The Risk Management Agency (RMA) is responsible for rating crop insurance in an actuarially sound way. Unlike private insurance companies, RMA is not driven by profit when determining rates. Premium rates do not include the cost of sales, underwriting, loss adjustments, or the operating costs of RMA. Legislative language instructs that “the amount of the premium shall be sufficient to cover anticipated losses and a reasonable reserve.” RMA considers actual production history in the rating process, and rates are established independently of crop and geographic region. The loss experience of rice is not a factor when developing a premium rate for corn. Likewise, the loss experience of corn in Mississippi is not a factor when developing a premium rate for corn in Illinois.
The politics of crop insurance comes into play with the premium subsidy percentage amounts set by policy. Subsidy percentages are equitable across all crops, though, with each crop receiving the same subsidy percentage dependent on coverage level and unit choice. Total acres insured, coverage level, and premium rates all factor into the total amount of subsidies received by a crop. As seen in Figure 1., corn has received a total of $24.6 billion of crop insurance subsidies in the past decade, followed by soybeans at $14.9 billion. Rice and peanuts have total subsidy amounts of $617 million and $424 million, respectively, over the past decade.
Crop insurance performance is often judged by loss ratios. A loss ratio is simply calculated as indemnity payments divided by total premium. A loss ratio of 1.0 means that indemnity payments equaled total premiums. A loss ratio greater than 1.0 means indemnity payments exceed premiums, and a loss ratio less than 1.0 means total premiums exceed indemnity payments. The Risk Management Agency (RMA) is statutorily mandated to achieve a target loss ratio of 1.0. While loss ratios can fluctuate year-to-year, the national and crop-specific ratios have been trending down since 1989, as seen in Figure 2. Interestingly, many crops have trended down at similar rates. Rice, cotton, wheat, soybeans, and the national total have similar sloping trend lines. Corn has trended down but at a slower rate than the previously mentioned crops. Peanuts have seen the most dramatic decrease in the trend of any crop.
Figure 1. Total 10 Year Subsidy Amount by Crop, 2013-2022
Figure 2. U.S. Crop Insurance Loss Ratio Trends Over Time by Selected Crops, 1989-2021
 Coble, K. H., Knight, T. O., Goodwin, B. K., Miller, M. F., Rejesus, R. M., & Duffield, G. (2010). A comprehensive review of the rma aph and combo rating methodology: Final report. Prepared by Sumaria systems for the risk Management agency.
Maples, William E., and Keith H. Coble. “Crop Insurance Loss Ratio Trends Over Time.” Southern Ag Today 2(34.4). August 18, 2022. Permalink