Crop insurance claims continue to rise

Crop insurance claims continue to rise

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Claim payments to American farmers hit by the 2012 drought topped $3.5 billion this week, according to the Federal Crop Insurance Corporation.

That includes more than $245 million in compensation to Nebraska producers.

Both numbers are very preliminary.

"This drought heavily affected spring-planted crops," said Keith Collins, spokesman for National Crop Insurance Services.

By the time the dust clears, payments to holders of federally subsidized crop insurance policies are likely to go well beyond last year's record of about $10.8 billion nationally, Collins said.

He wasn't willing to forecast a final number on behalf of his organization.

"But yes, we've seen estimates anywhere from $15 billion to $30 billion."

In Nebraska alone, according to federal crop insurance officials, those with a stake in crop production in 2012 bought almost 159,000 policies on about 15.6 million acres of land.

As one gauge of the level of participation, there are 18.17 million production acres in the state overall, including those where wild hay is harvested.

The total premium cost in the state of almost $667 million included about $473 million in taxpayer subsidies.

Two decades ago, farmers counted much more heavily on emergency disaster programs from federal lawmakers to help them survive weather extremes.

But more recently, higher subsidy rates and growing awareness about improvements in coverage, to include both yield and price protection, have made crop insurance the first line of defense against weather extremes.

In early November, Kansas is at the top of the chart in several crop insurance categories, including $448 million in claims paid. One reason is that Kansas is the nation's biggest producer of winter wheat, which is harvested earlier than spring-planted crops.

That means the pace of claim filing and paying is running ahead of Nebraska and other states farther north.

Veteran crop insurance agent Ruth Gerdes of Auburn, who insures customers in several states, said she is about 50 percent done with claims.

"Harvest was early," she said, "and a lot of farmers have gotten their paperwork in, and we've been paying claims on a daily basis. So it's flowing well."

The taxpayer liability for the 2012 drought remains to be seen.

Collins said it would include about $6.9 billion in premium subsidies and about $1.3 billion in operating costs.

"And then the question is what underwriting losses the government is going to bear."

That question looms because the federal Treasury stands behind insurance companies to prevent them from being overwhelmed by claims exposure at times of widespread weather calamity.

In better times, a portion of underwriting gains made by the 16 crop insurance companies in the United States flow toward taxpayers. That amounted to almost $4 billion from 2002 through 2010.

No matter what level the total taxpayer bill reaches this year, it's a bargain, Gerdes said.

"If we had not had revenue coverage in place, we would have had a massive ad hoc disaster bill that would have cost the taxpayer a significant, significant amount of money -- far more than this would cost. And it would all be free (to the farmer)."

On average nationally, farmers pay 37 to 38 percent of their premium costs, Collins said.

It's also important to view those costs in a multi-year context, Gerdes said, "because a farmer pays a premium every year, whether he collects or not."

Collins said crop insurance also is a better source of risk protection for farmers than emergency disaster programs -- which had been emerging almost on an annual basis -- because farmers know what they've got before they plant.

Disaster money "came after the fact ... and it didn't lend itself to good risk management and financial planning for the farmer."

But Craig Cox, based in Ames, Iowa, with the Environmental Working Group, pointed out that the taxpayers' share of cost for crop insurance rose from $2 billion in 2002 to $11 billion last year.

Cox's employer is best known for the database that allows users to check how much individual farmers are collecting in direct government payments on an annual basis.

Now that direct payments are on their way out, the Washington, D.C.-based policy advocate agrees that crop insurance offers a better safety net.

"But," Cox said, "the big question is how much of the bill for crop insurance should be handed to the taxpayer."

He's not ready to agree that it will be cheaper than almost annual rounds of emergency aid.

"This new-fangled crop insurance policy called risk protection is a real wild card," he said, "which is going to result in much, much higher cost to the taxpayer in a bad year like this."

That exposure is tied to the government's responsibility for underwriting losses.

"And as the losses mount, more and more and more of the losses are picked up by taxpayers."

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