While the Eastern Seaboard was getting socked by Sandy, states in the Midwest and Southwest were struggling through one of the worst droughts on record. Florida may have dodged both bullets directly, but chances are good that we will still feel some of the pain as the East Coast rebuilds and the Midwest replants.
To date, the 2012 drought has racked up $3.5 billion in claims. Just one state has received $245 million to compensate farmers. Industry analysts suggest that federally subsidized crop insurance policy payouts will surpass the nation’s record high of $10.8 billion logged in 2011.
This is not your father’s crop insurance. As recently as the 1990s, farmers depended on emergency disaster programs to bail them out. Now, farmers are weighing the risk and buying insurance before the planting season. In one state, for example, businesses and individuals involved with crop production purchased 159,000 insurance policies to cover about 15.6 million acres. About 86 percent of the total available production land, then, is insured.
But here’s the thing that will sound familiar to Floridians: Those policies earned the insurers $667 million in premiums, and taxpayers picked up 71 percent of the bill. Without taxpayer subsidies, the market would flop.
In bad times, the federal government will step in to help insurance companies pay claims regarding yield and price protection. The objective is to keep insurers from going under after a major drought or flood or any kind of weather calamity; it is also important to keep insurers in the crop insurance business, so the country does not experience what Florida did when property insurance companies decamped to cut their losses from hurricane damage.
There are good years, too. And just as a homeowner can go for years without tapping his homeowners insurance benefits, farmers and taxpayers can go for years without having to pay big money for crop losses. We will discuss more about the good times in our next post.
Source: Columbus Telegram, “Crop insurance claims continue to rise,” Art Hovey, Nov. 10, 2012
We work with policyholders in Miami and South Florida who are having trouble navigating the labyrinthine claims processes of their insurance companies, like some farmers referred to in this post. Please visit the Delays in Insurance Payment Disputes page of our website.Share