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NASCOE suggests FSA offices take on crop insurance program

Congress could save up to $2.5 billion per year by taking the crop insurance program away from insurance companies and agents and turning it over to the Agriculture Department’s Farm Service Agency county offices, the National Association of FSA County Office Employees is telling members of Congress today.

If nothing else, Congress should at least save some money by turning over reporting work to the county offices, said the association, known as NASCOE, in an interview.

Shifting some crop insurance responsibilities to the county offices could save money, assure program integrity and provide an increased role for the county offices as other farm subsidies decline, said Mike Mayfield, a Tennessee county office employee who is the national legislative co-chair of NASCOE.

Transferring responsibility for certain reports that both the county offices and the crop insurance agents must prepare is a top priority, Mayfield said. But 200 NASCOE members from 45 states are also presenting members of Congress with a report outlining four options prepared by Informa Economics, a consulting firm, including one to give the entire crop insurance program to the FSA offices.

“If Congress deems they like the savings and want to give [the program] to us we’re not going to fight them,” said Dan Root, a Minnesota county employee who is the other NASCOE legislative co-chair.

The crop insurance industry is likely to fight at least some of the proposals, and NASCOE’s legislative fly-in is occurring just as crop insurance industry officials are traveling to Scottsdale, Ariz., for a week of meetings.

Bob Redding, the association’s Washington lobbyist, said the presence of the NASCOE members in Washington when the crop industry lobbyists are out of town was not planned.

Conflicts between the county offices and the crop insurance industry are not new.

The Franklin Roosevelt administration established the FSA the county offices in the 1930s to certify farmers as eligible for federal programs and to distribute subsidies. The Agriculture Department has combined some of the offices in recent years and the Obama administration has announced a proposal to merge offices that are less than 20 miles apart. There are 7,800 employees of the county offices and the state offices that oversee them who are members of NASCOE.

Many members of Congress have said that the system of crop insurance companies and agents has worked well because the agent commissions have encouraged the farmers to buy insurance. But Mayfield said he does not believe that salesmanship is necessary any longer because so many farm programs require that farmers sign up for crop insurance.

Crop insurance has been subsidized because each crop is produced in a fairly contiguous part of the country, making it difficult to spread risk and raising the possibility that a crop failure could bankrupt an insurance company.

The government started a crop insurance program in the 1930s and it was run by the county offices, but few farmers signed up. The subsidized program was revived beginning in 1980, with private companies writing the policies and agents selling the policies.

The program is popular but controversial because the cost of the insurance and the subsidies rise with the value of the crop. With crop prices projected to remain high, the Congressional Budget Office recently estimated that the crop insurance program will cost $8 billion to $9 billion per year over the next 10 years. The government pays about 65 percent of the cost of the program, including premium subsidies, delivery and underwriting gains for the companies.

Mayfield said NASCOE’s board realized last year that the direct payments program was unlikely to be continued, and that risk management was likely to be the centerpiece of the next farm bill. With that in mind, the group decided to “figure out where we fit in,” and hired Informa to conduct a study, which was completed in September.

While Informa said it would not judge whether the program should be changed or whether insurance company profits are too high, it provided four options:
  • If the county offices were to run the program, sell the policies and service them when a farmer experiences a loss, the government could save $1.9 billion to $2.5 billion, including $1.6 billion in underwriting gains and the agent commissions that the companies averaged over the five years ending in 2010.
  • If the county offices took over only the servicing of the policies, the cost savings would be $1.9 billion.
  • If the county offices took over only the sales of policies, the savings would be $323 million to $672 million.
  • A fourth option, for the companies to take over reporting, was also included, but Informa said data was not available to calculate how much that would save the government.
Under the current policy, the crop insurance companies pay the indemnities when there are losses. Under the most ambitious NASCOE option, the government would be responsible for the indemnities, which vary dramatically from year to year.

Crystal Carpenter, a senior consultant with Informa, said the study assumed that the government would continue premium subsidies to farmers, and that this money would be available to pay indemnities when losses occur. The study also assumed that county offices would retain their current number of employees but also incorporated the need to hire as many as two to five employees in each office if the offices were to take over the entire crop insurance program, Carpenter said.

NASCOE also maintains that giving the county offices a greater role in crop insurance would resolve the issue of some areas of the country not having insurance agents close by.

Some crop insurance executives have claimed that NASCOE is a union, but Redding said it is a trade association. NASCOE does not take positions on whether one farm program is good or bad, but only on how it is run, said Root.

Redding said that NASCOE has not presented the study to either USDA Risk Management Agency Administrator Bill Murphy, who runs the crop insurance program, or to acting Undersecretary for Farm and Foreign Agricultural Services Michael Scuse, who oversees RMA and FSA.

Locations of FSA Offices vs. Insurance Agents


2012_NASCOmap

Each insurance agent dot in red represents a city in which an agent is located. FSA office dots are green.

There may be more than one agent located per city, but only one dot is shown. (Source: RMA, FSA)