The Federal Crop Insurance Program

The Federal crop insurance program is a joint effort of the Federal government and private industry. The insurance product, which is known as Multiple Peril Crop Insurance (MPCI), was created to serve the needs of farm producers in the era of the Oklahoma dust bowl. For many years, the participation among farm producers was very modest despite subsidies provided by the Federal Crop Insurance Corporation (FCIC). In order to increase participation, Congress authorized private insurers to sell, service, and underwrite MPCI coverage beginning in 1980. This enabled Crop Hail insurers to market a product which previously had competed against their own.

Since 1998, the sale and underwriting of MPCI coverage has been completely privatized. The current Federal role in the program consists of three essential activities: establishing the MPCI rates and rules, subsidizing the premium and the administrative costs of the program, and administering the reinsurance mechanism for the participating insurers. These activities are managed by the Risk Management Agency (RMA) of the United States Department of Agriculture (USDA). Subsidization of the program is necessary in order to keep the cost of coverage affordable to the individual farm producer. The reinsurance mechanism, implemented in the Standard Reinsurance Agreement (SRA) between insurers and the FCIC, is necessary to protect insurers from severe or catastrophic losses. By combining the marketing efforts of the private sector with the financial strength and support of the Federal government, the Federal crop insurance program has become much more successful in achieving its aim to provide financial protection to farm producers. An indication of this success is that in cropyear 1998 the MPCI program provided coverage on 181 million acres (almost 70%) of U.S. cropland, insured $27.9 billion in crops, and generated a total premium of almost $1.9 billion.