Reducing Costs of the Federal Crop Insurance Program: Stated Versus Realized Premium Subsidy Rates

Agricultural producers have access to numerous subsidized federal crop insurance products. A debate exists as to whether these products are used primarily for income transfers through premium subsidies and high loss ratios rather than for risk management. We compare Risk Management Agency stated premium subsidies to realized premium subsidies to identify opportunities to reduce federal outlays. We find substantial acreage and crop insurance participation for certain crops even when income enhancement does not occur and verify the results using simulations. Substantial reductions in federal outlays can occur using cro- and region-specific reductions in realized subsidies while maintaining risk management opportunities.