New Analysis Describes How Crop Insurance Privatizes Profits for Corporations While Public Pays Exorbitant Costs

1st of 3 Land Stewardship Project Crop Insurance White Papers Released Today

WABASSO, Minn. — The nation’s main federal agricultural program is passing billions of dollars of public money onto a handful of major corporations via a system that lacks accountability and transparency, according to a new white paper released today by the Land Stewardship Project (LSP). “Crop Insurance—the Corporate Connection” is the first in a series of three LSP white papers analyzing the impacts of federally subsidized crop insurance. Launched in 1938 to provide a safety net for farmers facing severe weather catastrophes, crop insurance has in recent years become a tax-funded profit generator for some of the largest corporations in the country. LSP’s analysis is based on government data and interviews with farmers from across Minnesota.

“Through crop insurance, they’ve privatized the profits and passed the costs onto the public,” said Paul Sobocinski, a crop and livestock farmer in Wabasso in southwestern Minnesota. “There is a lot of money in this, and not enough accountability or transparency.”

While the federal government sets the terms for crop insurance, private corporations sell and administer the insurance products offered to farmers. In 2014, 19 corporations were designated as approved insurers. These include Wells Fargo (its crop insurance business is managed by a Minnesota-based subsidiary), John Deere Insurance Company, American Farm Bureau Insurance Services and Archer Daniels Midland (ADM) Crop Risk Services.

Between 2003 and 2012, the federal government paid crop insurance corporations a total of $42.1 billion in premium subsidies and $12.5 billion in administrative reimbursements. In this same period, the federal government also paid out $4.1 billion in underwriting losses and additional costs, bringing the total taxpayer bill to $58.7 billion for the10-year period.

Insurance corporations benefit significantly from the fact that the government consistently subsidizes producers’ insurance premiums at a high level. For example, premiums were subsidized at an average of 71 percent over the period from 2003 to 2012, the most recent figures available. This subsidy benefits the insurance corporations by artificially creating a large market for their products, with more than two-thirds of this market-boost coming via the pockets of the American taxpayer. Image

“The idea of these premium subsidies is to make crop insurance more affordable for farmers, so they purchase more crop insurance policies, but the public pays for them,” said Sobocinski. “It’s a hell of a business plan for Wells Fargo and ADM.”

Sarah Claassen, an LSP organizer and the author of the “Corporate Connection” white paper, said that despite the massive amount of public funds being funneled to private corporations via crop insurance, there is little accountability or transparency when it comes to how the money is spent.

“For example, 33,000 fewer crop insurance policies were sold in 2008 when compared to four years earlier. However, government reimbursements to crop insurance companies were $1.2 billion higher in 2008,” she said.

As the U.S. Government Accountability Office described it in 2009, the reimbursements are detached from “reasonable business expenses,” generating a “kind of windfall” for many insurance companies.

As a result of the significant subsidies crop insurance corporations receive, they consistently generate profits that are considered far above the reasonable rate of return as calculated by economic experts. Between 1989 and 2009, crop insurance companies averaged a 17 percent return on equity at a time when the “reasonable” rate was under 13 percent, according to an analysis done for the USDA. In 2009 alone, crop insurers enjoyed an astounding 26 percent rate of return, more than double what was considered reasonable by the industry standard for that year.

“It’s time we returned crop insurance to its original intent—as a basic, fiscally-sound safety net that supports family farmers and is accountable to the public,” said Sobocinski.