Minding Ag's Business

More Haircuts for Crop Insurance

By Marcia Zarley Taylor , DTN Executive Editor

President Obama's proposed 2014 budget released this week outlines five potential cuts in crop insurance subsidies. Altogether they'd trim an estimated $11.7 billion from crop insurance's federal budget over 10 years, with some targeted at raising the cost of producer premiums and others raising administrative costs of private insurers.

Former Risk Management Agency Administrator Ken Ackerman believes the moves "aim directly at farmers, sharply raising out-of-pocket costs for buying protection." In particular, revenue-based products with harvest price options could become much more expensive, if the changes are enacted.

"Congress will have to agree before any of these crop insurance cuts can go forward, and the issue likely will become enmeshed in the larger Farm Bill debate," Akerman added.

So far, Congress has shown little appetite for trimming a program that kept farmers and farm communities on even keel after the Great Drought of 2012.

On Tuesday, Rep. Mike Conaway (R-Texas) , a House Agriculture subcommittee chair, told the North American Agricultural Journalists that Congress will recognize previous haircuts crop insurance companies have taken since 2008--and that companies are still working through. "Food security is a national security issue," he argued, and the move away from direct payments and toward an insurance-based safety net is far superior to previous farm programs. Senate Ag Committee Chair Debbie Stabenow (D-Mich.) agreed."With crop insurance, a farmer has skin in the game. It's not like direct payments which pay whether the price is high or low," she added. Making sure that premiums are affordable is one of her priorities.

Below are the five cuts, as described by USDA in its 2014 Budget Summary::

1. Establish a reasonable rate of return to participating crop insurance companies.

A USDA commissioned study found that when compared to other private companies, crop insurance companies rate of return (ROR) should be around 12%, but that it is currently expected to be 14%. The Administration is proposing to lower the crop insurance companies' ROR to meet the 12% target. This proposal is expected to save about $1.2 billion over 10 years.

2. Reduce the reimbursable rate of administrative and operating expenses.

The current cap on administrative expenses to be paid to participating crop insurance companies is based on the 2010 premiums, which were among the highest ever. A more appropriate level for the cap would be based on 2006 premiums, neutralizing the spike in commodity prices over the last few years, but not harming the delivery system. The Administration, therefore, proposes setting the cap at $0.9 billion adjusted annually for inflation. This proposal is expected to save about $2.8 billion over 10 years.

3. Decrease the premium subsidy paid on behalf of producers by 3 percentage points.

The proposal would reduce the premium subsidy levels by 3 percentage points for those policies that are currently subsidized by more than 50%. This proposal is expected to save about $4.2 billion over 10 years.

4. Decrease the premium subsidy paid on behalf of producers by 2 percentage points on policies where the producer elects policies that provide protection against price increase.

This reduction is in addition to the 3 percentage point reduction on policies currently subsidized by more than 50 percent. These policies provide upward price protection which provides a higher indemnity if the commodity prices are higher at harvest time than when the policy was purchased. This proposal is expected to save about $3.2 billion over 10 years.

5. Reduce the premium rate on catastrophic coverage to better reflect historical performance. This proposal would require that USDA reset premium rates to more accurately reflect the performance of the catastrophic portfolio. The proposal is expected to save about $292 million over 10 years.

