This post examines the distribution of net insurance payments by crop and by state. It briefly discusses two factors that help determine the distribution and ends with a discussion of policy issues, notably a potential alternative subsidy method that would change the distribution of payments.

Calculation of Net Farm Payments by Crop Insurance

Net insurance payments equal indemnity payments received by farms from crop insurance minus the insurance premiums paid by farms. Positive numbers indicate that farms have received more than they paid in. Negative numbers indicates that farm-paid premiums exceed payments.

Net insurance payments are calculated for crop years 2001-2012. The data for 2012 is not complete but a large share of payments likely have been made by this date. The calculation begins with 2001 because the Agricultural Risk Protection Act of 2000 made substantive changes to crop insurance, including changes to the premium subsidy. Payments are expressed as a share of the value of production.

The data presented in this article are averages. Because of the public subsidies for farms to purchase insurance and target loss ratios, average net farm insurance payments usually are positive. However, net insurance payments may not exceed zero for individual farms. An individual farm only receives a payment if it experiences a loss that exceeds its deductible in a given year. The net insurance payment calculation does not include the administrative fee paid by farms. This fee, which is currently $30/insured crop/county, will somewhat reduce net payments.