In spite of the depth and far-reaching impact of the drought that has gripped more than half of the nation’s agricultural production area this summer, farmers should have no worries regarding their crop insurance policy’s ability to pay.
“The crop insurance industry is on the ground in the drought-stricken areas, mobilizing loss-adjuster teams,” says Thomas P. Zacharias, president, National Crop Insurance Services in a statement released today.
“Farmers can be assured their claims will be paid, and that the companies will move as quickly and as efficiently as possible, given the expected volume of claims, to assess damages and get indemnity checks into the hands of farmers,” Zacharias says.
Claim volume will be huge. Recent USDA crop report estimates indicated significant losses for corn and soybeans, result of the heat stress and extreme drought that covers much of the Corn Belt.
“Although this was the largest corn crop planted since 1937, production is projected to be down 13 percent, the lowest output since 2006,” Zacharias says. “Corn yields are expected to average 123.4 bushels per acre, down nearly 24 bushels from last year, which would be the lowest average yield since 1995. Soybean production is forecast to be down by 12 percent from last year, and if realized, would have the lowest average yield since 2003.”
Zacharias says most farmers in drought-stressed areas are covered by crop insurance.
“Some farmers in these affected areas have purchased crop insurance policies for years and have never collected an indemnity. This year, their decision to purchase crop insurance confirms their practice of sound risk management.”
No one can predict just how much crop yields will drop because of this lingering drought, and the toll it takes on farm income is yet to be determined. Zacharias says even with the August report, speculation will not provide a precise estimate of crop losses. “We are analyzing the August 10 report and will compare that with reports from the field, along with the crop insurance policy data that is still being processed and reported to the Risk Management Agency.”
He says final outcomes will vary from one state to another and on the types of insurance farmers and ranchers purchased.
But he says the system is well equipped to handle drought losses, even losses in some states that cover two years in a row.
“In order to be approved to sell federal crop insurance, companies must have adequate surplus and reinsurance at their disposal so that even if a catastrophe of this magnitude strikes, and then one strikes again the next year, the company is still capable of paying indemnities on the policies they sell,” he says.
“In addition to company surplus and reinsurance, the federal government serves as the backstop reinsurer for all companies that sell crop insurance. As such, the federal government shares in the gains and the losses of the program. Gains in prior years can and will be used to offset losses in years like this one.”
Agents and adjusters are already assessing the situation. “The industry has 5,000 claims adjusters and 15,000 agents working tirelessly right now to help growers cope,”Zacharias says. “These adjusters are working hard to get money to farmers who have suffered losses, already paying out $822 million in indemnities to date. Companies are also mobilizing adjusters away from other parts of the country that have not been affected by drought and sending those adjusters to the hard-hit states.”
He says crop insurance allows farmers to endure disasters and continue farming. “Farmers will not only survive this drought but plant again next year, ensuring a continuity of the food, feed, fiber and fuel supply for this nation and an increasingly hungry world.”