Tracing the Roots of Crop Insurance

enjamin Franklin may have been the first American to promote the idea. On Oct. 24, 1788, after hearing a severe storm destroyed crops in a large part of the French countryside, Franklin wrote that it "must have been a terrible tempest that devastated such an extent of country. I have sometimes thought that it might be well to establish an office of insurance for farms against the damage that may occur to them from storms, blight, insects, etc. A small sum paid by a number would repair such losses and prevent much poverty and distress."

Nineteenth century American farmers could buy hail and fire insurance for their crops, but no company picked up on Franklin's idea of general or "all risk" crop insurance until 1899 when a Minneapolis company offered midwestern farmers a policy charging 25 cents per acre. Other private companies tried offering farmers insurance, but quickly learned the policies could be big money losers, R.A. Kramer noted in a 1982 Virginia Polytechnic Institute and State University thesis on the history of U.S. crop insurance. Insurers couldn't determine average yields. Some insurance pools weren't geographically diverse and bankers, who often doubled as insurance agents, tried to cover their own loan losses by selling policies after it was clear that crops would fail. Policies that insured against price risk were the biggest losers, and companies stopped offering them.

The first New Deal farm programs, passed in 1933, lacked a crop insurance program, but droughts in 1934 and 1936 made the insurance an issue in the 1936 presidential campaign. A month and a half before the election, President Franklin D. Roosevelt appointed a committee of Treasury, Agriculture and Commerce department officials to study government-sponsored crop insurance.

Roosevelt's committee, chaired by Agriculture Secretary Henry Wallace, a longtime crop insurance advocate, reported in 1937 that fire and hail insurance companies said a nationwide insurance program was too large for them to undertake but that a government-operated national program could overcome problems with spreading risk geographically and covering price as well as yield risks.

The 1938 Agricultural Adjustment Act included crop insurance for wheat and established the Federal Crop Insurance Corporation as a division of USDA. It provided FCIC $100 million in capital and $6 million in annual appropriations to cover administrative and operating expenses. The act created a board of directors to manage the corporation and authorized insuring growers for 50 percent to 75 percent of their past average yields against losses due to "drought, flood, hail, wind, winterkill, lightning, tornado, insect infestation, plant disease, and such other unavoidable causes as may be determined by the board," but did nothing for price risk.