ECONOMIC ANALYSIS OF CROP INSURANCE
IN EASTERN COLORADO
Jerry M. Moore
Colorado State University
Fort Collins, Colorado
This study was made possible by the Federal Crop Insurance
Corporation, which initiated a regional research project through
the Great Plains Research Council and provided part of the funds
for the study in the state of Colorado.
I wish to express my thanks to the members of my graduate
committee, especially to Dr. Peter E. Hildebrand, who was respon-
sible for me beginning work on this study and acted as my major pro-
fessor, and to Dr. L.M. Hartman, who assumed the job as my major
professor and directed me in writing this thesis after Dr. Hildebrand
began a leave of absence.
I also wish to thank Chris Andrew, who helped me in taking
field interviews and who did valuable work in analyzing data used
in the study, and Dave Holland, who developed the computer program
used in obtaining crop yield risk indices.
Also due credit for the completion of this study are the
farmers of eastern Colorado and the personnel of the Federal Crop
Insurance Corporation who attempted to answer my many questions
about the operation of the federal crop insurance program in
TABLE OF CONTENTS
I INTRODUCTION........................................... .1
Background................ ......... .................1
Objectives of this Study...........................2
Approach of this Study..............................3
Review of Relevant Literature........................
Format for Results of the Study.....................7
II HISTORY OF THE FEDERAL CROP INSURANCE CORPORATION 9
AND ITS OPERATIONS IN COLORADO....................
Need for Insurance ................................
Purpose of Federal Crop Insurance.................. i
History of the Federal Crop Insurance
Corporation ............. ........... .............1i
Description of Federal Crop Insurance..............13
Federal Crop Insurance in Colorado.................17
Insurance Guarantees in Colorado Counties............20
Participation in Colorado..........................21
III CROP YIELD RISK INDEX COMPUTER PROGRAM................27
Description of the Risk Index Study..............27
Data used in the Study.............................28
Design of the Risk Index Program.................29
Results of the Regression Analysis................31'
Risk Index Computations............................32
Comparison of Premiums............................33
IV FINDINGS AND SUMMARIES FROM FIELD SURVEY..............37
Description of the Survey Schedule and Sample.....37
Summary of Survey Answers........................41
Findings from Insurable Counties...............42
Findings from Southeastern Colorado Counties...51
Implications of Survey Findings..................54
V SUPPLEMENTAL STUDIES AND FINDINGS.................... 6
Analysis of the Cost of the F.C.I.C. to the
The Problem of Insuring a Crop for More Than its
Value.......... ................................ 72
VI CONCLUSIONS AND RECOMMENDATIONS....................... .. 78
Conclusions from the Study........................ 78
APPENDIX A.................................................... 88
APPENDIX B................................................ 94
Eastern Colorado lies between the Great Plains and the
Rocky Mountains and is subject to extreme variations in climate
both between years and within years. Agricultural production in
this area, whether from dryland or irrigated farming, is subject
to wide fluctuation due largely to these climatic factors. Far-
mers have learned to use various strategies in coping with the
resulting problem of income variability. One of the more formal
types of strategies developed for this purpose is federal all-
risk crop insurance.
Federal all-risk crop insurance has been available in parts
of eastern Colorado for many years. The number of counties and
the number of crops eligible for insurance has varied and, in
some cases, counties have been withdrawn from eligibility.
Since the beginning of this insurance program, little study has
been done concerning the needs and desires of farmers in eastern
Colorado for insurance of this type. During this time period
the non-weather farm environment has undergone rapid change:
farms have been increasing in size, the level of technology has
increased, capital investment has expanded, federal farm programs
have been changed, and emphasis on various crops along with ex-
pected yields are different than during the late 1940's and 1950's.
Irrigation, which tends to alleviate production variability, has
also expanded rapidly.
Current research is needed to study federal crop insurance
under these new conditions. Analysis of the success of the fed-
eral crop insurance program in fulfilling the needs and desires
of the farmers it serves and determination of what potential far-
mers it could serve need to be made as an aid to the farmers in
the state, the agricultural communities, and the Federal Crop
Insurance Corporation. These studies should be designed to de-
termine the adequacy of federal crop insurance in the areas of
insurance availability, the need for insurance in areas not
covered, and recommendations for expansion, contraction, and
improvements of the program.
Objectives of This Study
The general purpose of this thesis is to study the economic
basis of federal..all-risk crop insurance in eastern Colorado, to
learn why farmers do or do not use the insurance and, attendantly,
to evaluate the adequacies of current operational services of the
Federal Crop Insurance Corporation.
Specific objectives include:
1. To study the history of crop insurance as a guide for
investigating current operational procedures of the Federal Crop
Insurance Corporation to discover possibilities for changes and
improvements in the program.
2. To study crops under insurance and to measure trends
and variability of yields for insurance purposes.
3. To study some characteristics of "demand" for federal
crop insurance in an attempt to identify which farmers use it the
most and why participation in the program is not greater than it is.
The Federal Crop Insurance Corporation will also be re-
ferred to as the F.C.I.C. and as the Corporation.
4. To evaluate farmers' knowledge of federal crop insurance
and their attitudes toward specific aspects of the program.
5. To learn why farmers cancel their federal crop insurance
contracts and what objections need to be overcome to make the pro-
gram more acceptable and useful.
6. To discover the use of other risk-reducing strategies,
such as reserves of feed or cash, by farmers and the relationship
of these strategies to federal crop insurance.
7. To investigate the effect other farm programs have on
participation in the federal crop insurance program.
8. To compare the cost to the government of the Federal
Crop Insurance Corporation with other government agencies to aid
Approach of this Study
An extensive review of the literature concerning the oper-
ation of crop insurance and the usefulness of crop insurance as
a risk-bearing strategy was conducted. A study was made of the
history of the Federal Crop Insurance Corporation and its present
operations were studies for the basis of evaluating current pro-
grams in eastern Colorado. Data on the past operations of the
F.C.I.C. in Colorado and statistics on present participation,
coverages, premiums, and indemnities in Colorado counties were
obtained from the F.C.I.C. Actuarial Division and from the State
Office in Denver.
A computer risk index program was formulated to measure
trends in crop yields and to compute "pure premium rates" for
yield guarantees which might be offered under the insurance pro-
gram. These computations provide a means for comparison of risks
among the counties where federal crop insurance is available and
give risk indices for other eastern Colorado counties to which the
program might be expanded.
A field survey was made to obtain farmers' opinion of federal
crop insurance and to learn why they do or do not use it. Questions
were asked of farmers to find out what changes or recommendations
they could offer to improve the program. The questionnaire was
designed to obtain information on the amount and kind of crop in-
surance appropriate for different economic and institutional situ-
ations (e.g., type of farming, tenancy relationship, etc.). Dis-
cussions were held with personnel of the Federal Crop Insurance
Corporation and with persons in farm-related businesses to further
aid in assessing the usefulness of the federal crop insurance pro-
Data from the Acturial Division of the F.C.I.C. and from the
State Office were analyzed to determine the relationship of pres-
ent operations to those of the past and to discover significant
successes and failures that might be relevant in recommending
changes in the program. Analysis of the cost of the FC.I.C. pro-
gram to the government, as compared to four other government pro-
grams that aid agriculture, was made to provide a more complete
study of the program.
Review of Relevant Literature
Frank H. Knight and G.L.S. Shackle have contributed much
to the understanding of the problems of risk, uncertainty, and ex-
pectations as related to insurance. Knight2 makes distinctions
2 Frank H. Knight, Risk, Uncertainty and Profit. (Boston:
Houghton Mifflin Company, 1921).
between the terms "risk" and "uncertainty" and indicates several
requirements of insurance although he does not frame a concise
definition of insurance. Shackle, in a common position with
Knight on the problem of expectations, contends that where the
frequency of occurrence is sufficient, the case is one amenable
to the methods of mathematical expectation as a measurable, objec-
tive, statistical risk. Such cases constitute no problem because
they can be eliminated by insurance.
Armen A. Alchian took an approach to decision-making that
is relevant to the study of insurance. Alchian states that
"profit maximization" should not be a guide to action. He says
that the task which one faces is of selecting a decision whose po-
tential outcome distribution is preferable to all others. That
is, choosing the action with the best possibilities, since there
is no such thing as a maximizing distribution.
Pfeffer contributes significantly to the role of insurance
in the theory of production. He holds that insurance is an "income-
producing" factor in that it reduces some of the uncertainty sur-
rounding economic activity, and may be translated into economic
terms quite readily. Pfeffer states that by narrowing the dis-
persion of anticipations relating to production, insurance makes
3G.L.S. Shackle, Expectation in Economics. (Cambridge: The
Cambridge University Press, 1949).
4Armen A. Alchian, "Uncertainty, Evolution and Economic
Theory, "Journal of Political Economy, LVIII (June, 1950),
5 Irving Pfeffer, Insurance and Economic Theory. (Homewood,
Illinois: Richard D. Irwin, Inc., 1956).
more accurate planning feasible. Insurance enables the entrepreneur
to reduce the volume of nonproductive assets held for contingencies.
Nothing:of an analytical nature has been written on the oper-
ation of federal crop insurance in Colorado. Publications concerned
with the problem under study are usually in the form of government
bulletins and reports to Congress. Only a few crop insurance
studies have been made during the period which the F.C.I.C. has
been operational in Colorado. Several variations and different ap-
proaches to insurance in the Plains have been suggested. Halcrow6
presented an analysis of three types of insurance: all-risk, area-
yield, and weather-crop insurance. For each form of insurance he
indicated its adaptability to areas of the United States, stating
that the latter two forms would be best suited for the Plains.
Sanderson7 proposed a specific risk scheme for wheat crop insur-
ance based on a future yield prediction formula. It was not neces-
sary to have accurate knowledge of past yields of individual farms,
but it was admitted that "successful operation of the plan is con-
tingent on a fairly reliable knowledge of the influence of the
weather on crop yields."
Thair found that within a given area a tendency existed
for the more vulnerable farmers to subscribe to crop insurance to
a greater extent than the more fortunate ones. However, when a
low-risk area was compared to a high-risk area, no evidence was
6 Harold G. Halcrow, "Actuarial Structures for Crop Insurance,"
Journal of Farm Economics, XXXI (August, 1949), pp. 418-443.
7 Fred H. Sanderson, "A Specific Risk Scheme for Wheat Crop
Insurance," Journal of Farm Economics, XXV (November, 1943,
8 Philip J. Thair, Meeting the Impact of Crop Yield Risks in
Great Plains Farming, North Dakota Agricultural Experiment Station,
Bulletin 392, June, 1954.
found that farmers in the high-risk area participated in greater
number than in the low-risk area; the critical factor seemed to
be the premium rate charged. Thair found that the use of crop
insurance caused long-run budgeted income for a farm to be at a
more stable, although lower, level than for a farm not employing
Rodewaldl found that the farmers in north central and north-
eastern Montana prefer self-insurance to all-risk crop insurance
and that stored grain isthe most preferred method of self-insurance.
Botts1 suggests crop insurance could be provided at lower
premium costs by considering carry-over grain as part of production
from the current year in determining indemnities. As this would
limit the number of indemnities paid in years of surplus, premiums
could be lowered. He proposed that crop insurance be compulsory
for farmers receiving price supports. This plan would combine
agency and self-carried insurance in a policy offering basic pro-
tection at a low cost.
Format for Results of the Study
The purpose of federal crop insurance and a short history
of the Federal Crop Insurance Corporation are presented in the be-
ginning of Chapter II. A general description of the program and
Philip J. Thair, Stabilizing Farm Income. Against Crop Yield
Fluctuations, North Dakota Agricultural Experiment Station, Bulletin
362, September, 1950. .
1Gordon Rodewald, Jr., Crop Insurance in Montana, Montana
Agricultural Experiment Station, Circular 235, November, 1961.
11 Ralph R. Botts, "Federal Crop Insurance Tied to a Bushel-
Quota Farm Program," Journal of Farm Economics, XLIV (August, 1962),
procedures of operation are then outlined. Next, the operations
of the federal crop insurance program in Colorado are enumerated
with a history of insurable crops and counties since 1948, and
presentation of insurable areas, insurance coverages and rates,
and participation figures at the present time. Chapter III con-
tains a description of the risk index computer program, results
of the regression analysis, and a comparison of computed premium
rates to premiums charged by the F.C.I.C.
The results of the field survey are presented in Chapter
IV, with a description of the area sampled and schedule used,
a summary of findings from the interviews, and implications of
the survey findings. Supplementary studies of the F.C.I.C. are
presented in Chapter V along with results of investigation into
problem areas uncovered in the field survey. The concluding
chapter, Chapter VI, contains a summary of findings and recommen-
HISTORY OF THE FEDERAL CROP INSURANCE CORPORATION
AND ITS OPERATIONS IN COLORADO
Need for Insurance
Farmer's crops are subject to many natural hazards over
which they have no control. Often, as a result of drought or
wind, of cold or heat, of insects or plant diseases, or some other
reason, a crop is lost or severely damaged. Many times the loss
of these crops results in financial difficulties even to the extent
of having to discontinue farming. This is particularly the case
when crop failures come in a series of years.
Today's farmer has a tremendous investment in his growing
crops. With modern commercial methods of farming, the operating
costs alone are high--it takes money to pay for fertilizer, seed,
fuel, irrigation water, insecticides, harvesting, and labor.
Many farmers have to borrow to put this investment into the crop.
Loss of that investment often means inability to repay the loan.
This often exhausts a farmer's credit, leaving him without means
of financing for subsequent crop years. Crop insurance improves
his credit because he can offer it as collateral and use it to
pay off his loan if his crop fails.
The farmer who does not have to borrow may be in a stronger
financial position but he risks the money taken from his cash or
feed reserves to produce his crop. If the crop fails, he must
dig deeper into his reserves to produce the crop for the following
year. By protecting his present investment with crop insurance,
he can protect his accumulated reserves.
Purpose of Federal Crop Insurance
Insurance is a device designed to meet the problem of risks.
