The private crop insurance industry is blasting a crop insurance program proposal they say would cut $4 billion – or $800 million a year – over the next five years.
The proposal, by the U.S. Department of Agriculture and the Risk Management Agency (RMA), which manages the program, would also impose as much as $100 million in additional costs on private insurers, according to the National Crop Insurance Services, which represents the 15 insurers participating in the public-private cooperative program.
The cuts are included in a draft of the 2011 Standard Reinsurance Agreement (SRA) with the private insurance carriers.
“These are pretty dramatic cuts based on little or no supporting research and data,” said Bob Parkerson, president of NCIS. RMA says the new agreement would bring the administrative and operating (A&O) subsidy paid to insurers closer to actual delivery costs, while still providing carriers with a reasonable rate of return.
RMA reported that annual insurance industry payments have doubled from $1.8 billion in 2006 to an $3.8 billion in 2009 based on the terms of the existing SRA, while the policy total dropped from 1.3 million in 2000 to 1.1 million in 2008.
Out of the $4 billion cuts, $2.2 billion come from A&O, and $1.8 billion come from underwriting gains, according to the industry.
Private insurers and their agents have warned that the changes would reduce private insurers’ incentive to invest in the program and possibly force smaller carriers to exit the program.
“This is likely to lead to more consolidation among the already shrinking industry and cause many of the 18,000 jobs associated with this industry, many in rural America, to be lost,” said NCIS.
The A&O subsidy includes money for commissions to agents, who expressed concern over the effects on farmers’ access to the program. “Specifically targeting A&O… would make it very difficult for many agents to continue to serve farmers in ranchers in certain areas, as well as provide the essential services they do to the program,” the National Association of Crop Insurance Agents said.
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