The Feds are Endangering Future of Crop Insurance

Ten years ago, the Federal Multi-Peril Crop Insurance Program covered fewer than 100 million acres of U.S. farmland. That number has more than doubled since 1994, and today it is close to 220 million acres. This is significant compared to the early 1980s when the federal government sold the coverage directly. Farmers in some cases had to stand in line to purchase the coverage. As a result only a small percentage of American farmers had multi-peril crop insurance coverage.

Voicing concerns about the lack of participation and the cost to taxpayers, Congress held numerous hearings concerning the delivery of crop insurance by the federal government. In a wise move, Congress handed off the sales and servicing of the product to insurance agents, and outsourced the underwriting and claims handling to insurance companies. When the program was moved to the private sector close to 50 companies signed the Standard Reinsurance Agreement authorizing them to offer the Federal Crop Insurance Program. However, the number today has dropped below 15, and many industry experts predict it could become even smaller if the USDA does not reverse its mishandling of this program.

Last spring, the USDA Risk Management Agency’s negotiations of the 2005 Standard Reinsurance Agreement were nothing short of disastrous. Virtually everyone associated with the program felt betrayed.

However, without much concern the RMA played hardball with the industry and proceeded blindly forward. I predict the 2005 SRA that was put in place will create significant changes that are not in the best interest of the American farmer and will threaten the viability of the crop insurance program as we know it today. The financial reductions that have been made will first affect insurers and agents, and it will not take more than a few years to create severe problems for farmers who live in high risk or underserved areas.

Shortly after RMA’s mishandling of the 2005 SRA, a coalition of a dozen insurance companies filed a lawsuit in June 2004, alleging the USDA shortchanged them millions of dollars in federal reimbursement subsidies. That suit claims the government violated a 1998 contract that cost the collective group over $60 million in payments between 1979 and 2002. How can the RMA have a viable working relationship with business partners who feel compelled to sue to get what they rightfully have coming to them?

The biggest mishandling of the program was RMA’s rollout of a new product identified as the Premium Discount Program. The PDP was advanced by the RMA without virtually any public or industry input. The RMA approved PDP applications without utilizing appropriate procedures or published guidelines. The PDP concept simply is another way to reduce sale and servicing compensations to companies and agents by allowing companies that can operate below the federal reimbursement to offer discounted premiums to policyholders.

Yet the only way for a company to do this and remain profitable is to compromise some of the many important steps required in the delivery process. However, what makes the decision even harder to understand is its potential to encourage discriminatory sales tactics that will deny our nation’s small, average, or minority farmers the same access to the crop program. Why is that the case? PDP encourages companies and agents to cherry-pick by only selling to large and/or highly profitable farm accounts. RMA, much to the industry’s amazement, has no procedure, guidelines, or regulations in place for the delivery of PDP.

PDP should be withdrawn from the market until a formal rule-making process can be completed. Anything else is nothing short of an endorsement by RMA of discriminatory practices, which are prohibited by the Federal Civil Rights provisions of Title 42 of the U.S. Code.

It is time for the USDA to review the decisions that have so adversely affected the future success of the Federal Crop Insurance Program. Significant oversight by the USDA of the actions by RMA is long overdue, and the recent actions of the RMA must be reversed if we are to save the integrity of the most successful and important insurance program in the country.

Bob Skow, CPCU, CAE, is CEO of Independent Insurance Agents of Iowa and a former crop insurance agent.

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