Federal Crop Insurance: Delivery Subsidies in Brief (CRS Report for Congress)
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| Release Date |
Aug. 20, 2018 |
| Report Number |
R45291 |
| Report Type |
Report |
| Authors |
Isabel Rosa |
| Source Agency |
Congressional Research Service |
Summary:
In the federal crop insurance program, “delivery” generally refers to marketing policies,
processing applications, collecting premiums, and adjusting claims. Delivery subsidies
accounted for $14.8 billion (20%) of federal spending on crop insurance during crop
years 2007 through 2016. The amount of delivery subsidies is not based on actual
expenses incurred by Approved Insurance Providers (AIPs) but is instead based on
percentages of premium that are established in the Standard Reinsurance Agreement (SRA). The percentages vary
by policy type and coverage level. Delivery subsidies are not taken from total premium. They are paid as a
separate government subsidy to AIPs. The SRA sets their amounts as follows:
Administrative and Operating (A&O) subsidy, for delivery of buy-up coverage (lower
deductibles), equals between 12% and 21.9% of premium, depending on policy type.
Catastrophic Loss Adjustment Expense (CAT LAE), for delivery of catastrophic level coverage
(higher deductibles), is fixed at 6% of premium.
From 2007 to 2016, total annual delivery costs (A&O and CAT LAE combined) averaged about $1.5 billion in
current dollars and represented about 15% of total premium. The 2011 SRA and subsequent SRAs established a
minimum (cup) of approximately $1.0 billion and a maximum (cap) of approximately $1.3 billion per year for
A&O subsidies—subject to an adjustment for inflation from 2011 to 2015—to help stabilize A&O amounts. Since
the A&O cup and cap first went into effect in 2011, the total amount spent on delivery subsidies (A&O and CAT
LAE combined) has exceeded the A&O cap every year.
Delivery Subsidies in the Federal Crop Insurance Program
Source: Compiled by CRS using RMA Crop Year Government Cost of Crop Insurance 2007-2016.
Notes: Delivery subsidies include Administrative and Operating subsidies and Catastrophic Loss Adjustment Expense subsidies.
Limited data is available on the actual expenses of AIPs. The Risk Management Agency (RMA) requires AIPs to
report actual expenses as SRA exhibits but does not publish the reported expense data.
CRS is aware of three publicly available sources for information on AIP expenses: (1) annual statements from
state departments of insurance, (2) Form 10-K and other reports submitted to the U.S. Securities and Exchange
Commission (SEC) by AIPs that are owned by publicly traded companies, and (3) AIP survey data used in studies
sponsored by the crop insurance industry.
The available data on actual delivery expenses is not easily matched with A&O delivery subsidies and leaves
unanswered the question of whether current subsidies are deficient, sufficient, or excessive relative to the actual
delivery costs of AIPs.
