(SCOTTSDALE, Ariz.) — Now that a new Farm Bill has been approved and crop insurance has emerged as the lynchpin of the farm safety net, the USDA’s Risk Management Agency (RMA) is focused on quickly implementing the new law

RMA Administrator Brandon Willis, who spoke today at the crop insurance industry’s annual convention, said cooperation between the agency and crop insurers would be essential during implementation.

“There is not an agency that I would rather implement a Farm Bill with than the team that we have at the Risk Management Agency. I have a high degree of confidence that the staff we have there will get this done right,” he said. “Throughout the process, we will work with our [private sector] partners, because I know you bring valuable experience…and a perspective that we don’t have,” he said.

Willis noted that the administration would prioritize implementation based on those programs that affect the most growers. He specifically mentioned ensuring a 2015 signup for the STAX program that provides enhanced insurance protection for cotton farmers and the new Supplemental Coverage Option for growers of other crops.

He also complimented crop insurers for their service record following the historic 2012 drought and for their hard work when the government was shut down earlier this year. But, he cautioned the industry not to rest on past successes.

Constantly improving crop insurance availability, program integrity, and communicating with farmers and the general public should be top goals of both the industry and RMA moving forward, he said.

With an eye to constant improvements, Willis believes the future is strong.

“There is one simple reason why crop insurance has lasted for over 75 years while other programs have come and gone,” he concluded. “It’s because it makes sense…for consumers, for taxpayers, and for farmers.”

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(OVERLAND PARK, Kan.) — Critics who said that farmers who purchased crop insurance were “praying for drought, not praying for rain” or were “laughing all the way to the bank” during last summer’s historic drought were strongly rebuked by farmers, crop insurance agents and claims adjusters in a new video released today by National Crop Insurance Services (NCIS).

Marvin Andris, a farmer from Milford, Illinois, responded to Environmental Working Group’s accusations, noting that their comments underscored how little they know about farmers. “They obviously haven’t brushed shoulders with any farmer,” he said. Andris said he didn’t know a single farmer who farmed for an insurance check. “We’re into this because we want to raise crops, and the more bountiful, the more excited we become,” he said.

“I certainly don’t see anybody, as far as I know, that is seriously farming looking for a drought, and looking for a crop insurance check,” said Ben Hanawa, a field claims adjuster from San Benito, Texas. He explained that crop insurance can help you make it through a bad year, “but it certainly is no way to make a living.”

David Finch, a claims adjuster from Tulia, Texas, noted that charges that farmers are happy to incur losses demonstrated both a misunderstanding of the nature of farmers and how crop insurance works. “I’ve never heard of anybody or talked or visited with any farmer who would rather have an insurance check than he would have a good crop that he could bank on his own,” he said. “It’s a matter of pride.”

Robert Geddes, a farmer from Hoopeston, Illinois, explained that crop insurance is not any different than other forms of insurance that consumers buy on a daily basis, like homeowner’s insurance or car insurance. “You don’t buy insurance on your car with idea of going out and having a wreck,” he said. “It’s to take care of [you], when things truly go against you.”

Todd Harris, an insurance agent from Rossville, Illinois, explained that most of the farmers in that part of the state have never had a claim of this nature. “All you got to do is be a mathematician, really, to figure out if you’d be better with a claim, or a crop,” he said. Harris noted “if you ask that question of a farmer, they’ll laugh at you.” That’s because farmers make far more from a good crop than an insurance claim, he explained.

These were not the only misrepresentations farm policy critics made during last year’s historic drought. Claims were made that indemnity payments for the drought would range from $20 billion to $40 billion. The Congressional Budget Office noted earlier this month that 2012 indemnity payments will be closer to $16 billion.

Those same critics also led people to believe that taxpayers would be responsible for nearly all crop insurance payments to farmers, which is another fallacy. Final program costs will reflect the $4.1 billion in premiums farmers paid to purchase insurance policies, losses by private crop insurance companies, as well as government investment.

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(INDIAN WELLS, Calif.) — Crop insurance indemnity payments associated with the historic 2012 drought hit a record $14.2 billion Monday and will continue to climb as insurers work to finalize the remaining claims. But according to projections released last week by the Congressional Budget Office (CBO), total indemnities and the taxpayer-funded portion of those losses, will be much lower than crop insurance critics warned last summer.