Crop insurance spreads the losses over many persons exposed to
these risks; it spreads the losses over many areas; it spreads
the losses over many years. Crop insurance enables the farmer
to substitute a regular annual premium cost for irregular losses.
Crop insurance may be looked upon not only as protecting
the investment but also as stabilizing income. Persons with highly
fluctuating incomes who cannot build up adequate reserves must
adjust their standard of living to their present income. This is
particularly true of low-income farmers who have little ability
to borrow. Crop insurance can assure these farmers some purchasing
power every year.
The Declaration of Purpose of the Federal Crop Insurance Act
states, "It is the purpose of this title to promote the national
welfare by improving the economic stability of agriculture through
a sound system of crop insurance and providing the means for re-
search and experience helpful in devising and establishing such
John N. Luft, manager of the Federal Crop Insurance Corpor-
ation, has said that its goal is to provide the largest number of
farmers with the best possible insurance protection. The F.C.I.C.
is now committed to the job of guaranteeing a farmer coverage
equal to his normal operating expenses (usually referred to as
"out-of-pocket" costs) in raising the crop.
1 Federal Crop Insurance Corporation, Federal Crop Insurance
Manual (F.C.I.C., U.S.D.A., June, 1960), p.2.
History of the Federal Crop Insurance Corporation
The original Federal Crop Insurance Act was enacted in 1938,
This action followed a long period of frequent and severe droughts
in the 1930's. There was no private insurance available on crops
except against hail damage and against damage from fire in some
areas. The original Act provided only for the insurance of wheat,
which became available on the 1939 crop, and had been in opera-
tion for three years before insurance on cotton was added. Losses
in the early years were heavy, with indemnities exceeding premiums
in each of the first five years, 1939-1943.
As the result of heavy losses in the first four years, the
appropriation of 1943 provided sufficient funds only for liqui-
dation. Insurance was thus suspended for 1944 but reinstated for
1945 on the basis of an amendment to the Federal Crop Insurance
Act, adding insurance on flax and providing authority for experi-
menting with insurance on other commodities. As a result of the
new legislation and other changes made in the insurance and its
operation, the financial experience improved greatly on wheat and
the experience on flax, tobacco, and corn was quite satisfactory.
However, large losses occurred on cotton insurance in 1945 and
1946 and, although a profit was made in 1947 recovering part of
these losses, Congress had reviewed the operations in the light of
the 1945 and 1946 experience and had decided to reduce the program
to one of an experimental type.
This limited and experimental approach went into effect with
the 1948 crop and had only 375 county programs, compared to the
2,400 in 1947. A new period in the history of the Corporation :r-
begun at this time and, therefore, the year 1948 is considered to
be the first year of the present operation. Congress has reviewed
the program periodically and has authorized gradual expansion of
the number of counties where insurance is offered and the number
of crops which are covered.
The legislation establishes the Federal Crop Insurance Cor-
poration as an agency of the United States Department of Agricul-
ture and provides for a Board of Directors appointed by the Secre-
tary of Agriculture, composed of the manager of the Corporation,
two other employees of the Department of Agriculture, and two
persons experienced in the insurance business who are not otherwise
employed by the Government. The Act also authorizes capital for
the Corporation intended to serve as a revolving fund and sets
up the basis for insuring of crops. The operating organization
was set up as a Corporation so that it might operate somewhat as
a private insurance company.
The Act specifies a "reasonable" reserve; however, as Congrecs
periodically reviews the F.C.I.C. operations it changes its mind
on what is a "reasonable" reserve. The present aim of the F.CIoC.
is to have a reserve of approximately 10% of its assumed liability,
but the goal has not been reached. The reserve is now approxi-
mately $20 million above operation since 1948.
Reports of 1963 operations show federal crop insurance was
available in 1,085 counties in the United States, 2,378 crops
were insured (an average of 2.2 crops in each county), and 470,000
Federal Crop Insurance Corporation, Federal Crop Insurance--
A Description (F.C.I.C., U.S.D.A., October, 1959), p. 4.
endorsements were in effect. The total liability assumed exceeded
$480 million. The premium income was $30 million (up from $17
million in 1960) and indemnities exceeded $24 million.
The operation is presently being expanded into approximately
100 new counties and 3 new crops each year as well as adding cover-
ages on new crops in counties of previous operation. Although
there are approximately 2,000 agricultural counties in the United
States, further expansion will be limited due to poorer agriculture
in the higher-risk counties where the F.C.I.C. is not now operative.
Description of Federal Crop Insurance
Federal crop insurance is an "all risk" crop insurance; that
is, it is set up to protect against all natural hazards of growing
crops that might result from weather, insects, or diseases. Federal
crop insurance has paid indemnities to farmers for over one hun-
dred causes of loss, even paying for crop losses caused by a short-
age of irrigation water supply due to mechanical failures of pumps.
It does not however, cover losses due to poor management practices,
neglect, or theft.
The insurance is available to farmers on a voluntary basis
for which they pay premiums according to the guaranteed level of
coverage available and the risk area in which they operate. The
coverages available to farmers are determined statistically from
historical yield data and weighted to account for risks present
between areas. The coverage offered is approximately sixty per
cent of the normal yield, which is considered approximately equal
to production costs. All premium and indemnity rates are deter-
mined actuarially to give the farmer all the coverage possible
while averaging out the losses to the Corporation over time. Ad-
ditional coverage is added to cover harvesting expenses if a crop
sustains partial damage but is still harvested by the farmer.
F.C.I.C. premiums differ from other insurance mainly in
that there is no "load" included to cover such items as sales and
administrative costs; the federal government appropriates money
for these to encourage participation. Congress does provide for
some premium income to be used to meet salaries and travel allow-
ances for making loss adjustments. Since 1948, the F.C.I.C. has
paid out approximately 95< in indemnities of each $1 collected
in premiums; the remainder is held in reserve for contingencies.
Federal crop insurance is available to producers of insur-
able crops on the basis of their share in the crop. An owner-
operator may insure his entire crop, while a landlord or tenant
may insure only his share in the crop. Each farmer who buys federal
crop insurance has an insurance contract directly with the Federal
Crop Insurance Corporation, as the local and state offices which
handle and service the contract are administrative only. This
contract consists of the application for insurance, the insurance
policy with applicable crop endorsements, the county actuarial
table, and associated maps. The application itself includes on
its face a premium note which promises to pay the premium annually.
If the insured has insurance on more than one crop, he receives a
standard policy plus a separate endorsement for each crop. Risk
areas within the counties and the crops eligible for insurance are
determined by the Corporation. Often there are several different
risk areas within a county and frequently there are high-risk
areas within a county rated as "unclassified" in which no insur-
ance is available.
On each insurable crop, closing dates are established after
which no new applications for insurance in that year will be ac-
cepted. These closing dates are considerably in advance of the
normal planting dates for the insurable crop so that not too much
can be known about the soil moisture and crop prospects before
applications for insurance coverage are made. In the face of ex-
treme adverse growing conditions, sales may even be stopped before
the closing date.
An insurance contract can be canceled on any or all crops at
the end of any crop year before the cancellation date. The cancel-
lation date, for the Corporation and the insured, is usually set
several months in advance of the closing date. The insurance is
sold as a continuous contract and remains in force until it is can-
celed by one of the parties. This automatic renewal feature of the
contract makes selling less expensive for the Corporation and adds
stability to its volume of business. It also assures that the
farmer will not forget to carry the insurance as he does not have
to apply for it each year.
The farmer has the responsibility of filing an acreage report,
containing the number of acres, the insured's share in the crop,
and location of the crop, with the Corporation as soon as he has
completed the planting of his crop acreage he wants under insurance.
This report forms the basis of the insurance coverage guaranteed
by the Corporation and the premium charged the farmer for that
crop year. If part or all of a crop is destroyed early, the farmer
is expected to replant his crop while it is practical to do so
or the acreage will not be insured. The insurance contract takes
effect upon the planting of the crop and covers it against all
natural hazards until the crop is harvested or the end of the in-
surance period, whichever is earlier, as set forth in the crop
When losses occur they must be reported to the Corporation
through the local office. An adjuster will then visit the farm,
inspect the acreage, and act on disposition of the acreage accord-
ing to the decision made by the insured. If the insured chooses to
plant to a substitute crop or put the acreage to another use, con-
sent will be given by the adjuster after an appraisal is made of
any unharvested or potential production. If the acreage has been
harvested, the amount of harvested and appraised (if any) produc-
tion will be determined.
Indemnities are paid on losses whenever the yield falls below
the guaranteed production level. The number of units of loss (bu-
shels, pounds, etc.) is the amount the actual or appraised produc-
tion falls below the guarantee. The price per unit which was se-
lected by the insured (from three price elections available) is
applied to the number of units of loss to determine the total in-
demnity dollars. If the insured acreage is harvested, an additional
allowance (of so many bushels, pounds, etc.) is made in excess of
the guarantee to offset harvesting expenses. Only the production
in excess of this allowance is counted against the guarantee in
A relatively important feature of the crop insurance con-
tract that is becoming more widely used is the collateral assign-
ment provision by which a farmer may assign his right to an indemnity
for a crop for any year under the contract. This is done by exe-
cuting a form prescribed by the Corporation and, if a loss occurs,
the indemnity for the loss is paid by joint check to the farmer
and the creditor who has the assignment. This provision of the
insurance contract has helped many farmers to improve their credit
and obtain otherwise impossible loans.
Federal Crop Insurance in Colorado
Federal crop insurance operations in Colorado have been marked
by many changes, some of them probably among the most significant
in the recent history of the Federal Crop Insurance Corporation.
Since 1948, federal crop insurance has been available in a total
of twenty-five of Colorado's sixty-three counties, but the present
number of counties in which insurance is offered stands at only
fifteen. Reflection upon the fact that the Corporation has ex-
panded its present national operations into three times the number
of counties in which it operated in 1948 points out the unique
position of Colorado's experience with federal crop insurance.
Each cancellation of insurance from a county by the Corpor-
ation was made of economic necessity, but some of the contractions
in the program appear to have been extremely drastic measures.
This is especially true of the cancellation of insurance in six
counties in 1955. Removal of these counties from the eligible
list followed catastrophic loss experiences by the Corporation due
to extreme drought conditions of the middle 1950's,but it was done
in contradiction of earlier published statements that the insurance
would not be withdrawn.
All wheat insurance in Colorado is on non-irrigated, summer-
fallow, winter wheat. Insurance on corn, beans, and spring barley
is available only on irrigated crops. Multiple-crop insurance
(covering more than one crop under the same contract) was available
in several counties during the period of 1950-1956, but all crops
have been carried under separate endorsements from 1957 to date.
A summary of the counties and the crops on which insurance was
first offered or was canceled, in chronological order since 1948,
1948: Insurance was made available on wheat in Adams, Arapa-
hoe, Baca, Kit Carson, Logan, Phillips, and Weld
counties. Insurance was available on beans in Elbert
1949: Insurance was canceled on beans in Elbert County after
the 1949 crop year.
1950: Insurance was made available on wheat in Elbert, Prowers
and Sedgwick counties, on beans in Dolores and Weld
counties, and on multiple-crop in Conejos and Morgan
1951: Insurance was made available on wheat in Cheyenne,
Lincoln, and Washington counties, on beans in Monte-
zuma, Montrose, and San Miguel counties, and on mul-
tiple-crop in Otero and Weld counties.
1952: Insurance was made available on wheat in Boulder, Kiowa
and Larimer counties and on multiple-crop in Las Animas
1953: Insurance was made available on wheat in Yuma County.
Insurance was canceled on beans in Montrose County
after the 1953 crop year.
1954: Insurance was canceled on wheat in Boulder County
after the 1954 crop year. Insurance was canceled
on beans in San Miguel County, but part of the bean-
producing area in San Miguel County had insurance
available from Dolores County.
1955: Insurance was canceled on wheat in Baca, Kiowa, and
Prowers counties and on multiple-crop in Conejos,
Las Animas, and Otero counties after the 1955 crop
1956: No changes.
1957: Insurance in Morgan and Weld counties was changed from
multiple-crop to separate insurance endorsements on
wheat, corn, beans, and barley.
1958: Insurance on winter barley was added in Phillips county.
1959: No changes.
1960: Insurance on irrigated corn, beans, and barley was
added in Larimer County.
1961: No changes.
1962: Insurance on irrigated corn, beans, and spring barley
was added in Boulder and Logan counties. Insurance
was canceled on beans in Dolores and Montezuma counties
after the 1962 crop year.
1963: Insurance on corn, beans, and barley was added in Sedg-
wick County, insurance on winter barley was added in
Logan and Phillips counties, and wheat insurance was
renewed in Boulder County.
1964: Insurance on corn, beans, and barley was added in part
of Washington County. Insurance was canceled on
summer-fallow spring barley in Larimer, Morgan, and
After insurance on beans was canceled in Dolores and Montezuma
counties (in southwestern Colorado) following the 1962 crop for
reasons of high administrative costs, poor participation, and heavy
losses, all federal crop insurance remaining available in Colo-
rado is in the fifteen northeastern counties. New crops are being
added to the insurance program but no plans have been made for ex-
tending the program into any new counties or for re-entering any
counties previously canceled from the program.
Figure I shows the approximate areas in the fifteen counties
where wheat insurance is now available in Colorado. Figure 2
shows the approximate areas of the seven counties in which insur-
ance on the irrigated spring crops--corn, beans, and barley--is
now available. The areas of cross-hatching indicate areas that are
designated "non-insurable" by the F.C.I.C. In addition to the areas
indicated on the figures, there are also scattered smaller areas
(some as small as one-quarter of a section) shown as non-insurable
on the individual county risk area maps that are too small to iden-
tify on the scale used here.
