USDA's chief actuary highlights crop insurance strengths

Staff reports
Farm Forum

America’s farmers and ranchers face an incredible number of risks every year, ranging from catastrophic weather events to market disruptions. That’s why rural America relies on the risk management tools provided by the federal crop insurance program.

Thomas Worth, chief actuary at the U.S. Department of Agriculture’s Risk Management Agency, recently spoke at an Agri-Pulse forum and highlighted some of the strengths of crop insurance, especially as farmers take action to combat climate change.

Farming is a dynamic environment, Worth said. So, the federal crop insurance program has to be dynamic as well to accurately reflect risks and help farmers adopt conservation practices.

USDA is constantly updating premium rates and analyzing data to reflect a farmer’s actual risk.

“We're always looking at and making refinements to mapping out high-risk land like flood plains,” Worth cited as an example, as well as evaluating weather trends and looking at region-specific agronomics.

One way that the federal crop insurance program is designed to incentivize practices that benefit the environment is by utilizing a farmer’s Actual Production History. This is a self-correcting feature that discounts premiums for any producer who improves their performance.

This naturally incentivizes farmers to adopt best practices and techniques for their area — and avoid practices that would harm their performance, such as planting on land not appropriate for their crop.

“Farmers are highly motivated to take measures to mitigate (their risks) and crop insurance is structured so that farmers are best off when they grow a full crop,” Worth said, calling this a “results-based discount.”

Worth pointed to cover crops as an example of one practice that is gaining popularity. The USDA recognizes cover crops as a good farming practice, which encourages farmers to use cover crops to prioritize soil health and resiliency. Ultimately, the use of cover crops can help reduce risk and improve a farmer’s yields, resulting in lower crop insurance premiums.

In fact, the Journal of Environmental Management recently published a peer-reviewed study that credited crop insurance with encouraging the adoption of conservation practices, such as cover crops.

Importantly, Worth emphasized the importance of crop insurance to the farm safety net and said it plays a critical role in helping farmers adapt to the challenges of tomorrow.

“The investments needed to make a farm resilient are generally long term in nature or may take a number of years before the benefit is fully realized,” Worth said. These types of investments can be difficult to make when a farm could go under after one bad year.

“Crop insurance provides the kind of financial stability that will enhance the ability of farmers to think long-term, and to make the investments needed to adapt and be more resilient,” Worth said.