CBO predicted $16 billion in expected indemnities as a result of last year’s catastrophic weather; however, CBO foresees a sharp decline in indemnities in 2013 with a return to more normal weather conditions. Since August, the CBO has lowered its projections for total federal outlays for crop insurance by nearly $8 billion over the next 10 years.

This stands in sharp contrast to the wild claims made last summer by crop insurance opponents who were angling to weaken farmers’ most important risk management tool. Academics and think tanks with an anti-farm-policy agenda supplied the media with sloppy estimates ranging from more than $20 billion to $40 billion in total indemnities.

Critics also led people to believe that taxpayers would be on the hook for nearly all crop insurance payments to farmers, which is another fallacy. Final program costs will reflect the $4.1 billion in premiums farmers paid to purchase insurance policies, losses by private crop insurance companies, as well as government investment.

The previous indemnity record of $10.8 billion was set to cover flooding in the Midwest and drought losses in the Southern Plains during 2011.

“The ability of the crop insurance industry to sustain back-to-back insured losses exceeding $10 billion, as it has done in 2011 and 2012, is a testament to the sound financial underpinning of the public-private partnership,” said Tom Zacharias, president of National Crop Insurance Services, a trade association representing crop insurers. “More importantly, unlike natural disasters before the emergence of crop insurance, all of the cost is not falling on the laps of taxpayers.”

Zacharias explained that before crop insurance became such an affordable and widely available tool, natural disasters like last year’s drought would have triggered costly ad hoc disaster bills, fully funded by taxpayers. Forty-two such agriculture disaster bills have cost taxpayers $70 billion since 1989, according to the Congressional Research Service.

“In addition to reducing taxpayer risk exposure, crop insurance receives high marks from those who buy it – our farmer customers – because of its efficiency and speed of delivery,” said Zacharias. “Farmers will use their indemnities to recover from their loss and then plan for next year’s crop,” he said.

By comparison, the recent Hurricane Sandy disaster assistance bill took three months to be signed into law. Relief payments to the victims, authorized by that legislation, have yet to be delivered.

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(Indian Wells, California) – “An investment in crop insurance is an investment in America’s economy,” Brandon Willis, the acting administrator to the USDA’s Risk Management Agency, said today at the 2013 crop insurance industry conference. He challenged the group of crop insurers and farm leaders to take that message to the general public, which he said, “benefits greatly from the crop insurance program.”

For example, Willis explained that agriculture is key to our nation’s future and that crop insurance underpins its success.

“If having a food supply is in our nation’s interest…we need the best and brightest to be engaged in agriculture, providing that food for us,” he explained. “Without crop insurance we will not get the best and brightest back on our farms.” The reason, he told the group, is because of the high risk and intensive capital involved in farming. Willis also noted that, thanks to agriculture, “American families pay less for food at the grocery store than people in any other nation.” And the sector is also a major employer, with more than 1 million U.S. jobs tied to agricultural exports alone.

In addition, Willis believes that crop insurance’s success during the historic drought of 2012 should be touted.

“The lack of calls for disaster assistance speaks volumes to the effectiveness of the crop insurance program,” he said, noting that prior to crop insurance’s rise in popularity taxpayers were footing the bill for billions in costly ad hoc disaster programs.

Since the last major drought in 1988, Willis said the amount of insurable farm acreage covered by insurance has risen from 25 percent to 85 percent for corn, soybeans and wheat, 80 percent for rice, and 90 percent for cotton.

Since just 1998, 100 million more acres are enrolled in crop insurance and protects 30 additional crops.

Greg Burger, NAU Country (retired), was presented with a 2013 Crop Insurance Industry Lifetime Achievement Award at the 2013 Crop Insurance Industry Annual Convention.

Greg Burger’s first job in 1964 was a contract adjuster, at the young age of 17. He continued in this role for 13 years when, in 1977, he became a full-time employee of North Central Crop Hail (NCCH) as the Office Manager in Eau Claire.