Insurance Guarantees in Colorado Counties
Wheat guarantees were raised in eight counties for the 1965
crop year and premiums were reduced for the same level of insurance
in two additional counties. Most counties experienced an increase
in premiums along with an increase in the bushel guarantee but
there was still a decrease in the premium/coverage ratio in a total
of nine counties and the increases in guarantees should help satisfy
the complaints of some farmers who say the coverage available is
Corn guarantees were raised in all six eligible counties in
1964 (in addition, the northwest corner of Washington County was
made eligible for corn insurance). The bushel guarantees were
raised from six to ten bushels in each of the counties to a high
of a 50-bushel guarantee in Risk Area 3 of Morgan County. However,
the premiums were also raised in all six counties, with some being
increased by as much as $1.00 per acre over the 1963 rates. Overall,
Figure 1. Areas Eligible for Non-irrigated Wheat Insurance
II Insurable Areas E Non-insurable Areas
Figure 2. Areas Eligible for Irrigated Corn, Bean, and Barley Insurance
] Insurable Areas m Non-insurable Areas
the premium/coverage ratio ranges from 10.0 to 13.8 per cent. The
net results of the changes were to lower the premium/coverage ratios
only slightly, with an actual increase in two counties, but the
significant increase in guarantees should satiate some of the de-
mand by irrigated farmers for higher coverages.
Tables I-IV, on the following pages, give the coverages and
premiums available in each risk area of the eligible counties for
insurance on the 1965 wheat crop and on the 1964 irrigated crops
of corn, beans, and barley.
Participation in Colorado
The F.C.I.C. compiles final participation summaries of con-
tracts in force for all programs in each insurable county in the
nation. Included in these summaries are estimates of the per cent
participation by farmers, based on total potential insurable crops.
Figures for the 1963 crop year show that participation in Colorado
varied from 17 and 18 per cent in Washington and Cheyenne counties
respectively, to 67 per cent in Weld county. These figures indi-
cate that participation in all insurable counties in the state was
approximately 40 per cent in 1963. The participation fell in 1964
and the 1963 totals of 4,446 contracts in force and 7,997 crops
insured were not maintained.
1965 NON-IRRIGATED WHEAT INSURANCE COVERAGES AND PREMIUMS
Prices Per Bushel, One of Which
Bushel Shall be Elected by Insured
Risk Guarantee $. 1.50 $ 2.00 $ 2.50
County Area Per Acre a Premium Rate Per Acre
Adams 1 6.5 $ 1.60 $ 2.10 $ 2.70
Arapahoe 1 6.5 1.70 2.20 2.80
Boulder 1 7.5 1.80 2.50 3.10
Cheyenne 1 5.0 1.70 2.20 2.80
Elbert 1 5.0 1.60 2.10 2.70
Kit Carson 1 5.0 1.70 2.20 2.80
Larimer 1 7.0 1.60 2.10 2.60
2 7.0 1.80 2.40 3.00
Lincoln 1 4.0 1.30 1.80 2.20
2 4.5 1.50 2.00 2.50
3 5.5 1.80 2.50 3.10
Logan 1 8.0 2.10 2.80 3.50
2 8.0 2.10 2.80 3.50
3 11.0 2.10 2.80 3.50
4 10.0 2.10 2.80 3.50
Morgan 1 5.5 1.40 1.90 2.40
2 6.5 1.40 1.90 2.40
Phillips 1 11.5 1.80 2.40 3.10
Sedgwick 1 12.0 1.80 2.40 3.00
Washington 1 6.0 1.70 2.30 2.80
2 8.0 1.70 2.30 2.80
3 10.0 1.70 2.30 2.80
Weld 1 6.0 1.60 2.20 2.70
2 7.0 1.60 2.20 2.70
Yuma 1 6.0 1.80 2.40 3.00
2 8.0 1.80 2.40 3.00
3 10.0 1.80 2.40 3.00
a The bushel guarantee on wheat insurance is increased 1.5 bushels
for any acreage from which 1.5 or more bushels per acre are harvested.
The price of $2.00 per bushel is applicable to any contract where
an election has not been made by the insured.
1964 IRRIGATED CORN INSURANCE COVERAGES AND PREMIUMS
Prices Per Bushel, One of Which
Bushel Shall be Elected by Insured
Risk Guarantee $ 1.00 $ 1.20 $ 1.40
County Area Per Acrea Premium Rate Per Acre
Boulder 1 40 $ 4.10 $ 4.90 $ 4.80
Larimer 1 34 3.80 4.50 5.30
2 44 3.80 4.50 5.30
Logan 1 35 4.30 5.10 6.00
Morgan 1 37 5.10 6.10 7.10
2 42 5.10 6.10 7.10
3 50 5.10 6.10 7.10
Sedgwick 1 39 4.70 5.60 6.60
Washington 1 38 4.70 5.70 6.60
Weld 3 34 4.50 5.30 6.20
4 45 4.50 5.30 6.20
a The bushel guarantee on corn insurance is increased 3.0 bushels
for any acreage from which 3.0 or more bushels per acre are harvested.
The price of $1.20 per bushel is applicable to any contract where
an election has not been made by the insured except in Boulder, Logan,
and Weld Counties where the price of $1.00 per bushel prevails.
1964 IRRIGATED BEAN INSURANCE COVERAGES AND PREMIUMS
Prices Per Pound, One of Which
Pound Shall be Elected by Insured
Risk Guarantee $ .05 $ .06 $ .07
County Area Per Acre a Premium Rate Per Acre
Boulder 1 820 2.90 3.50 4.10
Larimer 1 700 2.80 3.40 3.90
2 950 2.80 3.40 3.90
Logan 1 700 2.60 3.20 3.70
Morgan 1 700 4.10 4.90 5.70
2 900 4.10 4.90 5.70
3 1200 4.10 4.90 5.70
Sedgwick 1 710 2.70 3.20 3.70
Washington 1 750 2.80 3.40 3.90
Weld 3 800 3.40 4.10 4.80
4 1000 3,20 3.80 4.40
The pound guarantee is increased 100 pounds for
from which 100 or more pounds per acre are threshed.
The price of $.06 per pound is applicable to any contract
where an election has not been made by the insured.
1964 IRRIGATED SPRING BARLEY INSURANCE COVERAGES AND PREMIUMS
Prices Per Bushel, One of Which
Bushel Shall be Elected by Insuredb
Risk Guarantee $ .75 $ 1.00 $ 1.25
County Area Per Acrea Premium Rate Per Acre
Boulder 1 21 $ 1.90 $ 2.50 $ 3.20
Larimer 1 19 2.00 2.70 3.40
2 25 2.00 2.70 3.40
Logan 1 17 1.70 2.30 2.80
Morgan 1 17 2.60 3.50 4.40
2 22 2.60 3.50 4.40
3 26 2.60 3.50 4.40
Sedgwick 1 16 1.60 2.10 2.70
Washington 1 18 2.80 2.40 3.00
Weld 3 17 2.10 2.80 3.50
4 23 2.10 2.80 3.50
a The bushel
from which 2.0 or
increased 2.0 bushels for
per acre are harvested.
b The price of $1.00 per bushel is applicable to
where an election has not been made by the insured.
cLmu 11 a i cci.--or eignt or rne wenty-six counties; however, all
estimated trends were used in the program whether they are signifi-
cant or not.
Contracts in force for the 1964 crop year total 4,127, with
7,159 crops insured under separate crop endorsements on these con-
tracts. The number of contracts in force range from 113 in Elbert
County to 784 in Weld County, with a total of 2,319 crops insured
in Weld County. The following table shows the total contracts in
force and the crops insured for the 1964 crop year.
CONTRACTS IN FORCE FOR ALL PROGRAMS
FOR THE 1964 CROP YEAR
S Total Crops Insured
County Contracts Crops Insured
Wheat Corn Barley Beans Tote.
Adams 174 174 174
Arapahoe 121 121 121
Boulder 153 24 116 102 87 329
Cheyenne 119 119 119
Elbert 113 113 113
Kit Carson 365 365 365
Larimer 232 35 163 122 181 501
Lincoln 199 199 199
Logan 439 340 146 197 168 851
Morgan 227 30 236 158 176 600
Phillips 397 396 100 496
Sedgwick 243 206 35 84 41 366
Washington 309 281 26 20 27 354
Weld 784 484 614 463 758 2319
Yuma 252 252 252
Totals 4127 3139 1336 1246 1438 7159
CROP YIELD RISK INDEX COMPUTER PROGRAM
Description of the Risk Index Study
Three separate, but related IBM 1620 Computer programs were
written for the purpose of analyzing crop yield data and determin-
ing measures of risk appropriate for use in crop insurance ac-
tuarial work. The combined program was patterned after risk index
programs from Montana and North Dakota Agricultural Experiment
Stations but is designed to estimate trend in yields and account
for any trend in making estimates of risk. Estimates of yield
trends were obtained from a regression analysis and estimates of
yield variability were then computed to determine what are called
"pure premium rates."
These "pure premium rates" are used as the theoretical insur-
ance premiums which would be necessary to guarantee a specified
level of crop production. As federal crop insurance indemnities
are paid only when yields fall below some guaranteed level, an
estimate of the standard deviation of the observations which fall
below the regression line is used to compute the average distance
these observations fall under a specified level. This average
distance these observations fall under the regression line is the
"pure premium rate" which should be charged to insure a guaranteed
level of production, and the premiums collected by the insurer
should equal indemnities paid in the long run.
Federal crop insurance can be considered to be 40 to 50
per cent deductible insurance because the guarantees offered are
usually 50 to 60 per cent of the long-term mean yields, as this
level. isa considered to be adequate to meet average production
These risk indices can be used to make comparative analyses
of yield variability and necessary premium rates between counties
included in the insurance program at the present and in determining
whether an insurance program is feasible in counties not now covered
by federal crop insurance. Comparisons can also be made between
insurance rates and coverages offered by the F.C.I.C. in its pres-
ent operations and those computed by the risk index program.
Data Used in the Study
The data used were taken from the yearly publication, Colorado
Agricultural Statistics, of the Colorado Crop and Livestock Re-
porting Service for the years 1940-1943 and 1948-1960, Published
data were not available for the years 1944-1947 but these data
were obtained from the files of the Colorado Crop and Livestock
Reporting Service in Denver. The input data used were the number
of planted acres and the production, in bushels, for twenty-six
counties in eastern Colorado. Data were collected for non-irri-
gated winter wheat in these counties for all years reported2 and
were coded and punched on IBM cards for use in the program. The
program was run on wheat data only since wheat is the major crop in
eastern Colorado and the main crop insured under the federal crop
2A few counties did not plant enough wheat acreage in some
years to appear significant in the data; therefore, no production
entry was made for these years although the year was counted in
3Data were also collected on non-irrigated barley, irrigated
beans, irrigated corn, and irrigated grain sorghum for all years
in which data were reported but only a limited risk index program
could be run on these crops.
Design of the Risk Index Programs
Program I computes the weighted mean yield per planted acre,
by counties, for each year for which data were reported. The results
are in the form of \n) y--t, where the nt is the number of planted
acres in year t, and yt is the average yield per acre in year t.
In Program II, a linear regression analysis is performed on
the mean yields for each county. The dependent variable is yield
and the independent variable is the year in which the yield occurred.
The least squares solution is based on the regression model
ytj = c+pt + et.
= (oc+ p ) + p(t t) + et.,
where ytj yield on the j-th acre in year t with j = 1, 2, ...,
nt and t = 1, 2, ..., k, and where
Z nt t
t = t=l
The estimates of"-t + pt and p can be expressed solely in terms
of yt The program gives the following results for each county:
(1) A weighted mean year, k
n "t Yt
(2) A weighted mean yield, (.c+ PT) y = t=
(3) A weighted regression coefficient,
p= b =
n t (t- t) (t y)
nt (t t)
(4) An estimated regression line, y = y + b (t F).
Program III computes the mean, variance, and standard devia-
tion for the county average yearly yields from the results obtained
in Programs I and II. Next, using the weighted estimates from Pro-
gram II as constants in the regression equation, an estimate of the
variance about regression is computed for the unweighted data. This
estimate of variance is:
S = t=l
A negative standard deviation is then computed, using only
those observations (yt) which fall under the estimated regression
E (yt y.)
Finally, an average of the distance these observations fall
under the regression line is found:
k ^ A2
E l t)
This measure of the average distance that the observations fall below
the estimated mean is the "pure premium rate". Then, in order to
determine the "pure premium rate" for any other possible level of
insurance guarantee, consecutive values of one are subtracted from
the weighted and unweighted means until the weighted mean is re-
duced to less than one, and at each new value a new "under standard
deviation" and mean is computed. Theoretical premium rates can
A test value was also found by dividing the weighted regression
coefficient by the square root of its variance. (This value is dis-
tributed as a "Student's" t with k-2 degrees of freedom, assuming
the null hypothesis that P= 0.) Significant trends are present at
the 95% confidence level in six of the fifteen insurable counties
and in a total of eight of the twenty-six counties; however, all
estimated trends were used in the program whether they are signifi-
cant or not.
then be determined from the resulting computations for any speci-
fied level of coverage, either in bushels (such as 8.0 or 10.5):or
as a percentage of the mean (such as 50% or 60%).
Results of the Regression Analysis
Figure 3 gives the estimated weighted mean yields and the
weighted regression coefficients computed by the risk index pro-
gram for wheat in twenty-six counties of eastern Colorado. In the
fifteen counties covered by federal crop insurance, the mean yields
range from 10.50 bushels per acre in Cheyenne County to 21.53 bu-
shels per acre in Sedgwick County, with the regression coefficients
ranging from .059 in Yuma County to .534 in Phillips County. In
the additional eleven counties which were included in the study,
the estimated mean yields range from 2.67 bushels per acre in
Otero County to 19.56 bushels per acre in Jefferson County, with
a range in the regression coefficients from -.936 in Bent County
to .069 in Pueblo County.
The large negative regression coefficient in Bent County re-
sults from the fact that mean yields for the years 1944-1949 ranged
from thirteen to nearly twenty-six bushels per acre while in the
succeeding eight-year period from 1950-1957 the mean yield was
never above two bushels per acre. The next three years were again
above the 21-year mean but the years 1950-1957 still caused the
trend in yield to be highly negative during the period under study.
