The growth of the crop insurance program, while slow in the initial years after passage of the 1980 [Federal Crop Insurance] Act, began to grow geometrically in the mid-1990s, aided by increased subsidies which encouraged producers to insure at higher coverage levels and by an expansion of crop coverage and a widening of product choice including revenue insurance. By 2015, area insured under the program totaled almost 300 million acres accounting for over 85 percent of potentially insurable area and total liability (coverage in force) topped $100 billion. Crop insurance is viewed by many farmers and members of Congress as a key piece of the federal farm safety net. Unlike many other farm programs, crop insurance largely escaped cuts in the 2014 farm bill. Indeed, the 2014 legislation augmented coverage options available to farmers, adding revenue insurance for peanuts and supplementary coverage options for most row crops, resulting in a projected $5.7 billion increase in program costs. Crop insurance has not been without its critics however. The annual costs of the federal crop insurance program have grown significantly since 2000. Estimated annual costs are projected at $8.9 billion over FY 2016-25, making it the largest single farm program in the farm safety net. Delivery costs for the crop insurance program, including expense reimbursements and net underwriting gains paid to the private company for delivery, are projected to exceed $2.6 billion annually. That means that for every $1 in total government outlays, about 71 cents goes to producers, with the rest going to the companies. Historically, that number has been even higher. Over the period 2000-15, companies received almost 45 cents out of every dollar spent on federal crop insurance. Critics point out that delivery costs have increased significantly over the past 15 years, particularly agent commissions. The crop insurance industry has defended those costs, arguing that expenses have outstripped reimbursements and that profitability measures in the crop insurance industry lag comparable measures faced by other Property & Casualty (P&C) lines of insurance. The regulatory structure outlining the economic relationship between the federal government and private insurance companies is laid out in the Standard Reinsurance Agreement (SRA), an annual contract that spells out the responsibilities of both parties. The SRA determines compensation for the companies through expense reimbursement and risk-sharing provisions for crop insurance liabilities. Provisions of the SRA have not changed since the 2011 SRA was negotiated in 2010. Congress included provisions in the 2014 farm bill that specified that any changes in the SRA were to be budget neutral with respect to underwriting gains and administrative and operating costs. … Delivery costs have been a visible target for reduction in the past because of what has been viewed as an inefficient and oftentimes obscure system of expense reimbursements and gain sharing through the SRA. An opposing view by crop insurance companies and insurance agents argues that the delivery system has taken large cuts in the past and cannot afford to continue to absorb large cuts in the future. This paper offers the view that the correct answer can be best determined by opening up the delivery system to more competition and to allow “fair” compensation to be set by the market rather than federal regulators. Allowing companies to compete on price will ensure that companies have incentives to deliver insurance at costs reflecting their true marginal costs. The beneficiaries will be producers and taxpayers rather than other entities who may currently benefit from wasteful economic rents. Source - http://www.illinoisfarmertoday.com