The Federal Crop Insurance Program:
An Overview

Governing Statute and Regulations

The federal crop insurance program is a subsidized insurance program that provides financial protection to producers against crop losses caused by natural disasters such as drought or flood. See 7 U.S.C. § 1508(a)(1). The crop insurance program is authorized by the Federal Crop Insurance Act ("FCIA"), 7 U.S.C. §§ 1501-1524, "to promote the national welfare by improving the economic stability of agriculture through a sound system of crop insurance and by providing the means for research and experience helpful in devising and establishing such insurance." 7 U.S.C. § 1501. The regulations implementing the federal crop insurance program are found at 7 C.F.R. §§ 400-499.

Administration of the Crop Insurance Program

The crop insurance program is administered by the Federal Crop Insurance Corporation ("FCIC"), a wholly-owned government corporation and an agency of the USDA. The activities of the FCIC are administered by the USDA Office of Risk Management ("RMA"), pursuant to the RMA's authority under the FCIA. See 7 U.S.C. § 1503. The FCIC possesses a broad range of powers to implement the crop insurance program, including the authority to issue regulations. See 7 U.S.C. § 1503. The FCIC also has the power to establish the prices, terms, and conditions for federal crop insurance contracts and to oversee the delivery of crop insurance to eligible producers.

Most crop insurance policies were initially sold directly by the FCIC and the USDA Agricultural Stabilization and Conservation Service, the predecessor agency to the Farm Service Agency. Although the FCIC still possesses the authority to provide crop insurance directly to producers under certain circumstances, crop insurance is currently obtained through private insurance companies that are approved and reinsured by the FCIC.

The terms and conditions of the insurance contracts offered by reinsured private insurance companies, as well as the rights and responsibilities of the parties to the contracts, are subject to the FCIA and its implementing regulations. The FCIC is not usually a party to a crop insurance contract entered into between an eligible producer and a private insurance company. Crop insurance coverage is available not only for crops, but also for fish, livestock, and hogs. See generally http://www.rma.usda.gov. See also Christopher R. Kelley, The Agricultural Risk Protection Act of 2000: Federal Crop Insurance, The Non-Insured Crop Disaster Assistance Program, and the Domestic Commodity and Other Farm Programs, 6 Drake J. Agric. L. 141, 158-59 (2001).

Levels of Crop Insurance Protection

Although crop insurance policies are available for over one hundred crops and vary from one county to another, there are two basic levels of crop insurance: "catastrophic risk protection" ("CAT") and "additional coverage." Additional coverage is commonly referred to as "buy-up coverage."

Catastrophic Risk Protection

"Catastrophic risk protection" ("CAT") is designed to indemnify producers "for crop loss due to loss of yield or prevented planting, if provided by the . . . [FCIC], when the producer in unable, because of drought, flood, or other natural disaster (as determined by the Secretary), to plant other crops for harvest on the acreage for the crop year." 7 U.S.C. § 1508(b)(1). CAT coverage provides producers coverage for a fifty percent loss in yield, indemnified at fifty-five percent of the expected market price or a comparable coverage, as determined by the FCIC. See id. at § 1508(b)(2)(A)(ii). Because a loss must exceed fifty percent of the approved yield before an indemnity can be paid, CAT coverage is triggered only in the event of major crop loss.

Both a premium and an administrative fee must be paid under CAT coverage. The administrative fee must be paid by producers, and the premium is paid by the federal government. See id. at §§ 1508(e)(2)(A) & 1508(b)(5). The administrative fee is equal to ten percent of the premium for CAT or $100 per crop, per county, whichever is greater. See id. at § 1508(b)(5)(A).

Additional Coverage

"Additional coverage" is crop insurance coverage that provides a level of coverage greater than the level available under CAT. See id. at § 1502(b)(1) (defining "additional coverage"). See also id. at § 1508(c). The crop insurance regulations further define "additional coverage" and provide for "limited coverage," which is also greater than the level available under CAT. See generally 7 C.F.R. § 400.651.

"Additional coverage" provides coverage that is equal to at least sixty-five percent of the approved yield indemnified at 100 percent of the expected market price. Producers have the option of purchasing additional coverage "based on an individual yield and loss basis or on an area yield and loss basis," if both options are offered by the FCIC. Id. at § 1508(c)(3). Producers can purchase any level of coverage "not to exceed 85 percent of the individual yield or 95 percent of the area yield," as determined by the FCIC. Id. at § 1508(c)(4). Additional coverage is available in five percent yield increments.

"Limited coverage" crop insurance is an insurance plan that offers coverage that is "equal to or greater than fifty percent . . . of the approved yield indemnified at one hundred percent . . . of the expected market price, or a comparable coverage, but less than sixty-five percent . . . of the approved yield indemnified at one hundred percent . . . of the expected market price, or a comparable coverage." 7 C.F.R. § 400.651 (defining "limited coverage").

Types of Crop Insurance Policies

The majority of crop insurance policies are based on one of two basic models: yield loss or revenue loss. Yield-based policies provide financial protection to producers for yield losses and, depending on the particular crop insurance policy, is measured by the quantity or the value of their yield. Multiple peril crop insurance ("MPCI"), which provides "comprehensive protection against weather-related causes of loss and certain other avoidable perils" and is the most available and used type of crop insurance, is a form of yield-based coverage. See http://www.rma.usda.gov/pubs/rme/fsh_6.html (defining "multi-peril crop insurance").

Revenue-based policies provide financial protection to producers for revenue losses caused by declines in yield or price. There are several types of revenue-based policies, each defining "revenue" differently: Group Risk Income Protection ("GRIP"), Adjusted Gross Revenue ("AGR"), Crop Revenue Coverage ("CRC"), Income Protection ("IP"), and Revenue Assurance ("RA").

Under GRIP, producers are paid indemnities when the average county revenue for the insured crop falls below the revenue chosen by the farmer. AGR insures the revenue of a producer's entire farm, rather than an individual crop, by guaranteeing a percentage of gross farm revenue. CRC provides revenue protection based on price and yield expectations by indemnifying losses below the guarantee at the higher of an early-season price or the harvest price. IP provides financial protection to producers against reductions in gross income when either a crop's price or yield declines from early-season expectations. Under RA, farmers are allowed to select a dollar amount of target revenue from a range defined by sixty-five to seventy-five percent of expected revenue. See http://www.rma.usda.gov/policies (listing and describing yield-based and revenue- based insurance policies).

Losses Not Covered By Crop Insurance

Certain losses are not covered by crop insurance. Losses due to a producer's neglect or malfeasance, failure to reseed "to the same crop in such areas and under such circumstances as it is customary to reseed," or failure "to follow good farming practices, including scientifically sound sustainable and organic farming practices," are not insured losses under the crop insurance program. 7 U.S.C. § 1508(a)(3). The RMA is responsible for making "good farming practices" determinations and are subject to an administrative appeal procedure that does not involve the reinsured company.