A longer time period would undoubtedly show a smaller but still
negative regression coefficient.
This negative regression coefficient points out the effect
the drought years of the 1950's had on the yield trend during the
study period. Several other counties have similar negative re-
gression coefficients for the same reason although it appears that
Bent County is the only one which was greatly affected by the time
period selected for the study. Inclusion of yield data which are
available for the years since 1960 would probably change any re-
sults only slightly since most county yields for the last four
years have been a little below the long-term average.
Risk Index Computations
Selected pure premium rates computed by the risk index program
for wheat yields in eastern Colorado counties are given in Appendix
A, pages 88 93 The computations in Part I are for the fifteen
counties now covered by federal crop insurance with possible in-
surance guarantees and the corresponding pure premium rate that
would be necessary to insure the guaranteed level. The tables in-
clude the computed unweighted mean yield (in bushels) for the county
and then lower levels derived by a consecutive subtraction of one
bushel from the unweighted mean yield. The various levels of pos-
sible guarantees are given from the mean down to levels between
3.0 and 4.0 bushels or until the pure premium rate reaches zero.
For example, the computations for Cheyenne County show that the
pure premium rate to insure the mean of 10.56 bushels per acre is
2.81 bushels and a rate of .52 bushels would have to be charged
to insure a guarantee of only 3.56 bushels per acre, and in Sedg-
wick County the pure premium rate of only .88 bushels would insure
the mean of 21.44 bushels per acre while any level of insurance
below 13.00 bushels per acre would require a zero premium since
the unweighted mean yields have never fallen below this level.
Figure 3. Results of Regression Analysis on Wheat Yields
Top figures indicate weighted mean yields, in bushels per acre. Figures in parentheses
indica e weighted regression coefficients. Counties insurable with the FCIC are outlined.
Interpolations can be made to determine the pure premium rate rele-
vant for levels of exact bushels and half-bushels which are the
common coverages of insurance offered.
The computations in Part II are for the additional eleven
counties in eastern Colorado which were included in the study but
which do not have federal crop insurance available at this time.
The computations on these counties can be compared to the similar
data for counties now eligible for insurance as a criterion in
deciding to expand or change the program.
The pure premium rates are computed from actual data but are
strictly theoretical and, as is the usual case, differ greatly
from what are the actual premiums. The difference in the pure
premium rates computed for a county from the actual premiums charged
for insurance by the F.C.I.C. stems from the fact that all of the
farmers in a county do not participate in the program and the ones
that carry the insurance are often in the higher risk category
than the average. Nevertheless, the computations can be usefully
interpreted to compare coverages and rates among counties and to
determine premium rates necessary to insure specified levels of
Comparison of Premiums
A comparison of premiums charged by the F.C.I.C. to those
computed by the risk index program is given in Table VI. The
data are for wheat insurance in the No. 1 risk areas of each county.
The F.C.I.C. premiums used are those for the middle price selec-
tion--the $2.00 per bushel coverage--for the 1965 crop year. The
dollar premiums of the F.C.I.C. were converted to premiums as a
percentage of the insurance coverage by multiplying the per acre
guarantees by the $2.00 price level and dividing this into the
premium rates. The pure premium rates computed by the risk index
program were also converted to premiums as a percentage of the
insurance coverage by dividing the pure premium rates by the
per acre guarantees. This conversion put the two measures on the
same basis and facilitated comparisons between the theoretical
premium rate and the actual premium rate.
A quick look at the table shows that the computed premium
rates are, for the most part, far lower than the actual premium
rates in effect for the 1965 crop and, according to the risk index
computations, there should be no premium at all charged for the
level of insurance available in Lincoln, Phillips, and Sedgwick
The difference between the overall level of the premium/cover-
age ratio of the computed premiums and the actual premiums results
from the fact that the computed risk indices are county averages
and therefore give lower premiums ratios than the F.C.I.C. cover-
ages and rates which are affected by the level of participation
in each county. A county with a small percentage (say 10%) of
the farmers participating in the program will undoubtedly have
a greater proportion of higher-risk farms under insurance and
the risk of loss will therefore be higher than in a county with
greater participation (say 50%) where the average risk of loss
for the farmers in the program is closer to the norm for the
entire county. The F.C.I.C. premiums must also include "loading"
for unmeasurable risk, catastrophes, reserves, and contract pro-
visions such as large acreage discounts and good experience dis-
counts; these "loads" cause the premiums to be higher than any
theoretical or actuarial calculations.
In order to better compare the two rates, the average F.C.I.C.
premium rate was calculated to be about 3.3 times that computed
by the risk index program. Using this average differential as a
rough standard, the premiums charged by the F.C.I.C. for wheat
insurance in Cheyenne and Kit Carson are much lower than is prob-
ably necessary, and the premium ratio in Lincoln, Logan, Phillips,
Sedgwick, and Yuma counties are definitely on the high side.
COMPARISONS OF PREMIUMS CHARGED BY THE F.C.I.C.
TO THOSE COMPUTED BY RISK INDEX PROGRAM
as Percent Risk Index
of "Pure Pre-
Coverage mium" (bu.)
FINDINGS AND SUMMARIES FROM FIELD SURVEY
Description of the Survey Schedule and Sample
The survey schedule was designed to obtain farmer's general
opinions of crop insurance and learn specific things such as the
extent of their knowledge of crop insurance, desirable and objec-
tionable features of the program, reasons for dissatisfaction if
they had canceled an insurance contract, and strategies used to
reduce risks other than crop insurance.
The original plan of the survey was to interview a proportional
number of farmers presently carrying federal crop insurance and
those not carrying federal crop insurance, weighted by the number
of farmers in the county, the number of those carrying, and the
number not carrying. However, it was discovered from F.C.I.C.
records and through contact with farmers in the field that the
number of farmers who had never carried federal crop insurance was
very small as almost all farmers who are eligible have carried it
at one time or another in their farming experience. It was then
necessary to proportion the sample between those farmers who are
presently covered by federal crop insurance and those who have
carried it in the past but are not covered by it at the present.
Although a few never-carriers were interviewed in a trial
survey, it was found that interviewing farmers who had canceled
the insurance was a more satisfactory arrangement of gathering
information as those farmers were much more well informed re-
garding the F.C.I.C. program and could give more information about
it. Also, through these interviews with previous carriers, it was
possible to discover reasons for cancellation of the contract and
learn objections concerning the aspects of the program with which
the farmers were dissatisfied.
The preliminary schedule was patterned after an earlier schedule
from North Dakota and refined during a GP-8 sub-committee meeting in
Denver. The resulting schedule was then adapted to fit the F.C.I.C.
operation in Colorado and the types of farming which the survey was
to cover. Additions and changes were made in order tha different
questions could be asked of the different groups within the Colorado
study area. These additions included a section for those who now
carry federal crop insurance, a section for previous carriers of
the insurance, and a section for those who have never carried federal
crop insurance. Also, a fourth category of farmers is present in
Colorado--there are some counties in the southeastern part of the
state in which the insurance was canceled by the Corporation after
sustaining severe losses during the 1950 drought--and a special
schedule had to be developed for the farmers in this area.
A copy of the schedule is in Appendix B, pages 94 117. Parts
A, I, I-a, and III were used in interviews with present carriers of
federal crop insurance, Parts A, I, I-b, and III were used in inter-
views with previous carriers where the insurance is still available,
Parts A, I, I-c, and III were used in interviews with farmers in
eligible areas who have never carried the insurance, and Parts B,
II, and III were used in interviews with farmers in southeastern
Colorado who carried federal crop insurance before it was canceled
by the Corporation. A description of the different parts of the
field schedule and their purposes follow:
Part A. Data sheet on present carriers of federal crop insurance;
completed in the State Office before interview to help
locate the subject and furnish history of experience.
Part B. Data sheet on previous carriers of crop insurance; pre-
vious experience and reason for cancellation were taken
from files in the State Office to help furnish partici-
Part I. Section of personal data and insurance questions asked
in all interviews with farmers in counties where federal
crop insurance is now available to learn thoughts and pref-
erences about the insurance.
Section attached to Part I for use in interviews with
farmers who are presently carriers of federal crop insur-
ance to find out why they use the insurance and the things
they like and do not like about it.
Section attached to Part I for use in interviews with
farmers who previously carried federal crop insurance
but who have canceled it to find out why they dropped it
and what they do for protection instead.
Section attached to Part I for use in interviews with
farmers who have never carried federal crop insurance
to find out how much they know about the insurance and
why they do not use it.
Section of personal data and insurance questions asked
in all interviews with farmers in counties where federal
crop insurance was available in the early 1950's, but
was canceled by the Corporation, to find out what they
do for protection now and if they would be interested in
federal crop insurance if it was made available to them
Section of questions about the farm and farming operations
used in all interviews to get operating expenses, crop
yields, debt structure, and risk situations as they
might apply to crop insurance.
For purposes of the sample, a random selection of present car-
riers was made from files in the State Office with proportional weigh,
ting by the number of contracts in force in each county. For the
sample selection of those who had canceled, names were taken from
the inactive cards on file in the State Office. This sampling was
limited to those farmers who had canceled in the past two years in
order that they would be more familiar with the present program and
would be more likely to still be in farming. All interviews were
restricted to operators or owner-operators since landlords could not
provide needed information regarding actual farming practices, crop
yields, expenses, etc.
Considerable difficulty was encountered in contacting the
farmers to be interviewed and in arranging appointments with them
in order to complete the schedule. The length of the schedule re-
quired that the farmers spend one hour, on the average, in answering
the questions, and with farmers usually very busy during the summer
it was sometimes inconvenient for them to take time for the interview.
The length of the schedule did not, however, seem to be too detri-
mental to the interview since the farmers usually took adequate time
to answer all the questions after the interview began even if they
had not planned on such an extensive questionnaire. Some farmers,
whether users of the federal crop insurance or not, were excep-
tionally interested in crop insurance and related programs and spent
several hours discussing the situation further.
Most farmers were favorably receptive to the interview after
the purpose and scope of the study were outlined to them (and after
it was made clear that the interviewers were only interested in
information from the farmers and not trying to sell them anything).
The fact that this was a study undertaken by a department of Colo-
rado State University, and not the F.C.I.C. itself, seemed to aid
in gaining cooperation of the interviewees since most farmers in
the state are interested in research information from the University
which helps them in their operation.
It was found that advance mailing of part of the schedule (the
general information and insurance questions) facilitated the comple-
tion of some of the interviews. This mailing, along with an intro-
ductory letter, helped familiarize the farmers with the questionnaire
in advance of the interview although they did not answer many of
the questions on their own. In all cases the mailings were followed
up by fieldmen approximately one week later who went over the first
part to clarify any questions and then got responses to the remainder
of the questionnaire. Telephone calls, to set up appointments with
farmers in advance, proved to be a saving of time and mileage in
making arrangements to talk with farmers.
Summary of Survey Answers
The interviews resulted in answers obtained from approximately
150 farmers in each of the fifteen counties in northeastern Colorado
where federal crop insurance is now available and from the five
counties in southeastern Colorado where it had been available for
different lengths of time until 1955. Complete schedules could not
be taken from all persons selected by the sampling process as some
are no longer engaged in farming or are landlords only at the present
time and some farmers did not have the time to answer all the ques-
tions because of the urgency of farm work.
Compilations were made on the results of schedules from present
carriers and previous carriers taken together because these schedules
were taken from similar farmers and came from the same fifteen county
area. This large grouping was divided into sub-categories of.car-
riers vs. previous carriers and irrigated vs. non-irrigated for
comparison purposes. The schedule taken in southeastern Colorado
counties were summarized independently and those findings are pre-
sented in a separate section of this chapter. Answers from the
schedules that are not summarized here were such that no analysis
was possible or that nothing was noted that is of significant in-
Findings from Insurable Counties
A total of 105 schedules taken from present carriers and pre-
vious carriers had all necessary information completed and were
used as the basis for summaries. These were composed of 61 sched-
ules from present carriers and 44 from previous carriers. The
Schedules from the present carriers were divided between 33 irrigated
farmers and 28 non-irrigated farmers, and the previous carriers
were divided 19 irrigated and 25 non-irrigated; thus of the 105
schedules, 52 were from irrigated and 53 from non-irrigated farmers.
The average age for all groups interviewed was from 49 to 51
years of age with the exception of the irrigated farmers who had
canceled whose average age given was 45.6 years. Approximately
ninety per cent of each group indicated that their future plans are
to continue farming. (Those who canceled their insurance because
they had quitefarming were eliminated from the survey by the sampling
process.) Twenty per cent of the present carriers, as compared to
only five per cent of the previous carriers, indicated formal edu-
cation beyond the high school level.
Almost all farmers interviewed feel they need a diversified in-
come. The methods most selected as the best ways to obtain diversi-
fication (some gave more than one answer) were:
1. Growing several crops 80
2. Use of livestock 76
3. Off-farm work 29
When asked about their best way to obtain a stable income, diversi-
fication was mentioned by a majority (33 of 44) of the previous
carriers of insurance while diversification plus crop insurance was
mentioned by most (39 of 61) present carriers. The most popular
arrangements to distribute income throughout the year or from one
year to the next were:
1. Selling produce over the year (e.g., wheat) 61
2. Off-farm employment 26
3. Regular sales and payments (e.g., dairy products) 24
Seventy-six farmers said they have livestock tied in with their
farming operations, with three-out-of-four present carriers compared
to two-out-of-three previous carriers saying so. The main
uses of livestock listed were providing additional income, stabil-
izing income, and supplying food for the home. When asked about
drawbacks to increasing their livestock, farmers mentioned "shortage
of feed and pasture" most often, with non-irrigated farmers empha-
sizing lack of good pastures as their main problem; irrigated far-
mers (who usually fatten cattle in feedlots) also stressed "uncer-
tainty of future prices of livestock and feed." Three-fourths of
all farmers with livestock indicated they would continue to raise
livestock even if they could have a satisfactory income without it.
