsidy" for crop insurance does not really exist. It is an arbitrary number.
http://www3.rma.usda.gov/apps/sob/current_week/insplan2012.pdf
From this 2012 link, farmers paid $4,136,191,266 in premium and the government subsidy was put at $6,976,886,774. In this epic drought the indemnity paid was $17,442,212,370
https://www.fas.org/sgp/crs/misc/R40532.pdf
That link shows what private insurance companies pay/receive vs what the government pays/receives. The loss ratio was high in 2012 at 1.57. As such the private insurance companies and private reinsurers were on the hook for 65% of the losses by law with the government on the hook for 35%. $17,442,212,370 times 65% is $11,337,438,040 and the big reinsurer i.e. US Government spent $6,104,774,330 or less than what the subsidy was. Take the difference which is 872,112,444 and you have just shy of a billion dollars the USDA spent on pet projects.
Even though it was an epic drought, the crop insurance program spent .872 billion less than allocated to it.
Even though this 2012 drought was one of the greater agricultural disaster on record, no government giant disaster bill was put into law. The crop insurance program did its job.
For 2015 this year: http://www3.rma.usda.gov/apps/sob/current_week/insplan2015.pdf
Farmers this year paid $3,653,192,194 in crop insurance premiums and the indemnities paid to them are $2,663,080,589 for a profit of $990,111,605 or loss ratio of .27(includes subsidy) of which under law the private insurers in that link I gave in figure 12 on page 20 get 4% and the government gets 96% of it.
So the government for 2015 reports and we mistakenly think that crop insurance subsidies were or cost $6,037,588,626. But that money was never spent on crop insurance. The profit of almost 1 billion plus the 6.03 billion allocated to it in budget is real money that bureaucrats will get a lot of to spent on pet projects without any oversight because it is not accounted for in budget. The government does not track where that money went according to my insurance agent.
Crop insurance is delivered by private companies. They are fast and efficient and look out for waste and fraud because as you saw by law they took a huge loss in 2012. Their risk is high.
As you can see this year crop insurance can even make money for the government even though they report it as a huge expense to the rest of us. I bet the public will never know any better.
I do prefer it being private, but the government existing as a reinsurance agent for the private companies is probably required as the risk is very high and consider that food security is a legitimate national defense or general welfare responsibility.
Edited by Fletch 10/25/2015 21:20
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