NCPA - National Center for Policy Analysis

Waste, Fraud Abuse: Crop Insurance

May 5, 2003

Crop insurance allows farmers to protect a season's production of any of nearly 100 different commodities on any of more than 200 million acres, against nearly any misfortune. Although it is a government program, private insurance companies market the policies, collect premiums, pay claims and make large underwriting profits.

Currently, 18 insurance companies participate in the program, and they make up one of the most profitable parts of the property and casualty industry, says the insurance-rating company A.M. Best.

  • About 800,000 farmers now purchase federal crop insurance.
  • This fiscal year, reflecting payments for the 2002 drought, farmers as a group are collecting about $3.75 for every $1 they spent on crop insurance.
  • The cost to taxpayers for crops that failed in 2002 hit $3.9 billion, up 75 percent from what the program cost in 2000.

Although crop insurance was supposed to replace ad hoc disaster-aid bills, President Bush just signed a $3.1 billion bill in February for drought and other recent losses. It sweetens the payout for farmers who bought crop insurance. And those who didn't buy crop insurance for the 2002 season can get aid if they promise to purchase insurance in the next two years.

The Agriculture Department occasionally endorses insurance offerings that practically invite farmers to fail. One deal in Texas in 1999 insured fall-planted watermelons. But weather stacks the odds against melons planted at that time of the year. South Texas farmers planted lots of fall melons, lost much of the crop, and reaped a total of $21 million in insurance payouts.

"Rampant fraud goes on in crop insurance," says Bill Mateja, an assistant U.S. attorney in Lubbock, Texas, who won convictions of five cotton and wheat farmers accused of falsely collecting $700,000 under the program.

Source: Scott Kilman, "Abuses Plague Program To Insure Farmers' Crops," Wall Street Journal, May 5, 2003.

For WSJ text,,SB105208956225132900,00.html


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