Eighty per cent of the farmers interviewed were in debt and said
their principal creditors (in order of frequency mentioned) are
banks, the Production Credit Association, the Federal Land Bank,
and the Farm Home Administration. About half indicated they had
tried to get long-term credit; all were able to except four--two
irrigated farmers who have canceled federal crop insurance, one non-
irrigated farmer who has canceled, and one non-irrigated farmer who
carriers insurance. Only 30 of 105 said they could live throughout
the year and produce a crop the next year without borrowing if they
experienced a total crop failure.
Twenty-five farmers answered that they had experienced large
unforeseen expenses in the last five or ten years; seventeen of these
are irrigated farmers who are probably more vulnerable to large
losses (e.g., failure of irrigation well). About half indicated
they are more able to stand a crop loss now than they were five
or ten years ago, mainly because of a better credit rating or more
equity in their farm. Less than half answered that they are more
willing'to assume risk now than five or ten years ago, usually
because of age or increased family responsibility. When present
carriers were asked their financial status at the time of their
first crop insurance contract, nine replied "insecure", forty-two
"fairly secure", and ten "well-secured" (nine of whom are irrigated
farmers). When the same question was put to previous carriers, eight
(mostly non-irrigated farmers) replied "insecure", twenty-seven
"fairly secure", and nine "well secured."
When farmers were asked to name what they considered to be the
main hazards facing their crops, hail was named by 83, drought by
58, wind by 28, and winterkill by 13. Only 9 of 61 present carriers
answered that they would carry federal crop insurance if it did not
cover hail risks. Thirteen of the present carriers (mostly non-
irrigated farmers) vs. only five of the previously insured farmers
carry private hail insurance regularly, and nearly all other far-
mers stated that they do not carry hail insurance because of almost
Over one-half of the present carriers said they believe that
federal crop insurance has filled a need of farmers, but only 16
of the 44 previous carriers indicated so. To find reasons for
using federal crop insurance, things liked about it, and things
disliked about it, specific questions were put to each group. When
present carriers were asked why they use federal crop insurance they
gave the following answers, with some giving more than one:
1. To protect investment 42
2. To insure staying in farming 18
3. To insure adequate family living 10
4. To improve credit rating 10
5. Believe in the principle of insurance 9
Previous carriers were asked why they had used federal crop insur-
ance; they answered:
1. To protect investment 26
2. To insure staying in farming 15
3. To insure adequate family living 8
F.C.I.C. records of causes of damage show drought and wind
are the main hazards, but the survey showed that farmers fear hail
2To another question, 50% of all farmers answered that they
think farmers take federal crop insurance expecting to have crop
failures, but only 3 of 105 had answered they "expected poor yields"
when giving reasons for taking out insurance.
To get an enumeration of reasons for cancellation, the previous
carriers were asked why they dropped out of the program; the main
answers given were:
1. Coverage too low 29
2. Premiums too high 203
3. Dissatisfied with adjustment 10
4. Prefer to take a chance 6
They were then asked what they did for protection against unfore-
seen losses after canceling their insurance, and the following an-
swers were given:
1. More livestock 10
2. Grain reserves 6
3. Hail insurance 5
4. Cash reserves 3
Most of the others who canceled indicated they did nothing for pro-
tection against losses. A similar question was asked of the present
carriers to find out what strategies they would employ if federal
crop insurance ceased; the responses were:
1. Hail insurance 18
2. Livestock 12
3. Grain reserves 9
4. Cash reserves 7
All farmers were asked why they think participation is not
greater than it is, and the following reasons were given:
1. Coverages are too low 60
2. Premiums are too high 37
Fifteen of these answers were from non-rrigated farmers.
Fifteen of these answers were from non-irrigated farmers.
3. Lack of knowledge about federal crop insurance 264
4. Farmers prefer to carry their own risk 23
Fifty-five per cent of all farmers interviewed thought they
knew enough about federal crop insurance. A higher percentage of
the previous carriers said they had enough knowledge about federal
crop insurance, but such answers by some of them just meant that
they knew all they wanted to about the insurance. Only one-fourth
of all those interviewed have ever attended a meeting at which fed-
eral crop insurance was discussed. When the present carriers were
asked how they learned about federal crop insurance, thirty-six
said from salesmen, eleven from other farmers, five from publi-
cations, and three from personal inquiry; however, only eleven indi-
cated that they have been personally contacted by a representative
of the F.C.I.C. since they took out insurance.
The non-irrigated farmers covered in the survey can insure
only summer-fallow winter wheat, but the irrigated farmers have the
possibility of insuring three irrigated crops in addition to non-
irrigated wheat on some of their farms. The thirty-three irrigated
carriers surveyed have insurance contracts with 25 endorsements on
corn, 21 endorsements on barley, and 18 endorsements on beans. When
asked about other insurance desires, the sixty-one carriers named
nine crops they would like to be able to insure, with non-irrigated
barley the most frequently mentioned (by eight farmers) and non-
irrigated corn and irrigated sugar beets next (by four each). Only
Twenty-two of these twenty-six answers came from farmers
who now carry the insurance.
one-fourth of the present insureds would prefer multiple-crop insur-
ance. In responses to questions seeking insurance desires from
previous carriers, non-irrigated milo and barley were the most often
mentioned crops, but by only five and four farmers, respectively.
Complaints of low coverage was the most frequently voiced
objection to the program; two-thirds of all farmers interviewed
said that the basic coverage on their farm is too low. Less than
forty per cent think a total insurance indemnity would meet their
production expenses. Only thirty-four per cent think the insur-
ance covers all costs on small farms, whereas seventy-six per
cent think that it should cover all costs on these farms. One-
half of those interviewed believe federal crop insurance should
be subsidized, with about two-thirds answering that the government
should pay part of administration expenses and 39 of 105 farmers
saying they think that federal crop insurance should guarantee
farmers some income above expenses.5
Ninety per cent like the opportunity to select a premium-
indemnity level (all carriers but one indicated this is a desir-
able feature); about two-thirds prefer the medium level while
almost one-third prefer the high level. Forty-three per cent
would prefer a variable yearly premium based on actual annual
yield, so that they would pay higher premiums in good crop years
but lower premiums in poor crop years. About two-thirds of those
interviewed answered that they -have'p id more in prermiaisitha.n
they received in indemnities although records from the F.C.I.C.
Responses from most farmers indicated that they are not
familiar with the present policy.
show ihat the average farmers ii "Colorado is ahead of the
Corporation on an indmnity-premiumr basis. Cnly 20 of 61 pres-
ent carriers th~fnk premiums on their farm are too high but-23
of 44 previous carriers complained of this.
Premium discounts for good experience were understood by
only 33 of the present carriers; most of those who said they did
not understand them are irrigated farmers which indicates that
wheat farmers are the principal ones affected by the discounts.
Approximately 35% said they are now eligible for premium dis-
counts and 55% indicated they would favor a cash discount for
early payment of the insurance premium. Two-thirds of those
previously insured said they understood premium discounts, but
some still believed that interest payments on late premiums are
still in effect.
Farmers differed on the time of year they wanted loss pay-
ments to be made, but several raised complaints about the exces-
sive length of time between inspection of loss claims and dis-
bursement of indemnity checks. Most presently insured farmers
thought that loss adjustments were about right and stated that
any indemnities received had not affected their income taxes.
Nearly one-third of the previous carriers indicated they thought
loss adjustments were too low.
All 105 farmers answered they are aware that insurance con-
tracts are automatically renewed unless canceled. Over 60% of
the present carriers favor this feature against only 30% of the
previous carriers, and several farmers stated that the difficulty
in canceling was their most important objection to the program.
Only twelve farmers indicated they would favor a contract sold for
a definite number of years.
Almost sixty-five per cent of all farmers expressed a prefer-
ence for being able to have individual contracts on land that is
separated (even though this would certainly increase the premium
rates), with a higher percentage of previous carriers saying so.
Only eighteen answered that they think both the landlord and the
tenant should be able to insure the entire crop, but the reasons
given for these answers show tenancy conflicts to be an important
About one-half of the present carriers usually operate under
the Feed Grain Program, as compared to only one-third of the pre-
vious carriers. Only four of the twenty-eight non-irrigated
carriers indicated the 1964 Wheat Referendum would have changed
their insurance plans if it had carried. Two-thirds of all far-
mers do not want the Federal Crop Insurance Corporation and other
farm agencies combined into one program, but many farmers expressed
a desire to have F.C.I.C.. offices with the Agricultural Stabili-
zation and Conservation Service (A.S.C.S.) county offices so they
could transact all their business in one office and obtain infor-
mation and regulations easier. Slightly over one-half of all
farmers interviewed think that a farmer should be allowed to in-
sure only allowed acreage, but nearly all were against limiting
participation in the insurance program to only those in farm
programs or making participation compulsory in any way.
Findings from Southeastern Colorado Counties
Five counties in the southeastern part of Colorado come under
a special heading and constitute a special case as far as F.C.I.C.
operations in the state are concerned. Insurance in these coun-
ties was canceled in 1955 by the F.C.I.C. after heavy losses had
been incurred in the preceding years. The insurance coverage
had been on wheat in Baca, Kiowa, and Prowers counties, and on
multiple-crop in Las Animas and Otero counties.
Several farmers and businessmen were interviewed in each of
these counties to learn about the operation of federal crop in-
surance when it had been available, to find out what had been done
for protection after the insurance was canceled, and to determine
the need and desire for insurance protection at the present. A
sample of farmers who had carried the insurance when it was avail-
able was drawn from records of the F.C.I.C. for the use in inter-
views on the assumption that farmers with previous experience
could supply better information about the insurance that was
available and are more able to assess the role that insurance
could play in their operations today. Complete schedules were
not taken from all farmers contacted since some of them whose
names were drawn from 1955 records have retired from farming or
do not have any acreage under cultivation in their present oper-
ation. Some of these persons not now active in farming were able
to furnish useful information concerning the previous operations
of federal crop insurance in their areas however.
Eleven schedules were completed in Baca, Kiowa, and Prowers
counties from non-irrigated wheat farmers and five schedules were
completed in Las Animas and Otero counties from farmers who had
had multiple-crop insurance. All farmers indicated that they now
carry several types of insurance other than crop insurance but
only two carry private hail insurance with any regularity and
only one said that he had carried both hail insurance and federal
crop insurance when the latter was available.
When the farmers were asked what they did to protect them-
selves after federal crop insurance was canceled by the F.C.I.C.,
four said they initiated or increased livestock operations, two
said they went to hail insurance, one said he increased his farm
size, and nine answered that they did nothing. Of the non-irri-
gated farmers who mentioned livestock, most explained that in
dry years, when they needed crop insurance the most, their live-
stock usually had to be decreased because of dry pastures and
therefore offered very little income protection against crop
Most of the farmers interviewed consider that they need a
diversified income and ranked the use of livestock as the best
way to obtain diversification. (Three-fourths of the farmers
interviewed had livestock which they indicated were mainly for
extra income although livestock were also important for utiliza-
tion of rough land.) "Growing of several crops" ranked second
as a method of diversification and amplifies the fact that the
non-irrigated areas are dependent on one crop--wheat.
Fifteen of these sixteen farmers believe that federal crop
insurance filled a real need of farmers in their area and, although
only eleven said their attitude toward government programs was
favorable, all of these fifteen farmers said they would be inter-
ested in federal crop insurance if it were made available again.
Twelve answered that they believe federal crop insurance should
be subsidized by the government and six of these answered "it
should guarantee farmers some income above expenses."
The general reaction of all farmers interviewed in this study
area was one of rebellion against government farm programs. Some
of this feeling is due to resentment toward the Federal Crop In-
surance Corporation for "raising premiums every year" and then
"cutting off our insurance after it was abused by 'suitcase'
farmers." Farmers in this area are also confused by the multitude
of government programs with which they have been confronted and
by the many requirements and various options under each program.
On the other hand, most farmers indicated that they had lived off
the F.C.I.C. and the Soil Bank Program during the 1950's and some
stated that "there would be no wheat farmers in southeastern Colo-
rado today if it had not been for federal crop insurance."
Since any insurance that might be offered by the F.C.I.C.
in the future would possibly have to be sold on a long-term con-
tract in order for the Corporation to be in a position for its
actuarial computations to be effective, farmers were asked if
they would be willing to take a contract for a definite period
of years. Three-fourths of them said they would be, with the
majority of them willing to accept a five-year contract.
All farmers interviewed indicated that they would like to be
able to select a premium-indemnity level and they prefer a medium
or high level of coverage. Ninety per cent of them would prefer
variable yearly premiums, i.e., they would like the opportunity
to pay more for the insurance when they have good crops if they
could have the opportunity to pay lower premiums in poor crop
years. Farmers in this area know that they have many poor years
but that when they have a good year it is really a "bumper" crop;
and most of these farmers would be willing to pay higher premiums
in the "bumper" crop years because they have "extra" incomes in
The interviewees were evenly divided on their answers of
whether crop insurance should be available only to those under
federal farm programs or not, and were divided 3:2 in favor
of farmers being allowed to insure only allowed acreage. Most
comments on the administration of the program were of the nature
that it should be limited to "acceptable" farmers and the con-
census of opinions was that the farmers in this area need a
"simple, strict, low-administration program."
Implications of Survey Results
A lack of knowledge about provisions of the F.C.I.C. appears
to be the most serious cause of misunderstanding and disagreement
between farmers and the Corporation. A number of cancellations
have occurred because farmers did not understand regulations
that caused them to lose insurance coverage and indemnity pay-
ments or because they thought the program had been misrepresented
to them. Several farmers indicated that more farmers would par-
ticipate in the program if they had more information about it.
