The History of Crop Insurance

The fact that the first crop insurance policies were written for tobacco farmers in colonial times may say something about the agricultural priorities of the 18th century, but it also says something about the importance of American farmers and the crops they grow. Even the founding fathers recognized it was important to keep farmers in business by insuring them against loss.

In those early days, many of the small private companies writing policies had inadequate cash reserves and highly concentrated business. When heavy losses occurred, claims had to be pro rated; that caused dissatisfaction among policyholders. And the result was liquidation of the companies.

Almost a century passed before crop insurance was tried again to any extent. In 1883 the St. Paul Fire and Marine Insurance Company, a stock company, began writing hail insurance protection on wheat in the Mississippi Valley states, other stock companies soon followed. In the early 1890's, premiums paid totaled about 2 million a year, but growth was quick. By 1919, protection in force had reached 560 million on an estimated 25 percent of the principal crops acreage. This marked the beginning of the successful Crop-Hail/Fire programs that continue to the present day.

Today, Crop-Hail/Fire protection is available on virtually every crop. Each year approximately 12-15 billion dollars of protection are written, normally generating premiums from 400 to 600 million. The amount of protection policies written is widely varied; most is concentrated in the Great Plains and the Corn Belt.

How Crop-Hail Insurance Works:


Dollar Value Coverage with losses as a percentage


Named Peril

Rate Structure

Determined by Historical Frequency (not severity)

Loss Adjustment

Based on Random Judgement

Rate Structure

  • 30 year Base History
  • ALR (Anticipated Lose Ratio) .60 = $1.00 paid will return .60 over period of 30 years.


History of Multiple Peril Crop Insurance

Contrary to the beliefs of most of us the concept of Multiple Crop coverage did not begin in the l980’s, it began in the 1930's. In the 1950's a few private companies began a limited experiment in writing Multiple Peril Crop Insurance (MPCI) policies, providing protection from adverse weather and other unavoidable perils. However, the program had only limited success. Additional attempts were made by private companies in the early and mid-l970's.

In the mid-1970's heavy crop losses ended the private sector MPCI experiment. The bad loss experience was further compounded by:

  • Basing coverage on the ASCS program yield, which did not accurately reflect actual yield history on individual farms.
  • Inadequate risk dispersion and market penetration brought about by the fact that private companies were competing with the U.S. Government's subsidized crop insurance program.
  • Inability to obtain catastrophic reinsurance protection at affordable prices that would protect against disasters occurring over large geographical areas.
  • In 1938, the U.S. government attempted to distribute MPCI under an insurance law that called for protection against unavoidable perils for wheat growers. The administrative costs of the program were paid from the general treasury, thereby subsidizing the premium rate by about 35 percent. The program was organized and funded as a government corporation. By the end of the 1945 crop year, the corporation was bankrupt.

    The program was restructured on a limited experimental basis beginning in 1948 and it continued on an experimental basis until 1979. However, the U.S. Government program offered by the Federal Crop Insurance Corporation(FCIC), remained largely unsuccessful in obtaining high rates of farmer participation and fell short of targets for collecting adequate premiums. The Crop Insurance Act of 1980 provided the opportunity for private companies to become involved in writing MPCI policies. The Crop insurance Act of 1980 is still in force today but has been amended by the Crop Insurance Reform Act of 1994 and the 1996 "Freedom to Farm" legislation. The MPCI program is well established as the risk management program for the American farmer.

    How Multiple Peril Crop Insurance Works:

    Coverage =

    Production Based

    Protection =

    All Natural Perils

    Rate Structure =

    Determined by APH (Actual Production History)

    Loss Adjustment =

    Fact finder

    Rate Structure: 30 year

    • 20 year Base History
    • ALR (Anticipated Loss Ratio) .90 = $1.00 paid will return .90 over period of 30 yrs.

    This information was researched and compiled by Kathy Bayes, an independent agent in Bastrop, Texas.

    Comment from the author:

    I began my career in the crop insurance industry in 1982. Since that time I have helped many farmers and ranchers protect a vital aspect of their ability to survive in an industry that is certainly reserved for a special group of steel nerved and brave individuals.

    The American farmer has been the lifeblood of this nation for generations. Even though the numbers dwindle every decade, they still have the ability not only to feed and clothe us, they can also feed and clothe the multitudes throughout the world. . Over the last ten years, with the aid of science and technology they are capable of growing from 4 to 10 times the product in the same acreage. According to some statistics published by the Texas Farm Bureau:

    • Today, each U.S. farmer produces food and fiber for 129 people.
    • American farmers produce 16 percent of the World's food on just 7% of the World's land.
    • Agriculture is the nation's largest employer, with more than 21 million people involved in some phase.
    • Food is most affordable in the U.S. where consumers spend less than 10% of their income.
    • An acre of land, which is roughly the size of a football field, can produce Texas crops in the following quantities:
      • 1,328 lbs. cotton (it takes approximately 12-14 oz. of cotton to make a shirt, and 16-18 oz. to make a pair of jeans. By the way, just FYI the producer most years receive less than a dollar a pound for his cotton. And that is gross, not net).
      • 14,000 lbs. corn
      • 28,800 lbs. oranges

    The next time you are driving your auto to your secure job, where you know the exact amount of compensation you will receive for your time and effort, wave at the farmer in the field, who has no idea what his income will be this year or the next. But, because of him and the industry he deeply believes is a service to mankind, we have bread, meat, fresh fruits and vegetables to feed our families and natural fibers for warmth in winter and ventilation in summer. Maybe, instead of waving, we should salute!

    The family farm is an endangered species, where are the programs and protection groups to conserve them? I, for one do not want to be dependent on foreign imports for my food and clothing. It may costs less now, but where is our guarantee that it will remain cheaper when we no longer produce our own?

    I hope you enjoyed this article on crop insurance and if you want to know more about insurance you can read my other articles; Insurance In America , Origins of Insurance, History of Farm Mutual Insurance Companies. Thank you for spending your time reading this. If you have questions or comments please feel free to contact me.

    Kathy Bayes

    1108 Main Street

    Bastrop, Texas 78602

    (512) 303-3008 or (888) 303-3009

    I am contracted with the following companies to take care of your crop needs:

    American Agrisurance- USAG.

    click on the icon to visit their web sites.


    NCIS Members

    American Agrisurance
    IGF Insurance Company
    Rain & Hail

    Other Crop Insurance Associations

    American Association of Crop Insurers (AACI)

    Other Crop Insurance and Agriculture Sites

    USDA Federal Crop Insurance Corporation – Office of Risk Management
    NASS Agricultural News and Weather
    World Agricultural Outlook Board
    National Crop Insurance Services

    This will take you to AGCENTRAL, There is some really good info there for Farmers.

    Texas A&M Agriculture News, This one needs no explanation!

    Everything You Always Wanted To Know About Cotton, But Were Afraid To Ask (You Should Be Able To Find It Here)!