FEDERAL INSURANCE PROGRAMS - FEDERAL CROP INSURANCE COPRORATION

Question 1

SECT B: FEDERAL INSURANCE PROGRAMS – FEDERAL CROP INSURANCE CORPORATIN (FCIC)

EVOLUTION OF CROP INSURANCE (3)

Answer 1

1. 1938 GREAT DEPRESSION - PROTECT ONLY WHEAT & CORN AGAINST LOW YIELDS
   (-) NOT SUCCESSFUL
   (-) HIGH COSTS
   (-) LOW PARTICIPATION
2. 1980 FEDERAL CROP INSURANCE ACT - ADDED CROPS, GEOGRPAHIES & GOVT SUBSIDY OF PREM
3. 1990’S DISASTER BILLS - TO RECOVER FROM SEVERE WEATHER

Question 2

SECT B: FEDERAL INSURANCE PROGRAMS – FEDERAL CROP INSURANCE CORPORATIN (FCIC)

MULTIPLE PERIL CROP INSURANCE

Answer 2

• Public-private partnership
• Perils: drought, flood, heat, cold, fire, wind
• Crop-hail not part of federal program but available in private market
• Crop insurance not mandatory, but must have to be eligible for federal disaster relief for crop losses
• Multi-peril crop insurance must be elected to prior to planting
 Farmers select which crop to insure => all fields owned by same farmer within same county, growing same crop must also be insured

Question 3

SECT B: FEDERAL INSURANCE PROGRAMS – FEDERAL CROP INSURANCE CORPORATIN (FCIC)

SUPPORT & ARGUMENTS

Answer 3

(+) stability for a volatile sector
(+) unaffordable/unavailable insurance without subsidies
(-) subsidies encourage over-production
(-) encourage farming in marginal & disaster-prone areas
(-) harms environment
(-) increases general disaster relief costs

Question 4

SECT B: FEDERAL INSURANCE PROGRAMS – FEDERAL CROP INSURANCE CORPORATIN (FCIC)

PARTNERSHIP ROLES

Answer 4

1. Private insurer
   • Services policies, including adjusting and settling claims
2. Risk Management Agency (RMA)
   • Sets rates & determines insurance crops
   • Reinsurer
   • Reimburses private insurers for operational and administrative costs
3. Competitor to private insurers – WC in some states
   • Subsidizes premiums to
   i. Reduce cost to farmers
   ii. Encourage participation
   (+) better protection
   (+) reduce disaster assistance
   (-) increase cost to taxpayers