A misunderstanding between F.C.I.C. personnel and farmers
can be a sore spot with a farmer and cause him to think that
federal crop insurance has been misrepresented, Responses
from farmers indicated that the F.C.I.C. in Colorado is still
laboring under a handicap imposed on it by some poor represen-
tation in previous years. However, the entire line of admini-
strators, secretaries, salesmen, and adjusters seems to have
been upgraded in the past few years and that the quality of work
is steadily being improved. Most salesmen have been put on
salaries, rather than commissions, to reduce the temptation to
misrepresent the program to a farmer for the purpose of getting
another name on an application form. Salaried personnel are
probably a benefit to farmers and to the Corporation as fewer
misunderstandings appear under this type of administration. It
may not be the most economical method of selling however, and
may not even be advantageous over-all. A notable contradiction
to this approach of selling is exemplified by the one private
agent remaining in the state: his county has a high percentage
of eligible farmers participating in the program and frequently
has the lowest cancellation rate.
Adjusters who are local farmers are definitely an asset
to the Corporation in the form of lower expenses and to farmers
in the form of local representation and knowledge of local farming.
However, it is imperative (and a common practice of the F.C.I.C.)
to bring in outside adjusters to handle claims in time of a
serious or widespread disaster.
A repeated inference from farmers surveyed is that insurance
guarantees are thought to be too low. This is an objection which
might be expected, without much justification, when it is con-
sidered that federal crop insurance attempts to cover only basic
operating costs; however, it is true, in most cases, the coverage
that has been determined as a percentage of past yields is too
low to cover the higher operating expenses that the farmer of
today encounters in trying to produce higher yields. Coverages
are so low in some areas that a farmer can sustain, what is to
him, a crop failure but his yield is still not low enough to re-
ceive an indemnity payment.
Variable yearly premiums based on actual yields are frequently
mentioned as a desirable feature that might be incorporated into
the F.C.I.C. operations. Farmers seem to be willing to pay
higher premiums in their better years if they could then pay
lower premiums in poor or below average years. This would be ad-
vantageous to farmers in years when their yields, and therefore
incomes, are lower than average but still not low enough to
qualify for any insurance indemnity. These are the years when
the premium payment is extremely difficult to meet and when the
farmer would most value the opportunity to wait and make up the
premium in a better year.
A variable premium plan would help counteract the problem
of "the ability to pay" by allowing a farmer to pay a (say) 20%
(4-bushel) premium from a 20-bushel harvest and the same 20%
(but only 2-bushel) premium from a 10-bushel harvest. The cov-
erage could remain the same over the contract period and the
premium could be actuarially set from the average expected yield.
The farmer would be guaranteed of the coverage in poorer crop
yields yet have the opportunity to pay lower premiums when he
could less afford to pay them out of lower than normal crop yields.
The extra premium a farmer would pay in better than average years
would be more easily paid from "unexpected" profits,
This plan of premium payment based on actual yields also
gains favor in the sense that it would aid farmers in shifting
higher expenses to years of higher tax liabilities. An advan-
tage would result in poorer years when expenses would be lower,
thus allowing the farmer highest possible returns from a poor
crop to invest in the succeeding crop.
The farmer who carries federal crop insurance uses different
criteria in deciding whether or not to carry private hail or fire
insurance on growing crops. Insurance offered by private com-
panies can be bought to cover the entire value of the insured
crop (against hail or fire only) whereas federal all-risk crop
insurance is designed to cover only operating expenses involved
in growing the crop. As a rule, private insurance is carried
only when the prospects for an exceptionally good crop are evi-
dent. Therefore, there is not much conflict or competition be-
tween federal crop insurance and private insurance since farmers
may use neither, either, or both, according to their particular
situation and desires.
Farmers' use of risk-bearing strategies, other than formal
insurance programs, appears to be limited. Diversification is
the most popular and widely practiced risk-bearing strategy but
the natural limitations of diversification place a severe handi-
cap on its success in providing a steady income for farmers (e.g.,
drought conditions which cause crop losses usually result in feed
and pasture shortages for livestock operations, which were mention-
ed by farmers as their best method of diversification). Grain
reserves are used by a large number of farmers but offer only
limited protection against a lost crop and almost no protection
against a series of poor crop years. Cash reserves are nearly
non-existent in the high cost-demanding operations of today's
farmers, and reserves of credit are usually greater than reserves
of unused cash.
Although the present Wheat Program passed by Congress has
definite "insurance" features, farmers indicated that any fed-
eral wheat legislation would not affect their desires for crop
insurance as they consider any other type of "insurance" as
just more "frosting on the cake." It appears that the main effect
of a Wheat Program is only a reduction of acreage under insurance
when wheat allotments are reduced.
There are many arguments for closer coordination of the
Federal Crop Insurance Corporation with the Agricultural
Stabilization and Conservation Service. Both are government
agencies under the Department of Agriculture and are operated
for the benefit of nations farmers. Closer coordination of the
local offices would result in a more convenient service to the
farmers they serve. A combined operation of the two agencies at
the right level would make for more economical operation and
eliminate duplicative functions. A lessening of conflicting
policies and synchronization of program deadline dates would
result in smooother operations for all parties concerned.
The F.C.I.C. now uses A.S.C.S. acreage measurements in many
cases and their serial photos on occasion. The F.C.I.C. also uses
the A.S.C.S.'s payment programs to collect delinquent premium
accounts, and in some counties, by agreement, the A.S.C.S. collects
current premiums for crop insurance. Closer cooperation and
elimination of acreage measurement duplications could result in
savings of time and money in adjusting loss claims.
The field survey showed that farmers in the southeastern
counties previously insured believe strongly in federal crop
insurance--some of them would not be farming today if it had not
been for F.C.I.C.--and most of them would like to have insurance
coverage available again. These farmers would like to give the
insurance a chance to work; they would be willing to pay for it
and most of them would accept long-term contracts. These reactions
show the permanence of the plans that the farmers in this area
have and their determination to stay in farming.
There were several implications in the survey responses that
the insurance program in these counties was abused. Part of this
abuse was credited to poor administrative practices which allowed
farmers to sign up for the insurance or increase their acreage
under insurance coverage in the face of drought and part of the
abuse can probably be attributed to farmers who were in desperate
need of some source of income to keep them in farming. However,
most of the high losses were due to drought and high winds that
hit hard in this area in the middle 1950's.
Problem Areas Uncovered in the Survey
Several problem-areas were discovered within the operations
of the Federal Crop Insurance Corporation which should be discussed
briefly to provide a critical review of the program and to suggest
topics for study and, hopefully, improvement in the future.
The lack of knowledge and understanding of the insurance by
the insured farmers (which has been mentioned previously but which
merits further elaboration) is a major problem for the Corporation.
Some of the more serious (and expensive) failures of understanding
by farmers include: (1) do not know of all losses that are covered,
(2) do not know that losses must be reported for appraisal of un-
harvested or potential production and that written consent must be
obtained before a crop can be destroyed, (3) do not know provisions
for harvesting, (4) do not know provisions for planting substi-
tute crops, and (5) do not know of cancellation dates.
The F.C.I.C. does not have adequate informational sources to
furnish notices of specific changes within the program to insured
farmers nor does the Corporation notify farmers of cancellation
dates unless changes are made in the program. The problem is not
necessarily the quantity or frequency of dissemination of informa-
tion, but rather the form and methods which are used to inform
farmers of pertinent facts and changes which should affect their
Interviews from previous carriers indicated that insurance
cancellations can result when conflicts of interest occur among
the Corporation, tenants, and landlords. Some tenants lose all or
part of their crop insurance indemnity when the landlord does
not carry insurance and forces the tenant to replant a lost crop
or plant a substitute crop (in order that the landlord receives
some rent), thereby preventing the tenant from receiving an
indemnity on the first crop or causing him to lose fifty per cent
of the indemnity from the F.C.I.C, This same thing can happen if
the insurance adjuster gives consent for a low yield to be des-
troyed for planting to a substitute crop or for insurance indem-
nity but the landlord requires the crop to be harvested in order
that he will receive some rent. Also, many tenants would like to
be able to insure all of a crop if they incur practically all of
the operating expenses in growing it. When no solutions to the
tenancy problems are found, participation in the crop insurance
program is undoubtedly lowered and all parties involved suffer.
A serious problem in F.C.I.C. operations in Colorado (which
resulted in probably millions of dollars of losses to the
Corporation in the middle 1950's) stemmed from the reluctant use
of authority to close sales "in the face of drought." It is a
well-documented fact that insurance applications were accepted in
several drought counties, in increasing numbers, up to the final
day of sales after experiencing heavy losses in the preceding years
and with extremely poor prospects for seeding the next crop appar-
ent. Several persons interviewed mentioned a "block-long line of
farmers at the salesman's office" signing up for insurance before
the cut-off deadline at Burlington, in Kit Carson County, in the
middle of the drought years of the 1950's. This situation if
probably handled adequately at the present 6 but the State
Director might also need the authority to stop taking applications
for insurance in uncertain times and then re-open sales at a later
date if it appears feasible.
Some interviews with farmers revealed situations in which
farmers can take advantage of federal crop insurance, and the
Corporation might thereby incur unjustified losses. The F.C.I.C.
is set up to insure what is planted "with intent to harvest for
grain," but farmers in some counties who plant corn which normally
goes for silage--because the growing season is too short to produce
good corn for grain--can insure for grain and stand a good chance
of collecting an indemnity. This occurs mainly in the northern
and mountain counties where farmers can receive a 100% indemnity
on their corn for grain and then still cut fifteen tons of silage
for use as feed. There are also hedges available to farmers
resulting from differences in deadline dates of the F.C.I.C. and
the A.S.C.S. programs. For example, wheat farmers who collect
from the F.C.I.C. on early wheat losses can then cut back on their
wheat acreage under the Wheat Program until June 10 and receive
diverted acreage payments on the same acreage for which they
received insurance indemnities.
6For example, 1965 wheat crop sales were closed June 2,
1964--twelve weeks before the deadline date of August 31--
in Cheyenne, Kit Carson, and Lincoln Counties.
Another problem was discovered that has already caused
complaints of misrepresentation, complaints of poor adjustments,
even insurance contract cancellations, and promises to be an
underlying factor in future cases of dissatisfaction by farmers.
The problem is the potential danger involved in insuring crops
for more than their market value. When the situation exists that
the insurance indemnity for (say) a 10-bushel an acre loss is
worth more than the crop produced by a 10-bushel per acre yield,
it is certainly an explosive area as far as insurance losses,
adjustments, guarantees, and indemnities are concerned.7
7This problem is explored more fully in a section of
SUPPLEMENTAL STUDIES AND FINDINGS
Analysis of the Cost of the F.C.IC. to the Government
Any attempt at determining the economic success of a program
must contain an analysis of the cost of that program, which can
be compared to programs with similar objectives to approach a
conclusion of whether or not the program is economically justi-
fied. Such a study was made to compare the cost of the F.C.I.C.
operations in Colorado to the costs of other government programs
that aid agriculture.
Since the F.C.I.C. operations cover only field crops in
Colorado, comparisons were made with government programs closely
related to this area. Five main programs were examined to de-
termine their loss or net cost to the government. The programs
compared to the F.C.I.C. were those administered by the Agri-
cultural Stabilization and Conservation Service, including the
Conservation Reserve Program, the Acreage Reserve Program,
the Price Support Program, and the Sugar Beet Program.
The study covered aid to twenty counties in eastern Colo-
rado, including the fifteen counties where the F.C.I.C. is now
operative and five counties where it previously offered insur-
ance. The analysis was on a county basis, by years, from 1948
through 1962. 1948 was selected as the first year of the
time period for analysis since this year coincides with the
operation of the F.C.I.C. in Colorado after its reorganization.
The results of the analysis are summarized in Table VII.
COMPARISON OF THE COST TO THE GOVERNMENT OF THE FEDERAL CROP INSURANCE CORPORATION
IN COLORADO TO OTHER AGRICULTURAL PROGRAMS FOR THE YEARS 1948-1962
Federal Conserva- Per Cent
Crop tion Acreage Price F.C.I.C.
Insurance Reserve Reserve Support Sugar Beet is of
County Corporation Program Program Program Program Total Total
Adams* $ 36,891 $ 683,240 $1,967,806 $ 4;988,450 $ 1,628,878 $ 9,305,265 .40%
Arapahoe 94;755 1,327,992 1,036,776 2,268,878 10,129 4,738,530 1.96
Baca 2,473,536 4,880,809 5,750,929 7,495,819 291,634 20,892,727 11.84
Boulder 16,845 37,567 442,855 1,116,594 1,564,641 3,178,502 .53
Cheyenne 880,236 4,246,834 3,656,311 3,325,191 --- 12,108,572 7.27
Elbert 61,043 782,509 976,988 2,245,941 --- 4,066,481 1.50
Kiowa 1,713,670 6,548,019 6,092,555 3,934,119 --- 18,288,363 9.37
Kit Carson 1,444,802 4,276,437 -- 7,813,254 212,189 13,746,682 10.51
Las Animas 392,739 1,260,777 397,583 650,106 214,889 2,916,094 13.47
Larimer* 28,234 247,535 494,304 1,959,124 4,742,422 7,471,619 .38
Lincoln 364,772 2,579,397 7,518,059 4,098,420 --- 14,560,648 2.51
Logan 180,705 43,470 1,169,931 6,082,936 5,049,061 12,164,693 -1.49
Morgan 398,068 1,709,668 56,978 5,518,807 11,027,487 18,711,008 2.13
Otero 279,805 408,996 387,131 1,333,627 2,683,414 5,272,973 5.31
Phillips 434,766 32,048 1,070,930 6,217,250 -- 6,885,462 -6.31
Prowers 1,237,491 2,817,877 6,414,965 6,680,119 1,486,270 18,636,722 6.64
Sedgwick 310,501 51,301 670,225 4;254,771 2,130,224 6,796,020 -4.57
Washington 99,535 1,530,331 2,802,503 9,094,008 429,539 13,955,916 .71
Weld* 1,344,777 2,335,477 2,730,153 17,926,109 36,986,194 61,322,710 2.19
Yuma* 9,581 1,501,208 1,973,661 7,988,669 479 11,454,436 .08
Totals $ 9,931,646 $37,301,492 $ 45,610,643$104,992,192 $ 68,637,450 $ 266,473,423 3.07%
a Counties presently insurable under the F.C.I.C. are denoted by (*).
