Billion Dollars Paid In Crop Loss Payments Last Week

Now that crop insurers and USDA’s Risk Management Agency (RMA) know the final market value of drought-damaged crops, the pace of indemnity payments is starting to pick up, a senior official with the insurance program told members of The Chicago Farmers at the group’s annual holiday meeting in Chicago.

“Just in the last week, about a billion dollars went out the door,” said Thomas Worth, Senior Actuary for the USDA’s Federal Crop Insurance Corporation.

The grand total of indemnity payments for all 2012 crop losses, according to the RMA Summary of Business as of December 10, is nearly $8 billion. More than half, $4.7 billion, has been paid on corn losses, with nearly $1 billion paid out on soybeans.

Worth said he is often asked what the losses will be for 2012. “The bottom line is we don’t know,” he said.

Although last year’s payout of nearly $11 billion was a record, the crop insurance industry had a slight underwriting gain. That’s measured by the loss ratio for the year, which divides the indemnity payments by premiums that are paid by farmers (and USDA through premium subsidies).

After the drought of 1988, the loss ratio for the industry was more than two, meaning it paid out more than twice as much as it brought in from premiums that year.

“It’s hard to believe we’re heading for something like that after 2012,” Worth told Agriculture.com.

As he explained to the group, the insurance program has changed since 1988. The drought will not affect premium rates for farmers for 2013 crops, Worth said. The rates have already been set earlier this fall and losses from 2012 won’t be reflected in rates until 2014.