Most Farmers Count on Free Disaster Aid--Especially in Election Years : Agriculture: U.S.-subsidized crop insurance, intended to replace relief programs, is off to a slow start.

In 1980, Congress expanded its 42-year-old federal crop-insurance program. The goal was simple: farmers would better cover themselves against the vagaries of nature and taxpayers would be spared the cost of disaster payments to farmers.

It hasn’t turned out that way.

Sales of crop insurance are well below expected levels. The program is billions of dollars in the red and under scrutiny, after years of mismanagement allegations. Congress still bails out farmers with huge relief programs such as the the 1988 drought bill.

“Farmers are just the same as Wall Street; they’ll take a gamble if it means money,” said Ed Jones, a farmer and former Tennessee congressman who sponsored the 1980 bill. “They don’t care about insurance if they think they are going to get a disaster payment.”

Last year provided a perfect illustration: With about 13% of an estimated 3.3 million farmers relying on government-subsidized insurance, they collected $3.9 billion in direct aid and an additional $1.1 billion in crop insurance payments.

An Associated Press study of the 1988 disaster program found farmers who said they were “made whole” by tapping both programs. They got as much or more from insurance claims and disaster payments as they would have earned from normal harvests.

“While Congress passed a law for crop insurance to be the single source of aid in a time of disaster, that never happened, because Congress refused to let it happen,” said Cliff Fowler, an assistant director at the General Accounting Office, which issued 20 reports on problems with crop insurance over the last nine years.

“Congress would come in with disaster payments--a free bailout--any time there was a disaster,” Fowler said. “If you were a farmer, why would you buy insurance if Congress is going to bail you out for free?”

Farmers, wise to the ways of politics, agree.

“You’d be crazy to buy insurance if you can count on a disaster program,” said M. Donald Clifton II of Milton, Del., who received a $100,000 disaster payment for peas and lima beans lost to drought last year.

Clifton also collected insurance on some losses, but he is no fan of that system. “You could hit it close if you bought insurance on odd-numbered years and didn’t on election years, when you’re more likely to get aid,” he said.

But crop insurance is still considered the best protection for farmers. A September GAO report said insurance “is a more equitable and efficient way to provide disaster assistance than emergency loan and direct payment programs.”

Until this decade, crop insurance, begun in 1938, was available for just 26 crops on 10% of the nation’s farmland.

That changed with the Federal Crop Insurance Act of 1980, which was to make insurance the first line of defense for all farmers against drought, flood, insects and blight.

It was to be a self-sustaining program. Farmers would buy insurance, just like any other business enterprise. Government clerks would be replaced by private agents who would sell policies amid corn rows and wheat fields.

Most important, disaster payments would be phased out. Banishing these expensive programs, which had amounted to free insurance, would trim the federal budget and make growers more responsible.

“There were abuses . . . examples of people planting even when there was no soil moisture and they knew there would be no harvest,” said James Johnson, a former staff member with the House Agriculture Committee. “Farmers used bad management, knowing there was this entitlement at the end of the crop year.”

Crop insurance coverage grew slowly over the decade. Last year, only 25% of farm fields were insured, well under the 50% goal of Congress.

The figure was 40% this year, but only because farmers who were paid for losses greater than 65% last year had to buy insurance for 1989.

The Federal Crop Insurance Corp. has lost money every year since 1980, a total of more than $4 billion. Losses in 1988 alone amounted to $579 million.

As the federal tab for crop insurance went up, so did the cost of the special disaster programs the insurance was to eliminate. From 1974 to 1980 farmers received $3 billion in disaster payments. The cost has soared beyond $7 billion this decade.

Insurance rates are based on the risk involved. Car insurance rates, for example, are based on actual claims due to accidents and theft, the amount of money the insurer is likely to pay and the amount of premium money the company is likely to collect and invest.

But the FCIC, without a certified actuary until 1986, made optimistic forecasts that didn’t pan out. One example: Premium income grew only 10% from 1982 through 1986 and never exceeded $440 million a year. But the FCIC predicted premium income of $700 million in 1987. It collected little more than half that.

“The program is actuarially unsound,” John Marshall, FCIC manager since 1988, said. “To some extent, our problems are the result of expanding too rapidly. We didn’t get our rates, policies and procedures in place, based on good research.”

Jackie King, a Rehoboth, Del., insurance agent, recalls one policy that covered lima beans and snap beans together, even though they have different growing seasons and risks.

“When I called to talk to the man who wrote the policy, he said: ‘I didn’t know there was a difference between a lima bean and a snap bean,’ ” she said. “I told them I was going to put the policy under my desk. I wasn’t going to insult these farmers.”

The corporation has been criticized for not keeping a tight rein on the private insurers who sell and service crop insurance. A 1987 GAO study found that farmers’ claims were overpaid by an average of 31%.

At present, farmers can insure 50%, 65% or 75% of their crops, in the way a car owner chooses a deductible on auto insurance. Farmers also choose what percentage of market price to be compensated for. The FCIC subsidizes 15% to 30% of premium costs, depending on coverage, but rates and regulations change yearly.

“If you’re going to insure a 1981 Bronco, you get a quote and it’s done,” said King. “With crop insurance you have different levels of coverage and different price selections. It can get really confusing.”

For all its problems, however, even its critics believe crop insurance is improving. A recent GAO study found the overpayment rate had fallen to 16%. The FCIC is studying decades of weather and crop reports to bring premiums in line with the actual cost of insuring a crop.

“We are seeing some bright spots,” Marshall said.

But concern remains that the crop insurance program can’t succeed if farmers believe they will be protected by special disaster programs.

“You either have a permanent disaster payment program or you never do it again and have insurance,” said Johnson, the former staff member with the House Agriculture Committee.

“You have to do that before people will believe in one system or the other.”