Government Support To Agricultural Insurance

Governments in developing countries have been increasingly involved in the support of agricultural (crop and livestock) insurance programs in recent years. In their attempts to design and implement agricultural insurance, they have sought technical and financial assistance from the international community and particularly from the World Bank. One of the recurrent requests from governments regards international experience with agricultural insurance, not only in developed countries, where in some cases agricultural insurance has been offered for more than a century, but also in middleand low-income countries. Governments are particularly interested in the technical, operational, financial, and institutional aspects of public support to agricultural insurance. 'Government Support to Agricultural Insurance' informs public and private decision makers involved in agricultural insurance about recent developments, with a particular focus on middle- and low-income countries. It presents an updated picture of the spectrum of institutional frameworks and experiences with agricultural insurance, ranging from countries in which the public sector provides no support to those in which governments heavily subsidize agricultural insurance. This analysis is based on a survey conducted by the World Bank s agricultural insurance team in 2008 in 65 developed and developing countries. Drawing on the survey results, the book identifies some key roles governments can play to support the development of sustainable, affordable, and cost-effective agricultural insurance programs.

Since its inception in 1938, the program has evolved from an ancillary program with low participation to a central pillar of federal support for agriculture. As the program has grownin types of insurance policies, breadth of crops covered, and millions of acres enrolledso has the cost of the program to the federal government. The first two chapters provide an overview of the federal crop insurance program. Chapter 3 focuses entirely on delivery subsides and explains how delivery subsidies are calculated, the limitations of publicly available data on the actual delivery expenses of Approved Insurance Providers (AIPs), and how AIPs spend delivery subsidies. In 2010, USDA negotiated an agreement with insurance companies to set a national cap on the annual payments it makes to them for expenses and a target rate of return. Chapter 4 examines (1) the changes in expense payments to companies due to the cap, (2) the extent to which the programs target rate of return reflects market conditions, and (3) opportunities for the federal government to reduce its delivery costs for the program. Before the Agricultural Act of 2014 cotton was eligible for most Federal farm programs. The 2014 Farm Act eliminated multiple programs, including the Direct and Countercyclical Program, while introducing several new programs, including the Supplemental Coverage Option (SCO), and Stacked Income Protection Plan (STAX). Chapter 5 focuses on the two new programs for cotton and examines the mechanics of the programs and their revenue impacts. Catastrophic coverage for noninsurable crops, known as the Noninsured Crop Disaster Assistance Program (NAP), has been available since the Federal Crop Insurance Reform Act of 1994. Chapter 6 examines the effects of the 2014 NAP policy change. Crop insurance premium subsidies are an important part of Compliance incentives under the 2014 Act. Farm program benefits under the 2014 Act could be as high or higher than under the 2008 Farm Act; but for individual farms, the shift toward a crop insurance-oriented policy could increase or decrease Compliance incentives as reported in the last chapter.

A central, but inadequately explored issue with respect to subsidized crop insurance programs concerns the costs of delivering insurance coverage to farmers. This study examines that issue in the context of the heavily subsidized US crop insurance program which has often been put forward as a model for agricultural insurance programs in other countries. US Government programs often rely on private firms to deliver income transfers or services, which then establish their own rent-seeking lobbies, which are shared with input suppliers. This rent dispersion process is examined in the context of the U.S. agricultural insurance industry, which receives as much as one third of the annual subsidies that support the federal crop insurance program. We find that as total payments to insurance companies increased between 2001 and 2009, an increasingly large share of the agricultural insurance industry’s rents accrued to insurance agents, although in markets where insurance companies possessed some oligopsony power, agent payments are smaller. The findings also suggest that the insurance industry (companies and independent agents) would almost surely provide the same service for substantially less than the gross revenues from the subsidies and underwriting gains they received.

Federal crop insurance protects farmers against the financial losses caused by events such as droughts, floods, hurricanes, & other natural disasters. In 1995, crop insurance premiums were about $1.5 billion. Federal crop insurance offers farmers two primary types of insurance coverage -- catastrophic insurance, & buyup insurance. These programs are conducted primarily through private insurance companies. This report is an evaluation of the financial arrangements between the Federal Crop Insurance Corp. (FCIC) & participating insurance companies for delivering the crop insurance program to qualified producers.

Based on experiments to bring about comprehensive crop insurance coverage over the last 50 years, the Indian government introduced a new crop insurance program, called Pradhan Mantri Fasal Bima Yojana (PMFBY), in April 2016. Coming after two successive years of drought, the scheme aimed at reducing the burden of smallholders who borrow at high rates of interest but remain at the mercy of the “weather god” to reap optimal returns. Although this new program filled many gaps in the previous crop insurance interventions, it still could not attract smallholder and marginal farmers to fully subscribe to it. It also faced its own set of challenges. It earned farmers’ wrath because of lack of transparency in crop loss assessments and delayed settlement of claims. The government of India had to make the program voluntary under pressure from farmers’ associations, although it was designed as mandatory for famers seeking institutional credit. This paper’s focus is identifying the reasons for failure of PMFBY in most of the states despite its improved features, and comparing these states with a state where it has been relatively successful. It does this through evidence collected from a field study in Marathwada—a drought-prone region in western India, with the nation’s highest rate of farmer suicides. It takes learnings from stakeholder interviews in Marathwada to design implementation strategies for PMFBY’s success and win back the confidence of farmers. The state of Karnataka, in contrast to Marathwada, is an outlier among states in India, with a record of successful implementation of the PMFBY program. This paper studies PMFBY program implementation in Karnataka through a positive deviance case study approach. Though Karnataka hasn’t yet seen full success in terms of penetration achieved in crop insurance, its model can help develop best practices for implementation of PMFBY. The paper argues that getting buy-in from all stakeholders, adopting remote sensing technologies, strengthening infrastructure and institutional capacity, conducting outcome evaluation, and putting in place a monitoring system could be effective mechanisms to mainstream the program among smallholder farmers.

Researchers and policymakers have long understood the benefits of crop insurance but have been consistently disappointed by the poor performance of these programs. Rarely have programs seen sizeable take-up rates without support through large government subsidies, and in many countries, demand has been meager even at prices well below fair-market rates. Experiences from India have largely followed this trend, despite a number of large policy initiatives. Limited demand stems from low perceived value, arguably because the existing insurance products are unsuited to farmers’ needs. The present study fills an important gap in rural development by improving upon existing insurance policy design by incorporating product characteristics better suited to farmers’ preferences. To do so, we conducted a discrete choice experiment with agricultural households in four states in India. While farmers seem to like several of the features of policies offered under existing programs, our results suggest they would generally be willing to pay more than the highly subsidized rate they currently pay and are also clearly dissatisfied with delayed and uncertain indemnity payments and would be willing to pay a significant premium for more assured and timely payment delivery.

" Federally subsidized crop insurance, which farmers can buy to help manage the risk inherent in farming, has become one of the most important programs in the farm safety net. Revenue policies, which protect farmers against crop revenue loss from declines in production or price, are the most popular policy type and account for nearly 80 percent of all premium subsidies. The crop insurance program's cost has come under scrutiny while the nation's budgetary pressures have been increasing. GAO was asked to look at the cost of the crop insurance program. This report examines (1) trends in federal crop insurance costs and farm sector income and wealth from 2003 through 2012 and (2) the potential savings to the government and impacts on farmers, if any, of reducing federal premium subsidies for revenue policies. GAO analyzed USDA crop insurance program data and farm sector income and wealth data from 2003 through 2012 (most recent year with complete crop insurance data); reviewed economic literature and documents from stakeholders including farm industry groups and researchers; and interviewed USDA officials. "