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Crop insurance may be in peril

By Staff | Jun 11, 2010

Iowa to be one of five hardest hit farm states

This week, the U.S. Department of Agriculture was scheduled to release its latest set of proposed regulations that will ultimately cut crop insurance funding by billions of dollars, leaving crop insurance agents with fewer resources. Crop insurance underpins a farm’s safety net.

The Crop Insurance Professionals Association LLC has suggested an alternate approach – one that involves lowering premiums across the board, leaving the crop insurance industry intact and avoiding doing any harm to growers.

CIPA noted that the USDA’s proposed new regulations will increase the workload of crop insurance agents by cutting billions of dollars to crop insurers, meaning agents who survive the cuts will have fewer resources to do more work.

Through the proposed 2011 Standard Reinsurance Agreement, the USDA has already proposed cutting $6.9 billion for crop insurance.

A new SRA proposal with billions of dollars in cuts to crop insurers was anticipated to be released by the USDA this week.

The USDA is rolling out a new “combo” crop insurance policy and a land ID program that will require new training and extensive new requirements for agents and growers.

A CIPA news release said the USDA should consider a less contentious path – one that would save taxpayers and farmers money without crippling the crop insurance infrastructure and harming growers.

In a May 25 letter to crop growers, CIPA said that the USDA could lower premium rates for all producers as a straightforward means of achieving savings in delivery costs while helping the producer. “It’s the proverbial win-win-win for farmers, taxpayers, and the program,” the letter said. “We believe that any savings achieved by the Department should do no harm to federal crop insurance. The savings ought to be deployed to the benefit of the farmer and rancher.”

Impact on Iowa

In a letter dated April 1 to the USDA, Jeff Bohrenkamp, of Spencer, president of the Independent Insurance Agents of Iowa, said the proposals appear to “impact Iowa disproportionately hard compared to the rest of the country.

Stating that Iowa is the leading state in crop insurance protection, small town agents depend on crop insurance policies as a key component for their business.”

Bohrenkamp pointed out that agents’ liability exposure has risen over the past few years resulting in their own errors and omissions coverage costs rising significantly.

“The margins that we operate with have narrowed with the slowdown of the economy,” the IIAI letter stated.

“Crop insurance is a labor-intensive product,” Bohrenkamp wrote to USDA, “which requires us agents to be in constant contact with our farm customers numerous times during the policy year. It is a complicated product to sell and to service.”

USDA is targeting 2006 as a year when delivery expenses were “reasonable” and sets compensation at 2006-level plus 25 percent.

“We wonder if any business can effectively operate in today’s economic climate (on) its 2006 expenses without significant curtailment in services,” Bohrenkamp wrote.

He went on to say that Iowa is one of five states in its risk/reward component of USDA’s new regulations for crop insurance.

“All of the other states see no similar reduction in potential gains or increase of losses,” Bohrenkamp wrote to Iowa’s former governor, Tom Vilsack, now U.S. Secretary of Agriculture. This change, Bohrenkamp concluded, would force companies to reconsider their crop insurance participation. If enough get out of the business, growers would have to go farther to find coverage.

USDA profiting?

Thus far, the USDA has declined to pursue CIPA’s farmer-friendly approach.

“The government has made more money on crop insurance in the last five years,” stated a May 27 statement in the Congress Daily AM, “an average of $856.1 million per year than the companies.”

For farmers’ sake, a CIPA paper statement maintains, the USDA should lower premiums rather than imposing devastating cuts to the crop insurance system.

During a May 17 House Ag Committee testimony by Texas farmer Dee Vaughan was recorded as saying that “Texas is an underserved region and there is concern that the problem will be compounded if the current negotiation of the Standard Reinsurance Agreement does not come to a favorable conclusion for all parties.

“[USDA cuts] would be particularly catastrophic for the state’s fruit and vegetable farmers. We depend solely on crop insurance for a safety net to make it through tough times.”

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