New to Crop Insurance? Here’s How it Works

Every day, farmers spend long hours working the land and caring for livestock so they can provide high-quality food at an affordable price for all Americans across the nation.

This amazing feat would not be possible, however, without the critical safety net that crop insurance provides.

Farming presents a unique set of risks and a farmer’s financial well-being relies on factors as unpredictable and varied as changes in weather, the spread of disease, or the rapid fluctuation of market conditions.

With such a wide variety of potential risks and the likelihood that any particular event is geographically concentrated – an entire county could see their growing season ruined within mere moments by a tornado or freeze – the traditional private industry insurance model simply would not work for crop insurance.

The government developed the public-private partnership of federal crop insurance in order to protect and support farmers and thereby helping to stabilize the economies of the rural communities that rely on agriculture, without leaving taxpayers solely on the hook financially.

Under this successful model, farmers contract with any one of the 15 private insurance companies authorized to sell crop insurance by the United States Department of Agriculture’s Risk Management Agency, paying a premium in order to protect their crops. These insurance companies, or Approved Insurance Providers (AIP), work hand-in-hand with the federal government to help manage costs that would otherwise make coverage unattainable for the average farmer.

While the government sets rates and rules for the plans that can be sold and provides program oversight, it is the responsibility of the AIPs to write policies, as well as adjust and process claims. That means when disaster strikes, private industry can react quickly to assess damages and issue payments due, providing farmers and the communities who rely on their income with relative stability.

This public-private partnership requires farmers, private insurance companies, and the federal government to share the burden of risk and incentivizes private companies to reduce fraud, waste, and abuse.

Today, federal crop insurance protects more than 130 types of crops covering more than 330 million acres in all 50 states. So, from clams to cranberries, soybeans to sunflowers, our farmers can rest a bit easier knowing that this safety net exists.

And while farms and agriculture-related industries add over $900 billion annually to the American economy and create work for 21 million Americans, the cost for federal crop insurance represents just one quarter of one percent of the federal budget.

This seems like a worthwhile investment to ensure our farmers can continue providing food and fiber for our nation.

Jared Lyle, Lender, Fairfield, Iowa

Don Swanson, Farmer & Crop Insurance Agent, Ottumwa, Iowa

Colin Johnson, Farmer, Batavia, Iowa

Dustin Johnson, Farmer, Andover, Iowa

Erica Wuthrich, Farmer, Bloomfield, Iowa

Family Farms in Iowa Find Crop Insurance Invaluable

The Swanson family has been rooted in Wapello County, Iowa for over 170 years. Don Swanson and his brother, Bill, grew up watching their fathers work the land. “It’s just a passion that we grew up with,” Don said.

It’s a passion that Don and Bill hope to pass along to their children and grandchildren.

But modern-day farming is more than the inherent satisfaction that comes from harvesting a crop planted from seed or raising the next generation of livestock.

“I wish I had time to do what lay persons consider farming – driving the tractor, feeding the cows,” Don laments. “It’s a full time job for me just managing the books, managing the risk, forward planning and strategic planning.”

National Crop Insurance Services has traveled across the country to talk to farmers and agriculture lenders on the ground to learn what crop insurance means to their farms, families, and communities. For the Swanson family, they would be left vulnerable without the safety net that crop insurance provides.

“Crop insurance protects that bottom line… It’s by far the best government program we have, hands down,” Don said.

Another multi-generation Iowa farmer, Dustin Johnson, enjoys being able to share the rewards of his labor with his children and expose them to the first-hand educational experiences that a working farm provides.

“In a world where technology has kind of taken over, it’s still nice to be able to bring the kids out, ride around in the tractor, get to see first-hand what Dad does every day,” he noted.

When Dustin started farming, the amount of capital required for essential items was daunting. Especially when his income relied not only on his hard work, but the hazards of unpredictable weather, and market fluctuations.

“The risks go way beyond anything that I can control,” Dustin explained. “Which is a really good thing to have crop insurance for.”

Crop insurance gives Dustin the peace of knowing that even in a down year, “we’re still going to have a safety there that we’re going to be able to farm next year.”

For many Iowa towns, agriculture is not only an integral part of the community but also critical to their economic success.

Erica Wuthrich from Bloomfield, Iowa, explains, “The majority of the families around here are farmers… if we didn’t have the farming operations around here, it wouldn’t be good – it would be awful.”

As young farmers, Erica and her husband, Brent, rely on the stability that crop insurance provides in order to keep their farm running. “We don’t make money from it, but it helps us sustain our operation,” Erica said.

Another young Iowa farmer, Colin Johnson, echoes this sentiment, “A component like crop insurance and the assistance that we get, as a young farmer, that helps me know I can continue farming another year. I have been farming for nine years on my own, and… I probably wouldn’t have lasted two years without my crop insurance support.”

Iowa farmers know first-hand that farming does not mean an easy harvest or quick profit. Jared Lyle, Senior Vice President and Senior Loan Officer for Iowa State Bank and Trust in Fairfield, stresses to his agriculture customers the importance of protecting their farms by purchasing crop insurance.

“It’s more a matter of a safety net to keep them from not losing quite as much money and keeping them in business,” Jared explains.

Weakening the public-private partnership of federal crop insurance would be detrimental to the Iowa families that Iowa State Bank and Trust serves.

“There will be less farmers in business for sure, if they lose that safety net,” Jared said. “Ag is very important. I would hate to see anybody underestimate that.”