Don’t drain the crop insurance pool

President Donald Trump was right when he said insurance is a complicated subject.

When explaining its finer points, I often describe insurance as a pool. The deeper and wider the pool — that is, the more people covered — the more insurers can spread risk, which makes insurance cheaper for everybody who’s swimming.

To ensure the pool is big enough, it’s important to attract people with low-risk levels to offset losses elsewhere. For example, safe drivers are needed in the auto insurance pool to make up for accident-prone motorists.

The exact same principle applies to crop insurance.

That’s why I was puzzled when I read a recent opinion piece in this paper [Crop insurance subsidies should be capped, May 16] urging Congress to increase insurance costs for larger farms. Doing so would inevitably reduce participation by agriculture’s least risky operations and essentially drain the crop insurance pool. That would drive up insurance costs for all, including small and beginning farmers who tend to be riskier and need coverage the most.

America hasn’t always had a good crop insurance system to protect farmers from the whims of Mother Nature. In the past, farmers had to go to Congress to ask for disaster aid. This wasn’t fair for taxpayers, who had to foot the whole bill, or for farmers, who often waited years for help to arrive.

So, Congress asked the private sector for help. Now, farmers visit a private-sector agent to design an insurance policy tailored to their individual operations. And when disaster strikes, a private-sector claims adjuster verifies the loss and a private company cuts an indemnity check in weeks, not years.

It’s so popular that farmers have collectively spent $50 billion from their own pockets since 2000 for coverage. Farmers must also shoulder at least 25 percent of a loss before receiving any help.

In other words, crop insurance ensures that farmers are active participants in funding their own safety net.

But farming is risky business and farm households have much more volatile income than non-farm households. Similarly, crop insurance is exposed to greater risk than other lines of insurance — a single drought can devastate farms from coast to coast, as we saw in 2012.

Therefore, the government has a role to play. To save taxpayers money, and to ensure farmers keep paying for part of their safety net, Congress incentivizes participation by discounting premiums and helping pay administration costs that would otherwise fall to farmers. It also encourages the expansion of coverage options so that insurance works as well for growers of green beans as it does soybeans.

Unfortunately, some critics of farm policy want to upend the whole system by capping insurance discounts or even excluding larger — and less risky — farms altogether. It makes for an easy talking point, but it would carry unintended consequences.

By removing your most established farms, and all the acreage associated with those farms, you are doing the same thing as excluding the healthiest people from life insurance. You are draining the pool, making insurance costlier and less available for everyone left.

Crop insurance works well because it is a tool available to farmers of all sizes in all geographic regions.

Congress should not upset this delicate balance by discriminating against one group of growers and weakening their ability to manage risk. Doing so would throw small farmers, and ultimately taxpayers, in the deep end.

Bill Pearson, Chairman, Independent Insurance Agents of Iowa