Commentary: Crop Insurance vs Flood Insurance

For the past two weeks, we have been seeing the devastation in Texas and now in Florida caused by two massive Hurricanes. Over 40 inches of rain produced unprecedented flooding in Texas and a massive storm surge sent the Atlantic Ocean sweeping over the coastlines of Florida.  The House has already passed a Hurricane aid bill, and outlays from the federally subsidized flood insurance program will skyrocket. While Washington falls all over itself to throw federal aid to devastated areas ahead of the mid-term elections, calls for crippling the crop insurance program will continue.

Both the Obama and Trump administrations have tried to cut funding for the crop insurance program. For some reason, the idea of the federal government partnering with farmers to share the risk of producing our food supply is abhorrent to bureaucrats and some lawmakers. Yet, paying to rebuild homes built in flood plains is okay. While the crop insurance program is a well-run public/private partnership that, in most years, actually returns a profit to the government, the federal flood insurance program is a massive political boondoggle that costs the U.S. treasury billions of dollars.   However, the concept behind both programs is the same.

Planting a crop is a risky venture. A flood, drought, hail, or other weather calamity can wipe out a crop in a matter of hours or prevent the crop from being planted in the first place.  Adverse market conditions can eliminate an entire year’s worth of revenue for a farming operation.  Both the farmer and the government pay a portion of an insurance premium to protect against these risks, because both have a vested interest in that crop being produced.

Building a home on the shores of the ocean or in a designated flood plain is also risky. The premiums to cover the cost of insuring such property are rather high. So the government subsidizes the costs for homeowners. Now exactly what interest the government has in seaside homes escapes me, but, nevertheless, since the mid-1960s Uncle Sam has been helping these homeowners insure their homes against floods.

Almost every time an agricultural appropriations bill comes before Congress, there are calls for cutting funding for crop insurance. Yet, efforts to reform the flood insurance program are rare.  A reform package was passed two years ago which resulted in a rather significant hike in flood insurance rates. The caterwauling from seaside homeowners was so loud that Congress rescinded the reforms and lowered the rates.

Critics of crop insurance point out that some farmers plant crops in high risk areas just to collect the insurance. While there may be some truth to this, likewise, homeowners rebuild in high risk areas time after time. Investigations have shown that federal flood insurance has paid to rebuild some homes — in the same spot — several dozen times.  There has been legislation proposed that would limit the participation of larger farming operation in the crop insurance program. However, no such limitations have been proposed for multi-million dollar homes built along the Texas, California, or Florida coastlines.  Statistics show that the vast majority of flood insurance payouts have rebuilt high-priced real estate.

If Congress is unwilling to reduce or reform the federal flood insurance program, it should keep its hands off the crop insurance program.

By Gary Truitt