Don’t drain the crop insurance pool

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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

This much is certain: For farmers, crop insurance is essential

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There are a number of certainties in life. I know, for example, that every morning on my farm, the sun will rise in the east, and that every evening it will dip beneath the west horizon. And we know Iowa summers will be warm, the winters will be harsh and when the soil has thawed, spring growth will begin anew.

But a life of farming is also full of uncertainties. We can’t control the markets, nor the role Mother Nature will play in bringing our crops to harvest. Let me tell you, farmers are always in a constant negotiation with Mother Nature. Some years, Mother Nature is a farmer’s best friend. In other years, it can be our worst enemy. And in those years, there is no substitute for the risk protection that crop insurance provides.

Crop insurance allows farmers to pay a premium to alleviate some degree some of the uncertainties involved in farming. A crop insurance check will never come close to what a farmer can get from a bountiful harvest, but it does provide some peace of mind.

I’ve been farming for almost four decades and have witnessed firsthand the difference crop insurance can make. In fact, in 1977, my first year full-time farming, we suffered a major drought that resulted in a pitiful 28-bushel corn yield. Crop insurance and other assistance is what kept me going after that first disastrous year.

As president of the Iowa Farm Bureau for the past five years, and a member for many years prior to that, I also have also had the opportunity learn why crop insurance works. It succeeds, in no small part, because of its diverse participation. By spreading the chance of loss among a wide and varied group of insured farmers, premiums become less expensive for everyone. It’s a concept known as a “risk pool” and it is what makes things like auto insurance and homeowners insurance work, too. None of these programs would work if only a few folks participated.

But it hasn’t always been this way. Farm leaders across the country have worked with legislators effectively in recent years to strengthen crop insurance by expanding the size of the “risk pool” through encouraging and incentivizing increased participation.If you need evidence that this approached worked, just look at the numbers.

Today, almost 90 percent of farm acres in the U.S. are covered by crop insurance. It has become the primary safety net for today’s farmer. Because of this, it has also become one of the biggest targets for anti-farm policy critics.

Crop insurance’s detractors — many whom have never negotiated with Mother Nature — often weave a tale about farmers resting on our laurels and laughing all the way to the bank. But that’s all it is: a tall tale. These critics are especially prone to calling out a policy known as revenue protection, which shields farmers in periods of extreme market volatility. But crop insurance, no matter what type, is far from a handout. And having revenue protection doesn’t necessarily equal an indemnity payment, even in years with low crop prices. In 2015, for example, of total indemnities paid to growers, including revenue protection as well as coverage from weather events, only 3 percent were the result of low prices.

The safety net that crop insurance provides is essential and is more important now than ever before. Not only does the average American farm feed about 168 people worldwide, but one in five Iowans go to work because of agriculture. But our farm economy has seen better days, with farm income projected to decrease again.

Farming is a tough job and perils are many, especially in today’s environment. Crop insurance provides a measure of stability and is an investment in both today’s farm economy and our future. Without it, we’d have a whole lot less American farmers growing affordable food for America and the world. That much is certain.

Craig Hill of Milo is the president of the Iowa Farm Bureau Federation. His family grows corn and soybeans and raises livestock.