Crop Insurance Premiums Exceed Claims, Despite Drought, Hurricanes

Despite the severe drought in North Dakota and hurricanes that damaged crops in Texas and the Southeast last year, it appears that crop insurance premiums are once again going to easily exceed the claims that will be paid.

According to the latest weekly report, the program has paid out less than $3.7 billion in indemnities so far, compared to premiums of more than $10.1 billion. That works out to a loss ratio of 0.37. Economists say payments will rise in coming weeks as claims continue to be paid but indemnities should still be well under 1.0 for the fourth year in a row.

USDA’s chief economist, Rob Johansson says they will likely wind up in the range of $6 billion to $7 billion on premiums of $10.1 billion. That would put the loss ratio around 0.60 to 0.70.

The last time losses exceeded total premiums was in 2013 when $12.1 billion in indemnities were paid out on $11.8 billion in premiums.

Texas leads the nation in indemnities paid so far on 2016 crops at $529 million, followed by North Dakota at $487 million.

Keep in mind: The Congressional Budget Office has been watching these lower loss records and last year lowered the estimated loss ratio that it uses to project the cost of crop insurance indemnities. That in turn lowers the projected cost of the crop insurance program, helping the House and Senate Agriculture committees make the case that the 2014 farm bill is costing less than originally expected.

It’s also important to remember that 2016 indemnities would be much higher had Florida citrus growers purchased anything more than catastrophic coverage. The disaster bill that the House passed just before Christmas would provide $2.6 billion in emergency assistance to producers with hurricane-related losses.

Source: AgriMarketing

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