The computations for F.C.I.C. net costs were taken from the
"Insurance Experience" data for the Corporation in Colorado.
These data include a debit or credit listing for each crop
insured by years and by counties. The total program for the
counties under observation showed a loss or net cost to the
government of $9,931,646 at the close of the 1962 crop year.
The conservation Reserve Program was initiated in 1956,
with 1960 being the last year to sign a contract with the govern-
ment to lay land idle for a specified length of time, not to
exceed ten crop years. Also included in this program were small
grants-in-aid to individual farmers for performing various con-
servation practices. The Conservation Reserve payment was
$9,082,353 in Colorado for 1962 and this is close to the aver-
age payment for the last three years. The table includes the
total payments to counties for the years 1956 through 1962.
The Acreage Reserve Program is another part of the Soil
Bank Program, under which the Conservation Reserve Program can
be classified. This program began in 1956 but continued as
such only through 1958 for land that had been in wheat. Par-
ticipation under this program was in the form of one-year con-'
tracts to decrease land planted to wheat. There was no similar
program for the years 1959 or 1960 which removed specific crops
The Price Support Programs of the A.S.C.S. are under super-
vision of the Commodity Credit Corporation. The specified pur-
pose of the C.C.C. is to function on a price set by the govern-
ment for those commodities under support. Farmers can, in effect,
sell the commodity on a loan basis to the C.C.C. and are assured
at least this support price as set by the government for their
commodity. If the price should rise above the support level, the
farmer can sell the commodity on the open market and has no
obligation to the government. This is an insurance feature for
farmers in that they are guaranteed the support price or better if
they participate in the program, but the government stands to lose
money when the price is low if it has to assume title to the
commodity that has been taken over by way of the C.C.C. loan
operations. This loss is figured as the difference between the
market price and the support level plus those costs involved in
handling and storing the commodity.
Cost of the Price Support Programs used in this study had to
be estimated as data are not available in a form that can be
evaluated to arrive at the net cost to the government by commod-
ity by county, and by years. The method used to estimate the
cost to the government of these operations for the fifteen-year
period was from national production data for each commodity under
support and the loss cost to the government for support of a
given commodity. The average cost per unit of the commodity was
then applied to the county production figures to obtain a measure
of the cost of the program each year on a county basis.
For comparative purposes, calculations were made on the
county totals of the loss costs of all programs under considera-
tion and the net cost of the F.C.I.C. was computed as a per cent
of the total. The resulting computations show that F.C.I.C. net
costs as a per cent of the total loss costs are not very significant
in most of the twenty counties. In only three counties--Las
Animas, Baca, and Kit Carson--were net payments by the F.C.I.C.
greater than ten per cent of the total loss cost to the government,
while four of the twenty counties covered by federal crop insurance
have paid more in premiums to the F.C.I.C. than they have received
An accurate measure of benefits derived from the Federal Crop
Insurance Corporation is impossible because of the intangible
assets gained from insurance, such as peace of mind at the present
and security of plans for the future. However, numerous benefits
are evidently received from federal crop insurance and this is
attested to by the number of farmers voluntarily participating in
the program. Federal crop insurance does not provide as much cash
income to farmers as other agricultural programs, but it does
furnish considerable benefits at a low cost to the government--it
composes only 3.07% of the net cost of government programs includ-
ed in the study. Further support must be given to the Federal
Crop Insurance Corporation as a sound economic program when it is
realized that net costs to the government incurred from the program
in Colorado have been generally off-set by net profits in other
parts of the nation, whereas other agricultural programs have
certainly made no net profits in their operations.
iThe four counties in which the F.C.I.C. shows a net
gain in premiums over indemnities--Logan, Phillips, Sedgwick,
andYuma -are all included in the five counties shown by the
risk index program to have premium rates relatively higher than
necessary to pay for the coverages available.
Analysis of Problem Areas in Southeastern Colorado Counties
References to problems of the counties of southeastern
Colorado, which had insurance available until the Corporation
experienced disastrous losses and was forced to cancel the
insurance program from the area in 1955, appeared and reappeared
throughout this study of the federal crop insurance program.
When the F.C.I.C. withdrew insurance from this area the farmers
who had previously been covered and had counted on it for future
protection had nothing to fall back on. When the entire program
was canceled in five counties--Baca, Kiowa, Las Animas, Otero,
and Prowers--without previous notice,bad feelings and mistrust to-
ward the Corporation and even toward other government programs
resulted. Apprehensions about the program also developed in
surrounding counties and a hostile attitude toward the federal
crop insurance program was evident in many areas of the state
where farmers were interviewed.
The losses suffered by the Corporation in these counties were
tremendous; approximately six million dollars more was paid in
indemnities than collected in premiums during the years 1948-1955.
($2.47 million was lost in Baca alone over this period, with the
greatest losses occurring during the last four years.) The
question often asked is whether the F.C.I.C. could have recovered
some of its losses from these counties by keeping the insurance
program in effect in this area.
Insurance premiums in this area were increased after nearly
every loss to the Corporation, but the repeated high loss ratios,
even with these increased premiums, indicate that it would have
taken a combination of higher premiums, steady participation, and
average or good crop years to regain earlier losses. It is argued
that the wheat producers in this area (who accounted for most of
the losses) were "sold" on the federal crop insurance program in
1955 and most of them could have been counted on for participation
in following years, even with slight rate increases. This appears
to be true and it is also true that several good years followed
in which the Corporation would undoubtedly have made up some
losses, but poor crop yields in the 1960's again stress the fact
that it may be impossible to provide equitable insurance coverage
in this high-risk area. It is also recognized that when farming
prospects grow better (as they did in this area after 1956), many
farmers will cancel their insurance and the participation necessary
to recoup losses falls.
Interviews taken in the field survey turned up repeated
references to "abuse" of the insurance program when it was opera-
tive in this area. Farmers in near-by counties mentioned incidents
of insured farmers in these areas seeding wheat on land with no
subsoil moisture that could not possibly support a crop. There
were even accusations made that farmers had pulled wheat drills
across their land with little or even no seed in the drill boxes,
reported the "planted" acreage for insurance coverage, and then
waited for their insurance indemnity checks as income from their
When farmers in these previously insured counties were
interviewed, similar accusations were made but the blame for the
abuse of the insurance was placed on insureds who did not live on
their land but who showed up to "farm" the land only during seed-
ing time and then left the crop to blow away. Numerous complaints
of these farming practices by the present farmers in these counties
who are considered to be good farmers led to a study of experience
data from these in an attempt to determine if any one group of
insureds should be held responsible for the reported abuses of the
For purposes of this analysis, records of crop insurance
experience were obtained from the files in the State Office to
determine if higher indemnities may have been received by insureds
who did not live on their farms and who therefore did not expend
as much time and money to raise or save crops during poor years.
The analysis was made on the participation and premium-indemnity
records of contracts in Baca County, which experienced the heaviest
losses under the program.
All insureds in Baca County and in neighboring towns of Kansas
and Oklahoma were considered to be residents living close enough
to their farms to give it normal attention required during the
year and all insureds outside this area were grouped as absentee
farmers. The total number of contracts written in the Baca County
insurance program was 692; the division for the analysis resulted
in 565 being classified as resident farmers and 127 as absentee
The absentee farmers were approximately 18% of all the insureds
but accounted for only 9.47% of the total premiums paid in the
seven years included in the study, which indicates they had smaller
average acreages under insurance than did the resident farmers.
The totals computed from the years 1949-1955, inclusive, indicate
that the loss ratio (indemnities divided by premiums) for the
absentee farmers was 2.95 compared to 2.55 for the resident farmers
and 2.58 for the total of both groups. The total indemnities of
the absentee farmers was 10.69% of the total and they received
11.45% of the net indemnities over premiums.
These figures appear to partially substantiate the case
against the absentee farmers of abusing the insurance. The claims
against them are further substantiated by analysis of the experi-
ence data for 1955, the last year of F.C.I.C. operation in Baca
County. The total loss ratio for this year was only 1.22, but
the absentees' was 2.74, and the net indemnities received by the
absentee farmers composed 47.34% of the total although the premiums
paid by them were only 7.66% for that crop year.
The Problem of Insuring a Crop for More than its Value
Price selections available on federal crop insurance, which
permit a farmer to select a price level to be applied on the
production guaranteed for his risk area, were initiated by the
F.C.I.C. to offer farmers more dollar protection against crop
losses without raising guaranteed levels of coverage. Although
the insurance is sold as guaranteed bushels of coverage, a farmer
translates the bushels into dollars, according to the price selec-
tion made, to see if his expenses would be covered; and the farmer
is usually aided in this computation by the crop insurance salesman
or representative. This is a common procedure and a dangerous one:
therein lies the beginning of a paradox which can be extremely
perilous to the operation of the present crop insurance program.
The problem involved is that of insuring crops for more than
their market value. This problem is illustrated with the
following example on wheat insurance, although the problem exists
on other crops also.
When today's wheat farmer figures his high production costs
for seed, fuel, labor, depreciation and repairs on machinery, and
the costs of summer-fallowing the high percentage of his land
that does not come under allowed acreage, in addition to his
harvest costs and paying the insurance premium, he usually wants
the highest possible insurance coverage in order to protect his
investment in the crop. Then, when a farmer selects the $2.50 per
bushel as his price on his (say) 10-bushel guarantee, he some-
times thinks he is assured $25.00 per acre income. But that is
not the case. The farmer is not insured for $25.00 worth of in-
come if he has to make it from his wheat crop. The reason is
that the farmer will be paid $25.00 per acre only if he has a
total loss and collects the insurance indemnity. This problem
stems from the fact that the market price for wheat in Colorado
is approximately $1.25 per bushel2 and if the farmer produces
11.5 bushels per acre (1.5 bushel over his basic guarantee
that is added if he incurs harvest expenses) that he sells for
this price, he receives an income of only $14.38 per acre. He
2The average farmer receives considerably more than this
for his wheat crop from certificates and diversion payments
under federal farm programs, but he receives these even if he
collects an insurance indemnity.
still has to pay his harvest costs out of this total that he
would not have had to pay out of the $25.00 insurance indemnity.
As seen above, the insured farmer will be better off, dollar-
wise, with no production rather than making his guaranteed level
of production or a little more; he will also save the expense of
using his combine and other machinery and the land will be in
better condition for the next crop (with more soil nutrients and
moisture) than if a crop had been harvested. Therefore, the
farmer is much better off, ironically and illogically, by
experiencing a total crop loss and collecting the insurance
indemnity than he is by producing the yield for which he was
insured. Actually, the farmer in this case would have to produce
a wheat crop yielding about 22 bushels per acre (equal to $25.00
per acre after paying harvest costs of approximately $2.50 per acre)
to be as well off as if he sustained a loss, had yield of 0 bushels,
and collected on his insurance.
An analysis was made of the price levels selected by wheat
farmers to get a measure of the size of the potential problem
which exists. No summaries are kept by the F.C.I.C. of the price
selections made by insured farmers but a compilation was made of
the price selections that had been recorded on processed applica-
tion forms in the State Office. A count of selections made in
1963, by farmers who had been insured before the price selections
were available, showed that 327 farmers had selected the $2.50
per bushel price and 40 had selected the $1.50 per bushel price.
The remaining contracts, on which no price selections had been
made, were set by the F.C.I.C. at the middle price of $2.00 per
bushel. A complete enumeration was made of the wheat contracts
sold for the 1964 crop year and the price selection distribution
taken from the summaries of application forms was: $1.50 13,
$2.00 204, $2.50 350. Two of the counties with marked trends
toward the highest price selection were Cheyenne County (with no
selections of the $1.50 level, 8 of the $2.00 level, and 47 of
the $2.50 level) and Kit Carson County (also with no selections
of the $1.50 level, 16 of the $2.00 level and 116 of the $2.50
A simple average of the price selections on the 1964 sales
gives a mean of $2.30 per bushel for all contracts sold in 1964.
The 1965 sales are not completed as this is written (although
sales were closed early in Cheyenne, Kit Carson, and Lincoln
counties) but a count made of application forms through August 1,
1964, in the State Office showed that of the price selections
recorded, 6 were at the $1.50 level, 147 at $2.00, and 80 at $2.50;
a simple average of these selections shows the mean to be $2.16
for the 1965 sales.
Computations from these figures, when all other contracts
not accounted for are set at the middle price of $2.00 per bushel,
show the average wheat contract in force in Colorado has a price
of about $2.10 per bushel in effect on all loss claims. This
price is approximately $.85 per bushel above the present market
price of $1.25 per bushel. This differential of $.85 per bushel
is the average amount of money farmers will lose on every bushel
of wheat that is harvested from insured acreage that does not
yield the guaranteed level (and this lower income will cause farm-
ers to have doubts about the value of crop insurance.) This prob-
lem takes on monstrous proportions when the millions of bushels of
wheat under insurance is considered.
