Blueprint to Improve Crop Insurance

Canadian Division Serves Alberta, Manitoba & Saskatchewan

A Blue Print to Improve Crop Insurance

  1. Background
    Farmers are exposed to many risks to produce a crop. As farm programs become more market driven, the risk management tools will take on greater importance. Crop insurance is the most cost effective safety net for growers to manage their production risks. It is unique among government sponsored programs because it can provide crop growers a variety of choices to individualize their coverage. Crop insurance is cost effective for taxpayers because growers pay a portion of the cost. Private sector expertise improves the efficiency and effectiveness of government sponsored programs. Farmer subsidies should be the same regardless of delivery.
  2. What does the private sector contribute?
    Centuries of experience insuring a wide variety of items is what the private sector has to offer. This expertise is in the areas of program design, administration and financial risk structuring. The private sector offers the following benefits that are common to those interested in a strong crop insurance program:
    • Expertise in program design and administration.
    • Improved service to growers.
    • Improved efficiency of administration.
    • Advocacy to speed up implementation of program improvements.
    • Financial incentive to reduce program abuse.
  3. Why is government involvement necessary?
    The broad geographical and catastrophic scope of agricultural disasters make it difficult for the private sector to build adequate reserves to cover catastrophic losses and still keep premium costs at affordable levels. Therefore, the most plausible approach is for the private sector to carry the normal crop loss exposures and the government to provide catastrophe reinsurance in exchange for a specific portion of the premiums.
  4. Is there a success model for a public/private partnership?
    The U. S. crop insurance program implemented this concept beginning in 1981 and further reinforced it in the crop insurance reform law of 1994. The U.S. crop insurance program has benefited from the private sector involvement. The benefits are:
    • Expansion of crop programs.
    • Improved administration (Private delivery costs are about 50% of the cost of government delivery).
    • Growers have more program choices to individualize their protection.
    • Improved grower satisfaction.
    • Virtually all other economic safety nets for growers were able to be eliminated in the 1996 Farm Bill which reduced the taxpayer costs.
  5. Could Canada experience similar benefits?
    Fostering a business relationship between the private and public sectors could result in benefits for Canadian growers and taxpayers. Furthermore, under trade agreement terms, most other forms of grower protection/ production subsidies are likely to disappear. This increases the need for an effective crop insurance program.
  6. Is private crop insurance expertise available?
    The private insurance industry is interested in helping Canadian governments develop a public/private partnership so that growers and the general public can benefit. The private industry will provide insurance expertise and risk capital to make the programs more useful risk management tools for growers, while reducing public risk exposure and cost. The government should continue to provide grower premium subsidies and catastrophic reinsurance, making improved coverage more affordable for growers.
  7. Summary
    The private insurance industry is willing to work with interested agricultural groups and government officials to help develop ideas that will improve the Canadian crop insurance program for growers and taxpayers and believes it can best be achieved through the forging of a public\private business relationship.