AIR Worldwide, a catastrophe modeling firm, estimates that losses resulting from farmer claims for the crop insurance industry may exceed $13 billion with the potential to reach as high as $20 billion.

Although the 2012 growing season began on a very promising note it became clear by the end of June that the crop insurance industry was facing one of the worst agricultural droughts. By the end of July 2012, the area of the contiguous U.S. affected by severe to extreme drought increased to 42 percent, according to AIR. No relief has yet appeared on the horizon.

“AIR’s current estimate for this year’s crop insurance losses point to a gross loss ratio for the whole industry of 120-180 percent,” said Gerhard Zuba, senior principal scientist at AIR Worldwide. “After government recoveries, which are available through the standard reinsurance agreement between crop insurers and the government, the total responsibility for the insurance companies and their private reinsurers, net after accounting for premiums collected, will be about $1-$3 billion.”

Zuba went on to explain that the AIR model indicates crop yields, particularly corn and soy beans, as low as 40 percent below normal in some areas. These low yields and the expected shortage at harvest have already increased prices for these commodities: Corn prices have risen by 142 percent and soybeans by 138 percent, according to AIR.

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