It was aimed at insuring mostly small farmers against losses from such calamities as drought, winterkill, tornadoes and insect infestation. In 1999, more than 196 million acres was insured. The government also subsidizes premiums for some of these farmers, polices the system and ensures that insurance cheats are weeded out. The government pays private-sector insurance companies to sell crop insurance to farmers. On top of that, the USDA provides the industry with reinsurance.
Reinsurance is like buying insurance on insurance.
The industry purchases what amounts to an IOU from the government by which, in case of losses, the government promises to reimburse the companies for their shortfall. In other words, with reinsurance, the government agrees to share the risk with the insurance companies. Every five years, the USDA renegotiates how much money it will pay the insurance industry to deliver crop insurance to farmers and how much risk each side will bear. It was during the most recent talks in 1997, referred to as the Standard Reinsurance Agreement negotiations, that the industry s influence became obvious. Sources say that Dallas Smith, then a top USDA bureaucrat, removed his top negotiator, Ken Ackerman, during these multimillion-dollar negotiations.