By Leah Douglas
WASHINGTON (Reuters) - Roughly one-third of U.S. government spending to insure the nation's crops since 2011 has gone to insurance companies that derive more than $1 billion in profit from the program each year, according to a government watchdog's report released on Monday.
The federal crop insurance program, administered by the U.S. Department of Agriculture, is meant to protect farmers from financial losses after natural disasters or other events that result in crop losses or price declines.
The USDA worked with 13 privately held insurance companies to provide 1.2 million crop insurance policies at a cost of $17.3 billion in 2022, said the report from the Government Accountability Office (GAO).
From 2011 through 2022, the federal government paid about $36.6 billion to the insurance companies, about a third of the program's total cost of $107.7 billion, the GAO said.
During that time, the companies' underwriting gains, or profits, averaged $1.4 billion annually and their rate of return was nearly 17%, compared with a market rate of around 10%. USDA's target rate of return negotiated with insurers is 14.5%.
"This GAO report shows that a shocking proportion of the subsidies intended to support the cost of writing crop insurance policies for all farmers are being eaten up by companies and agents," said U.S. Senator Cory Booker, a Democrat, who requested the GAO report.
The GAO said that adjusting the rate of return closer to market rate and reducing subsidies for the highest-income farmers would together save the government hundreds of millions of dollars.
To do so, the GAO recommended that Congress repeal a provision of the 2014 farm bill that stipulates any change to crop insurance agreements cannot reduce insurers' underwriting gains.
USDA declined to comment.
Crop insurance costs are rising as climate change worsens, a 2022 report by the Environmental Working Group found.