By Leah Douglas
WASHINGTON (Reuters) – About a third of U.S. government spending to insure the country’s crops since 2011 has gone to insurance companies that reap more than $1 billion in profits from the program each year, according to a government watchdog report released on Monday.
The federal crop insurance program, administered by the U.S. Department of Agriculture, is designed to protect farmers against financial losses following natural disasters or other events that result in crop losses or price declines.
The USDA partnered with 13 private insurance companies to issue 1.2 million crop insurance policies at a cost of $17.3 billion in 2022, the Government Accountability Office (GAO) report said.
From 2011 through 2022, the federal government paid about $36.6 billion to the insurance companies, about a third of the program’s total cost of $107.7 billion, the GAO said.
During that time, the companies’ underwriting profits or profits averaged $1.4 billion annually and their returns were almost 17%, compared to a market rate of about 10%. The USDA return target agreed with insurers is 14.5%.
“This GAO report shows that a shocking portion of the subsidies intended to support the cost of writing crop insurance policies for all farmers are being eaten up by corporations and agents,” said U.S. Senator Cory Booker, a Democrat, who requested the GAO report.
The GAO said adjusting returns closer to market rates and reducing subsidies for the highest-income farmers would together save the government hundreds of millions of dollars.
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To do this, the GAO has recommended that Congress repeal a provision of the 2014 farm law that stipulates that any change in crop insurance contracts cannot reduce insurers’ underwriting profits.
USDA declined to comment.
Crop insurance costs are rising as climate change worsens, according to a 2022 report from the Environmental Working Group.