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ERIC BLASE 4/24/2013 | 10:09 PM CDT
Bill you could start by leading by example. You claim that you are a multimillionaire. So to the person that makes 30k a year and hears you spewing all of this negative rhetoric about what the current govt policies are probably does not think too much of you either---considering you are a recipient of those policies. So it would only seem like the right thing to do in this dire situation bill is either quit cashing the checks that they send you or your corp, or run for congress and try and change it. At least you could try and be more positive about the industry that you make your living from and represent. Farming is the greatest occupation in the world in my opinion, and it is down right depressing to listening to such negativity considering that we are so far away from the original topic. God bless America
unknown Doe 4/18/2013 | 7:24 AM CDT
Jarrod, you must have been eating too much at Subway, cause your full of bologne! 50-60 hrs/week? Let's see, how many ins agents can even give a price quote till the end of Feb when the prices are set? Basically, you can talk and give a "estimate" of what it's gonna cost starting around Feb 1, but until March 1 nobody knows what the price is. After March 15 what is there to do, but count your money coming in later? Agents spend about 1-1 1/2 hrs showing customers their options before March 15, after that it's up to the customer to decide his options. After that you might have an hour or so, pending how many acres your customer has, putting the 578's into duplication. And when is that? Once the crops are planted and certified, mid summer! Then you have the customer report yields, once again about an hour of paperwork, once again, pending on how big your customer is. Also the bigger customer, the more commission you make. Which is 14, up to 16%, for the company, pending on how many agencies combine all their policies and turn them into the govt to get bigger commissions! Your commission is probably around 8-10% of that 14% for a couple hrs work a year, per customer! Oh yeah, did I forget that we know you get paid commission on also the govt subsidy? So if my premium on 1000 acres is roughly $20,000, the total turned into the govt is roughly $40,000, The company you work for roughly gets $5600, and you make what, $500 for a couple hrs work? That's almost lawyer fees!
Also, if your company promotes production hail, that's bonus money for the agent! But I guess the ins agents went to school for 4-5 years to get a college degree to make this kind of money. I agree, the crop ins industry needs a change, first one being is to cut the commission on the agents!
Aaron Cross 4/12/2013 | 4:46 PM CDT
Excuse me the exact number is $ 60,997.31 that I have been paid over the last 14 years. However Bill, a search for Billson turned up no results. I must assume you are incorporated and that is why.
KEITH PEARSON 4/12/2013 | 4:44 PM CDT
I have 2 comment`s Jarrod don`t let these guys get the best of you they`re just jealous of us farmers & ins. agents. The 2nd one is these guys are only chirping because they did`nt have crop ins last year & now they are broke & they feel rest of us are to blame for there stupidity
Aaron Cross 4/12/2013 | 4:10 PM CDT
Bill and Steve, 99% of the farmers I know in Western Kansas would rather deal with a crop insurance agent than the FSA. I used to be a crop adjuster and know quite a few farmers. As for my EWG data, I think since I started ranching around 14 years ago I have collected maybe $60,000 total or $4300 dollars a year. That is mostly conservation money. But then again I am a small rancher and only operate 640 acres. I asked my crop insurance agent what she got paid commision wise, and she said it was around 8%. And that different states vary according to risk, therefore an agent in Iowa could earn the 14% you say while a kansas agent will only earn 8%.
Jarrod Bennett 4/12/2013 | 3:43 PM CDT
Steve, you too must have a lousy agent. I will begin by answering your question. I earned roughly 9-10% commission last year, the final numbers aren't in yet, but hardly the 14% you claim. I coordinate one-on-one meetings on the farm with clients, quarterly roughly,where we make decisions and complete any documents that are coming due. We then forward that information to FSA, and in coming years (which I'm sure you don't know about), that information will electronically flow to the FSA, after we submit it to the reinsurance companies. I would suggest you begin hunting a new agent for next year who "earns" his wages. I'm insulted by your comments and will refrain from insulting you in return, sir.
Steve Carney 4/12/2013 | 2:21 PM CDT
Bill is right. Crop Insurance agents are grossly overpaid for the small amount of typing they do. A farmer fills out his 578 seeding form and takes it to the FSA office and then takes the exact form to his agent. Duplication!! Jarrod must have too many clients or else be inept at his job to take 50 60 hour weeks to do it. I feel that 14% of the premium is excessive. I have tried to find out what the agents in my area make under the Freedom of Information Act(FOIA) and the Risk Management people in DC say they only keep track by states. I feel that taxpayers should be able to know exactly what Jarrod and other individual agents make. Jarrod what do you gross from selling crop insurance? Why not let the farmer decide whether they want crop insurance through the FSA and there administrative costs or through the private insurance agent and there current fee. I would bet the the private agents would lower there fee or else risk losing lots of business. Aaron, as for SURE, it takes a year to comply the necessary data to figure the correct amount. Don't worry, it will not be in the next farm program.
Bill Billson 4/12/2013 | 1:39 PM CDT
I will be the first to admit that I am a multimillionaire and receive welfare via DCP, SURE and crop insurance.

Why not save hard working honest wage earners some money by letting FSA administer crop insurance? Who cares if it takes longer to sign up??? When I receive thousands in subidies I dont deserve I can wait. Same with SURE payments I get for years I did well anyway.

Aaron you need to share your SURE frustrations with the general public and let me know how much sympathy you get. Better yet tell them to go to ewg.org and search your name so they can see how poor you must be based on your welfare levels. We farmers cant stop feeling sorry for ourselves! Lol
Aaron Cross 4/12/2013 | 1:00 PM CDT
Exactly right Jarrod, but you did forget to mention how far behind the FSA is in payouts for the SURE program 2 years behind I believe? And Lon, would it suprise anyone if you are still spouting EWG rhetoric and slanting the facts of the matter? I don't think so. . . Good article Marcia!
Jarrod Bennett 4/12/2013 | 11:55 AM CDT
Bill, I respectfully disagree with you on all points sir. You must have a lousy agent, because I work about 50 weeks a year, averaging around 60hrs a week. My clients prefer to report information to me first and then I submit that information to FSA on their behalf. Our agency works with with growers in roughly 100 different counties. A large majority of our growers complain about their interaction with FSA, not applaud it, so I doubt the service would be better. I am not an overpaid government employee sir. I work hard, as I assume you do, and I make a decent living for my family. Is it fair for me to say you serve no purpose other than collecting government subsidies for only a month or two of work? No, its not Bill. Its not.
Ric Ohge 4/12/2013 | 10:15 AM CDT
The F-35...a $trillion+ and still in "production and testing"[!?]
Bill Billson 4/12/2013 | 8:33 AM CDT
Crop insurance agents are the most overpaid of all federal employees and it is high time their wages were cut! The agents hate to admit they are federal employees cuz they dont want to be lumped in with our gov spending problems.

In reality FSA could administer at a much lower cost to taxpayers than the agents. Farmers would be fine with the service if it lowers their premium and/or lowers the bill for the taxpayers. Agents serve no purpose other than collecting huge government checks fora month of work......dial up THE FLEECING OF AMERICA!
Lon Truly 4/12/2013 | 6:50 AM CDT
I guess that the so called living and breathing constitution has now morphed into a document that routinely provides for guaranteed investments and perpetual prosperity for the growers of the select government approved crops. This of course would have nothing to do with what the growers of these select crops would be willing to pay for the inputs for growing these crops. And by the way just because the government is spending taxpayers dollars insanely in other countless ways is no excuse to continue to flush billions down crop insurance bottomless pits with nearly limitless government investment/profit guarantees. Crop insurance that covers land rental costs equals a profit or investment guarantee for many farmers as in many cases the only major land expense many farmers have is real estate taxes.