Public Policy and Federal Crop Insurance

Federal crop insurance was authorized by the U. S. Congress in the 1930s as a pilot program. It was one of several public policies to assist agriculture’s recovery from the Great Depression and the Dust Bowl years. This legislation followed several failed attempts to offer such insurance commercially. Costs for salaries and other operating costs of the program were paid from the U.S. Treasury, and persons taking the insurance paid the full risk premium. Insurance was restricted primarily to major crops in principal producing areas, with annual premium volumes well under $100 million. Operations were managed completely by the Government.

In the 1970s, free disaster assistance protection for certain crops was authorized as part of price support legislation affecting agriculture. By the late 1970s, the dichotomy of this coexistent public assistance -- one free and the other partially subsidized -- resulted in passage of the Federal Crop Insurance Act of 1980. This Act made the free assistance unavailable if crop insurance was available. To make insurance more attractive, the risk premium was partially subsidized. This Act also authorized the Government to reinsure commercial insurance companies that sold and serviced the Federally-developed insurance policies at the Federally-approved premium rates. Additional subsidies were authorized to pay the operating expenses of those companies.