The problem also exists on other crops which are insured for
more than their market value. To get an estimate of the average
prices in effect on other insurable crops in Colorado, a compila-
tion was made on the price selections record for 1964 sales of
irrigated crops in Weld County.3 The price selections recorded
for 1964 sales of barley insurance were: 0 at the $.75 per
bushel price level, 18 at the $1.00 level, and 10 at the $1.25
level; 1964 sales of bean insurance were: 1 at the $.05 per
pound price level, 21 at the $.06 level, and 119 at the $.07
level; and 1964 sales on corn insurance were: 7 at the $1.00 per
bushel price level, 69 at the $1.20 level, and 16 at the $1.40
When the average price selections are compared to the market
prices for these crops to determine if the problem is present, the
average of $1.09 per bushel for barley contracts included in the
study shows to be slightly above the market price of $.95 per
bushel and the average of $6.85 per hundred-weight ($.0685 per
pound) for bean insurance is considerably above the market price
3Price selections for the 1964 sales were the best obtainable,
and figures were used from Weld County since it has more insurance
contracts in force on irrigated crops than any other county in the
of $5.65 per hundred-weight; therefore the problem is present
with barley and bean insurance also. The average insurance price
for corn of $1.26 per bushel is below the market price of $1.40
so the problem does not exist with corn insurance because insured
farmers have an incentive (of an additional $.14 per bushel) to
harvest for sale on the market rather than to collect on crop
This problem must be solved if the crop insurance program is
to be successful and operate satisfactorily. This potential
problem is present with every farmer who is insured for more than
the market price of his crop. The problem is evident any time a
farmer suffers a partial loss and receives less from his harvested
crop than he would have received from an insurance payment instead.
This situation is at the base of many complaints and cancellations
although most farmers don't figure it out in dollars and cents
but just think that the Federal Crop Insurance Corporation has
not given them what they thought they were guaranteed and what
they had paid for. Although the solution to this problem may be
difficult or impossible to conceive, as substitution of higher
bushel guarantees for the higher price selections are not feasible
or actuarially possible in many areas, it is imperative to attempt
to correct the practice of insuring crops for more money than they
CONCLUSIONS AND RECOMMENDATIONS
Conclusions From The Study
Most farmers in the state of Colorado need some protection
against the unforeseen hazards that are present in the high-risk
areas characteristic of farming in the Great Plains' states.
Federal all-risk crop insurance offers such protection to a large
number of farmers in fifteen counties of eastern Colorado. This
insurance is administered by the Federal Crop Insurance Corpora-
tion which attempts to offer farmers as much insurance as possible
for a reasonable premium.
The F.C.I.C. operations in Colorado are comparatively stable
now after experiencing a history of considerable changes in the
program since 1948, particularly in regard to the areas in which
the insurance has been available. The program can probably be
characterized as having progressed and improved through a long
period of trial and error. The program has operated and changed
on the basis of trial and error because of the difficulties in-
volved in trying to operate an insurance program covering several
crops, in various agricultural areas, against many risks, during
severe droughts, and for nuMerous- farmers in the state, each with
different farming operations and individual needs and desires.
Findings from the field survey indicated that farmers use
federal crop insurance mainly to protect their investment and to
insure that they stay in farming. Most of the farmers presently
insured said that they have to have something to protect themselves
and that federal crop insurance is the best thing available.
Analysis of survey schedules revealed there is no particular
group of farmers that use the insurance more than any other group
and there is no "type" of farmer (i.e., irrigated, non-irrigated,
diversified, specialized, etc.) who benefits more than others from
using the insurance. However, "poorer" farmers stand a chance of
receiving greater indemnities from an equal level of coverage than
do "better" farmers.
Very few farmers interviewed use private hail insurance,
mainly because of high premiums, but those who do are just as
likely to also carry federal crop insurance as those who do not.
The use of other risk-bearing strategies--such as diversification,
fetd reserves, or cash reserves--appears to be widespread in pracal
twice but limited in effectiveness as furnishing income protection
in poor crop years and even more so in a series of bad years.
Classification of any of these informal risk-bearing strategies as
self-insurance is probably a misnomer, since the principle of in-
surance is to transfer the burden of risks to some other party,
but they must be considered as voluntary methods of meeting risks.
Reasons for cancellation of insurance contracts discovered in
the survey indicate that lack of knowledge and understanding of
the program is a serious problem. A lack of adequate knowledge
about the program by all farmers is a hinderance to participation,
and misunderstanding of policies and regulations by insured farmers
frequently lead to insurance cancellations. A number of complaints
(each one of which has been the reason for at least one farmer
dropping out of the program) were voiced by farmers during
interviews, including the following: (1) coverages are too low,
(2) premiums are too high, (3) cannot collect losses on individual
fields, (4) adjustments are slow in being made, (5) receive no
payment, even partial, to pay for re-seeding destroyed crops, (6)
tenant can insure only two-thirds of crop even though he has all
the operating expenses in it, (7) have no personal contact with
insurance representatives, (8) do not know of changes in the
program, (9) are not reminded of cancellation dates, (10) do not
like distance to district offices (which are over ninety miles
from some farmers), and (11) do not receive money equal to in-
surance guarantee from harvest of a poor crop.
Other federal farm programs affect participation in the
federal crop insurance program very little, but acreage under
insurance is affected when allotments of crops under insurance
are reduced. It appears that the federal government aids insur-
ance policy holders more than other farmers in making loans (i.e.,
an insurance-carrying manager is a better risk). Most farmers and
businessmen recognize that the collateral assignment feature of
the insurance policy is extremely beneficial in securing short-
term loans. Some would go even further with it and combine
federal crop insurance with federal loan agencies to assure repay-
ment of loans and to give lower interest rates to farmers.
It can be hypothesized that the farmers remaining in south-
eastern Colorado counties today are those who were in the best
financial position during the 1950's and who are determined to
continue farming in that area. These farmers, in general, would
be those who have done a good job farming and,therefore,would not
have abused the insurance program. The farmers in this area need
and want wheat crop insurance; they are willing to pay for it.
The problem is whether it is actuarially and administratively
possible to offer insurance coverage in this high-risk area. The
problem is compounded further by low wheat prices and higher oper-
ating costs involved in producing wheat today.
The risk index program computed mean yields on wheat to be
from 10.5 to 21.4 bushels per acre in insurable counties, with
trend coefficients ranging up to 0.5 bushel in these counties.
Estimated mean yields ranged from only 2.7 to 19.6 bushels per
acre in eleven other counties of eastern Colorado on which the
program was run, with six of these counties showing negative
trend coefficients. A comparison of computed "pure premium rates"
to premiums of the F.C.I.C. showed that the wheat insurance pre-
miums in Cheyenne and Kit Carson counties are too low for the
coverage offered, and the coverage available in Lincoln, Logan,
Phillips, Sedgwick, and Yuma counties should be offered at lower
A comparison of the cost to the government of the F.C.I.C.
with other agricultural programs showed that F.C.I.C. net losses
as a per cent of the total loss cost to the government for all
programs were not very significant in most counties of eastern
Colorado in which the F.C.I.C. has operated. Only three counties
showed F.C.I.C. net losses to be greater than ten per cent of all
costs of the programs under study, while four of the twenty counties
have paid in more in premiums to the Corporation than they have
received in indemnities.
General policy recommendations, which have not necessarily
come out of this study but which seem important to carrying out
the changes implied in the study results, are listed below.
1. The Federal Crop Insurance Corporation should be made
a permanent agency by Congress. This would allow for more
continuity of operation by eliminating constant shifts in policy
caused by changes in political administrations. Congress would
still have control over the budget for the administration of the
F.C.I.C. and would review its operations annually, but the long-
term laws of insurance would have a better opportunity to work
successfully under a permanent program.
2. The Federal Crop Insurance Corporation should retain its
experimental approach in insuring crops in new areas and in offer-
ing insurance on crops not previously insured. The Corporation
should be constantly alert in satisfying complaints about the
program and in incorporating improvements into its operations.
3. Research programs should be developed within the F.C.I.C.
for self-analysis and appraisals as well as making use of research
studies and information from outside sources. A continuous program
of self-evaluation and recommendations concerning policies and
procedures by administrative personnel, salesmen, and adjusters
would be the best foundation for discovering problem areas and
possibilities for improvements in the program. Experienced
employees of the Corporation can usually offer more useful criti-
cisms and recommendations concerning the F.C.I.C. operations than
outside agencies or individuals who must cope with the enormity of
the operations and labor under the handicap of unfamiliarity with
policies and regulations. However, all studies by outside
agencies must not be eliminated since the inevitable problem of
"not being able to see the forest for the trees" will arise.
But it is recommended that future studies by outside agencies or
research groups be confined to limited problem areas so that
intensive study will be possible and specific solutions can result,
thereby making the studies beneficial and economically profitable
for the F.C.I.C. and more manageable by the study group.
4. Although no definite solution to the problem of lack of
knowledge and information may exist, efforts should be directed
at furnishing clear, concise, and important information to the
farmer that will not prove burdensome for him to read or com-
prehend and at the time when farmers need more information and
have time to digest it. Examples of this would be furnishing
information to all eligible farmers after disastrous crop years
and informing insured farmers of changes and deadlines in the
program considerably before the effective deadlines and planting
dates so they will have ample time to make good decisions.
Insured farmers should be notified of cancellation dates and all
changes in the program. Dissemination of additional information
to farm-related businesses and to the general public could ad-
vance the acceptance and use of federal crop insurance.
5. The federal crop insurance program should be oriented
more toward being a "farmer's program"; after all, farmers are
the most important factor in determining whether the program
works satisfactorily or, even, if it works at all. Farmers
should be convinced that it is their program and impressed with
the fact that their cooperation is necessary to make it work for
them. Personal contact with farmers should be increased, as
insurance requires service. Part of the F.C.I.C. research
program could be composed of soliciting criticisms and suggestions
from farmers themselves--as an aid to the Corporation and a long-
run benefit to farmers. Possibly the use of farmers on advisory
boards at the local level, similar to the county committees of
the A.S.C.S., would improve relations between the Corporation and
farmers and result in a mutual communication of ideas between the
6. The Federal Crop Insurance Corporation should consider
closer ties with the Agricultural Stabilization and Conservation
Service. Unification of sign-up and cut-off dates of the F.C.I.C.
and the A.S.C.S. would help eliminate hedges available to farmers
and would make it easier for farmers to comply with the programs
under these agricultural agencies. The F.C.I.C. could probably
make more use of the A.S.C.S. "normal farm yields" in up-dating
coverages and rates and expanding its program into new counties.
The use of common offices or at least the location of offices in
the same place would better serve the interests of the farmers
in the program. Certainly the degree of combination is debatable,
but closer coordination with the A.S.C.S. on the local (county)
level might result in smoother and more economical operations for
7. Insurance guarantees available to farmers should be
reviewed periodically and higher coverages offered where they are
warranted. Low coverages are one of the most frequent complaints
voiced by farmers and, consequently, higher coverages should im-
prove the program in the minds of farmers and result in greater
participation. Higher coverage should be given to farms and
farmers with higher established production records; this would
encourage better farming practices and discourage those antici-
pating crop failures if they realized they might not be eligible
for the higher insurance guarantees. The insurance program suffers
from heavy participation by higher-risk farmers and some of these
marginal farmers must be eliminated from insurance availability
by use of ineligible lists to improve the program for others.
8. Present carriers of insurance should be allowed to cancel
their contracts up to the deadline for sign-up by new carriers.
At the present, carriers of wheat insurance, for example, are
discriminated against because they have to cancel their contracts
by March 15 if they do not want the insurance, whereas wheat sales
for new carriers do not close until August 31. Possibly both dates
could be changed and made to coincide.
9. Since the program is experimental in nature, an experi-
ment should be made with long-term contracts. Writing contracts
on a long-term basis would eliminate farmers from collecting
indemnities in one or a few years and then canceling the insurance
when better crop prospects were apparent. Higher coverage would
be possible under long-term contracts because of lower adminis-
trative expenses, and actuarial determinations of coverage would
be given a longer period of time to achieve the "norm" in actual
experience. Possibly a few counties in southeastern Colorado
(where farmers have indicated they would be willing to accept
long-term contract) could be used as test area for such an ex-
perimental program; this would give farmers in this area an j,
opportunity to have insurance coverage, which is not now avail-
able, and might prove to be a successful part of the F.C.I.C.
10. Loss adjustments should be made as promptly as possible
and special efforts should be made when the magnitude of losses
is large or extends over a several-county area. Adjustments on
farms that are relatively far removed from the district offices
are sometimes delayed in being made and should receive quick
processing after the visit to the farm has been made by the
adjuster. Extremely large losses should be given special attention
because the magnitude of the loss makes it that much more important
to the insured involved. Many farmers need indemnity checks soon
after the time of a loss to enable them to finance and plant a
11. The separation of units should be restricted as much as
possible. This is in opposition to the wishes of farmers (who
sometime want each field carried separately and sometime even
want parts of a field insured separately), but insuring fields
under separate contracts can work to the detriment of sound
actuarial work if this division of units is used as a selling
point to entice big producers into the program.
12. Areas which might be pursued in future study and research,
with the aim of improving the program, should include (1) the
consequences of insuring crops for more than their value, (2) the
difficulty of insuring low-priced wheat, (3) the possibility of
offering insurance on a long-term basis in southeastern Colorado,
(4) the possibility of incorporating into the program variable
premiums and/or coverages based on individual farm yields, (5) the
merits of district offices and state salesmen vs. insurance agents
on a county basis, (6) the possibility of more cooperation between
the Federal Crop Insurance Corporation and the Agricultural
Stabilization and Conservation Service on the county level, (7)
the possibility of allowing State Directors to "hold" sales at
times of poor crop prospects and then re-open them when feasible,
(8) the influence of federal crop insurance on a farmer's credit
position, and (9) the possibility of combining federal crop
insurance with federal loan associations for the purpose of low-
ering interest rates and assuring repayment of loans.
PURE PREMIUM RATE COMPUTATIONS FOR WHEAT INSURANCE
IN EASTERN COLORADO
Part I. Counties Now Insurable With The F.C.I.C.
Unweighted Possible Pure
Mean Yield Insurance a Premium
County (Bushels) Guarantees (Bu.) Rate(Bu.)
Lincoln 15.81 15.81 2.84
Logan 17.12 17.12 1.92
Morgan 12.95 12.95 2.30
Phillips 20.12 20.12 2.22
a Possible insurance guarantees listed include the unweighted mean
and lower levels derived by consecutive substraction of one bushel
from this mean until a level under 4.0 bushels is reached or until
the corresponding pure premium rate reaches zero.
Part II. Counties Not Now Insurable With-The F.C.I.C.
(Bu.) Rate (Bu.)