The Hagstrom Report

Agriculture News As It Happens

Reaction mixed to crop insurance premium news

Is someone besides the Risk Management Agency and its administrator, Bill Murphy, responsible for the announcement Monday that RMA will update its methodology to set crop insurance premiums, leading to lower premiums for many corn and soybean producers in the 2012 crop year?

When Murphy made his announcement, he said RMA had contracted for a study by Sumaria Systems Inc., which examined premium rates and the rating process, and that an independent expert had conducted a peer review of the Sumaria study. The latest technology, weather, program performance information and updated data pertaining to prevented planting, replant payment, and quality adjustment loss experience, were all used in determining rates changes, Murphy added.

That sounds like a scientific process, but that didn’t stop a flurry of conflicting statements from farm and business groups and politicians about the matter.

The National Corn Growers Association praised USDA for the announcement, the Illinois Corn Gowers were dissatisfied, the Crop Insurance and Reinsurance Bureau was unenthusiastic, and Sen. Sherrod Brown, D-Ohio, claimed credit for the changes.
Garry Niemeyer
Garry Niemeyer, National Corn Growers Association
“NCGA has been working on this issue for more than eight years,” NCGA President Garry Niemeyer, a corn farmer from Auburn, Ill., said in a news release.

“We are pleased to hear our farmers will no longer be facing the continued widening gap between the loss for corn and the premiums charged to growers for policy coverage," Niemeyer said. "This is a day long coming.”

But even though RMA said the crop insurance rates for corn in Illinois would go down 12 percent, much more than the national average, the Illinois Corn Growers said the reduction was not enough. The new rate “more closely represents their risk, although still misses the mark on making sure that farmer and government investments stay out of corporate pockets,” the group said in a news release.
Jeff Scates
Jeff Scates, Illinois Corn Growers
“House Ag Committee Chairman Frank Lucas really complicated this process,” Illinois Corn Growers President Jeff Scates said the news release.

“His arbitrary objection to RMA’s established actuarial system, followed by obstructionary tactics aimed at politicizing an action that should have been an ordinary course of RMA business, meant that the re-rate did not correct farmer overpayment as much as it could have,” Scates said. “Lucas’ actions really demonstrate he isn’t interested in regional equity and what's best for family farmers.”

Lucas did send a letter to RMA on Oct. 26 saying that there had not been enough transparency in the process of determining the new rates, but it was also signed by House Agriculture ranking member Collin Peterson, D-Minn., and Reps. Michael Conaway, R-Texas, and Leonard Boswell, D-Iowa, the chairman and ranking member, respectively, of the subcommittee in charge of crop insurance.

Scates also revealed the conflict that has arisen between farmers and crop insurance companies in recent years.

“Our members do their due diligence to minimize claims. Obviously the goal each crop year is to farm the farm, not farm insurance programs,” Scates added. “Crop insurance companies, however, have farmed the premiums, knowing full well it will grow their profits rather than equal out to a zero-sum game as was intended.”

Murphy said Monday that the agency estimates the rate of return for the crop insurance companies will remain at 14 to 14.5 percent, but the Crop Insurance and Reinsurance Bureau (CIRB), whose members could potentially lose income from the newer rates, said it had concerns.

The national trade association, which represents crop insurance companies, reinsurance companies and other organizations involved in crop insurance, said in a news release that it “appreciates that the novel methodology proposed in August was not fully adopted.”

But the CIRB said it remains concerned about implementing certain rating adjustments in 2012 “at a time after providers have made business decisions for the upcoming crop year, have already submitted business plans to the Risk Management Agency for approval, and during the period in which providers are in the process of acquiring commercial reinsurance.”

“CIRB supports an actuarially sound crop insurance program and urges USDA to consider all consequences — technical, operational, and programmatic — in a transparent manner as it moves forward with any evaluation of additional rating methodology changes," the group said.
Sen. Sherrod Brown
Sen. Sherrod Brown, D-Ohio
Meanwhile, Brown said the announcement of the rate reduction followed “action” he and a bipartisan group of eight other senators took in the form of a Nov. 10 letter urging USDA to follow the recommendations of the study.

“Crop insurance is a critical risk management tool for Ohio farmers, but Midwest producers have been shouldering more than their fair share of the burden for too long,” Brown said.

“Beginning to update how crop insurance premiums are calculated is a huge win for Ohio farmers, but the USDA’s Risk Management Agency can and must do more," Brown said. "The recommendations of the independent study should be implemented promptly and in full.”

Murphy’s office did not return a call seeking comment.