The Risk Management Safety Net: Market Penetration and Potential

I. Introduction

Federal crop insurance is a critical risk management safety net—supporting food security for American consumers and economic stability for rural America. In 2016, crop insurance protected nearly $101 billion of crops and $533 million of livestock and was offered for nearly 550 unique crops and types. This risk management safety net provides agricultural producers with the risk protection needed to obtain necessary operating capital and provides protection for rural economies by keeping farms operating following challenging years.

A unique public-private partnership exists to offer Federal crop insurance. The insurance products offered are approved by the Federal Crop Insurance Corporation but are sold and serviced through private insurance companies who are paid administrative and operating subsidy. Both the private insurance companies and the Federal government share in the risk on policies, and American farmers and ranchers pay a portion of the premium—all parties involved have skin in the game.

The positive impact of Federal crop insurance as a risk management safety net has been apparent following severe, widespread weather events that have occurred in recent years. A good example of this can be seen by looking at the effect that 2012’s widespread drought conditions across the United States had on farms. Eighty-three percent of losses that year, totaling nearly $17.5 billion in loss payments, were caused by drought conditions. However, because the majority of land was covered by Federal crop insurance, no ad-hoc disaster assistance was required.

Even though large loss payments, like the ones in 2012, do occur, the Federal crop insurance program is run at a 0.85 loss ratio. This means that over time, premiums more than cover the indemnities paid out, meaning the program is operating in an actuarially sound manner. Additionally, the Federal crop insurance program has a very low 2.02 percent statistically measured improper payment rate as of 2016, less than half of the 4.08 percent from 2012.

Producers realize the value of Federal crop insurance. Market penetration, measured in this paper, indicates that 86 percent of total U.S. acres in 2015 were covered by Federal crop insurance for all commodities except hay, livestock, nursery, and pasture, range, and forage. A little over 238 million acres were insured in 2015, up over 11 million acres from over 226 million in 2011.

Efforts to improve market penetration for the principal crops have been very successful with nearly 89 percent of all acres insured in 2015, up 4 percent, or nearly 8.7 million acres, from 2011.

Specialty crop products have been a strong priority since the 1996 Farm Bill, and market penetration for fruit and nut crops encompassed 74 percent of their market potential in 2015 while U.S. vegetable crop market penetration was 34 percent in 2015, up slightly from 2011. Recent expansion of the Whole-Farm Revenue Protection insurance program, as the first Federal crop insurance program to be available in every state and county in the U.S., has provided the expansion of the risk management safety net to all commodities on all farms across the U.S. The expansion of the Pasture, Range, and Forage program and Apiculture program to all 48 contiguous states are also good examples of expanded availability of risk management products for producers.

The Federal Crop Insurance Corporation (FCIC) and the Risk Management Agency (RMA) work closely with stakeholders to provide a world-class Federal crop insurance risk management safety net that is delivered to producers through the successful public/private partnership mentioned above. RMA recognizes that producers’ production and revenue risks vary over time, so it is important for RMA to review and monitor the Federal crop insurance program, consult with stakeholders, and be responsive to changes that affect producers’ needs within the risk management safety net.

This Portfolio Analysis provides information about the current book of business and measures of market penetration by category of commodity. It identifies commodities or locations where there may be a potential need to add to the risk management safety net. This analysis shows both market penetration and market potential based on 2015 data—the most recent year that National Agricultural Statistics Service (NASS) national-level data are available for the majority of commodities. Where possible, summary data from 2016, 2017, and 2018 are included in some tables, but these more recent years are not used to calculate market penetration.

The RMA priorities with regard to development of new products is targeted to areas where: (1) Market potential is available, (2) Data are available for actuarially sound premium rating and program underwriting, (3) Growers indicate the need or desire for new risk management products, and (4) Any new program will improve the risk management safety net for U.S. agricultural producers and ranchers.

Contact Information

For more information, contact RMA Public Affairs.