One Last Chance for Congress to Fix the Absurd Economics of Crop Insurance

After passage of separate House and Senate versions of the 2018 farm bill earlier this year, negotiators will meet this week to hash out their differences in a conference committee. One of the thorniest issues the conferees will face is what to do about crop insurance.

Insurance plays an essential role in any market economy. By spreading losses among members of a group with similar exposure, insurance encourages people to take prudent risks while protecting them from financial ruin in case they are the unlucky ones. But not all insurance is equal. Crop insurance, a multi-billion-dollar government subsidy that lies at the heart of federal farm policy, is nothing like the kind of insurance we buy for our cars and homes.

Let’s take a look at the absurd economics of crop insurance, and at what could be done to fix this program.

Crop losses are not an insurable risk

The problems of crop “insurance” begin with the fact that crop losses are not really an insurable risk. Over time, insurers have developed rules that identify which risks are insurable and which are not. Crop insurance violates three of the most important.

First, to be insurable, losses should be fortuitous — the result of events that are outside the control of…