How the federal crop insurance program works

Most crop insurance in the United States is written under the federal program. According to the USDA Risk Management Agency (RMA), the Federal Crop Insurance Corporation (FCIC) was created in 1938, and the program remained largely experimental until the Federal Crop Insurance Act of 1980 expanded it to many more crops and regions and authorized a premium subsidy. The Federal Crop Insurance Reform Act of 1994 created catastrophic (CAT) coverage, and in 1996 RMA was created to administer FCIC programs.

Farmers do not buy federal policies from the government directly. Private insurance companies, known as Approved Insurance Providers, sell and service the policies through licensed crop insurance agents. As the NAIC explains, these companies operate under a Standard Reinsurance Agreement with the FCIC, which sets the terms for premium subsidies and federal reinsurance. Because policy terms and rates come from the federal program, the practical differences between companies lie mostly in the service of the agent and the claims adjuster.

Multiple-peril crop insurance (MPCI)

MPCI covers a broad range of natural causes of loss such as drought, excess moisture, freeze, hail, wind, insects and disease. The NAIC notes that it must be purchased before planting begins and that it does not cover farm infrastructure such as grain bins or livestock barns, which belong on a farm property policy. The main individual plans are:

  • Yield Protection insures against a production shortfall below your guaranteed yield, based on your actual production history.
  • Revenue Protection insures against lost revenue from low yields, a price decline, or both. A version with the harvest price exclusion costs less but does not raise the guarantee if prices rise by harvest.
  • Area-based plans pay when county-level yield or revenue falls, regardless of your individual result.

The 2014 Farm Act added the Supplemental Coverage Option (SCO) and the Stacked Income Protection Plan (STAX), which can be layered on top of an underlying policy. Whole-farm and livestock products also exist; ask your agent which plans are available for your crops and county.

Catastrophic coverage (CAT)

CAT is the minimum level of federal protection. RMA's Manager's Bulletin MGR-19-006 describes it as covering losses greater than 50 percent of yield, indemnified at 55 percent of the expected market price. The FCIC generally pays the entire premium, but the farmer pays an administrative fee. Section 11110 of the Agriculture Improvement Act of 2018 raised that fee from $300 to $655 for each crop in each county. CAT is useful as a floor, but for most commercial operations "buy-up" coverage at higher levels gives far more meaningful protection.

Crop-hail insurance

Crop-hail is a separate, private product. It is regulated by state insurance departments, covers fewer perils (mainly hail and fire), and is not reinsured by the FCIC. Unlike MPCI, it can usually be bought at any time during the growing season. Many growers combine both: MPCI protects the whole-season yield or revenue, while crop-hail pays field-by-field hail damage that might not trigger an MPCI claim on its own.

Key dates and duties

Federal crop insurance runs on strict deadlines published for each crop and county:

  1. Sales closing date is the last day to apply for or change coverage.
  2. Acreage reporting date is when you must report planted acres; errors can reduce indemnities.
  3. Production reporting keeps your yield history accurate and your guarantee correct.
  4. Notice of loss must be given promptly after damage, and you must not destroy a damaged crop before an adjuster releases it.

Why it matters: the scale of weather risk

Severe weather can hit large areas at once. The NAIC cites the August 10, 2020 derecho in Iowa, which affected nearly $6 billion in federally insured corn and soybean liability. Events of this size are why the federal program pairs private delivery with government reinsurance and why lenders often require crop insurance before they extend operating credit.

How to choose coverage

  • Compare yield and revenue plans using your own production history and marketing plan; revenue coverage fits growers who forward-contract grain.
  • Choose a coverage level and unit structure (basic, optional or enterprise units) with your agent, and compare the premium for each option.
  • Add crop-hail for high-value fields exposed to hail.
  • Insure buildings, equipment and livestock separately under a farm or agriculture policy.

International notes

Outside the US, agricultural insurance systems vary widely, from government-subsidized multi-peril schemes to private hail markets and index-based (weather or satellite) products. For agribusinesses and international clients, Polis Re can help request quotes for crop, livestock and agribusiness risks; policies are issued by licensed insurers and placed through licensed producers. Request a quote to get started.