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Crop Insurance Lottery

A Lottery That’s a Sure Bet

February 10, 2016

Crop Insurance Lottery: Crop Insurance Lottery

The fact that most farmers have a good chance of making more in claims payouts than they paid in premiums clearly demonstrates how little the federal program resembles real insurance.

People who buy term life insurance won’t be around to collect on the policy, but they willingly pay their premium because of the value they place on knowing that their beneficiaries will be taken care of. Likewise people who buy health insurance willingly pay to guard against the risk that they may have health expenses that exceed their ability to pay.

Most family businesses do not have access to federally subsidized insurance, but some add business interruption coverage to their property insurance policy, at their own expense, to ensure that the business will survive a catastrophic event that would otherwise force them to close down.

None of these people or businesses count on getting back more in claims payouts than they paid in premiums. Indeed, “winning” that bet likely means something very bad happened to them.  

The data in Table 1 provide a closer look at the outcomes the federal crop insurance program produces. These data demonstrate that for individual farmers, the odds of earning a positive rate of return on crop insurance are more uncertain than the aggregate data suggest. But the data also indicate that the odds of winning are clearly in the farmers’ favor, and that the winnings can be both large and frequent.