In 1979 and 1980 NCCH started working with FCIC led by Jim Deal to develop the present MPCI program. NCCH was against it at first because it felt that the government should not interfere with the private sector. As time evolved its position changed and in 1981 they entered the MPCI business.

One of Greg’s first duties for the Industry was to serve on a subcommittee for National Crop Insurance Association (NCIA), predecessor to NCIS, to rewrite the FCIC loss instructions and forms in an Industry format. One of the first committees he served on was the Research & Development Committee of the Crop Hail Insurance Actuarial Association (CHIAA), another predecessor to NCIS, which analyzed crop hail rating and underwriting forms.

Greg became a member of the NCIS Board of Directors in February 1989, representing North Central Crop Insurance. During his tenure he served as both Chairman and Vice-Chairman and dedicated much time and effort to ensuring the “voice of crop insurance” was well represented in Congress and throughout the Industry.

Greg later joined the staff of NAU Country and was proud to be part of its growth.

Photo Caption: (left to right) Greg Deal, NAU Country, Greg Burger, Tom Zacharias, President, National Crop Insurance Services.

(Overland Park, Kan.) — With the fate of the 2012 Farm Bill still in question and the worst drought in decades fresh in people’s minds, the Crop Insurance Industry is announcing a new website that will serve as a focal point for groups to show their support for crop insurance.

“Crop insurance has grown to become the most important tool farmers and ranchers have to manage risk,” noted Tom Zacharias, NCIS president. “As the Farm Bill continues to be discussed, there’s no better time than the present to show your support for this critical risk management tool,” he said.

The website (www.SupportCropInsurance.org) will serve as a platform allowing organizations, farmers, agents, small businesses and others to sign an open letter to Congress in support of crop insurance. The letter is similar to one that was sent to Congress earlier this summer from major farm and commodity organizations.

Support for crop insurance is especially strong in rural America after this historic drought. A new video released today by NCIS focuses on the overall training and role adjusters play in getting crop insurance claims processed efficiently and accurately. Adjusters have already processed more than 137,000 claims so far this year, resulting in more than $2 billion worth of indemnity payments reaching farmers in need.

“Crop insurance is a safety net, just like buying insurance for your house,” said David Finch, a claims adjuster from Tulia, Texas, in the video. “It may burn down some day and it may not,” he explained. “But if you don’t buy crop insurance, you better have a good banker.”

 

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(OVERLAND PARK, Kan.) — As the House Agriculture Subcommittee on General Farm Commodities and Risk Management prepares to hold a hearing later this week, National Crop Insurance Services (NCIS) today released the second in an ongoing series of educational videos on crop insurance. This video puts a sharp focus on the risk that Texas farmers – who received roughly one-quarter of all indemnities in 2011 – faced in last year’s historic and ongoing drought.

The video, titled “2011 Southwest Case Study,” contains an overview of the catastrophic drought by NCIS President Tom Zacharias, highlighting the extent of the damage throughout the state and the role crop insurance played in mitigating that damage. Additionally, two Texans were interviewed to better explain farmers’ ability to survive the drought and bounce back to plant again in 2012.

Rick Boyd, a banker with First United Bank in Lubbock, explains that many banks require farmers to purchase crop insurance to secure their loans. Boyd noted that if it wasn’t for crop insurance, any Texas farmers might not be back in their fields planting again this year. “2011 was such that, with the insurance, we did not have any farmers that actually went out of business, and over 90 percent of our customers had to draw on their insurance claims,” he said. “The programs were in place that allowed them, not to make a profit, but to actually get a lot of their expense money back and that was enough to enable them to get financing for the upcoming year,” he added.

Texas farmer and rancher Matt Huie notes that while 2011 started out hopeful, his crops and pastures eventually withered away and he was eventually forced to import hay from out of state to feed his cattle. “What we learned from the drought of 2011 is that good policy can create survivors in an industry that otherwise would have no survivors,” he adds.

2011 crop insurance indemnities have surpassed $10.7 billion and continue to rise. “The fact that there has not been a single call for disaster assistance from farmers – despite the fact that we just endured one of the worst weather years in history – is proof perfect that crop insurance is a smart, cost effective policy for taxpayers and critical risk management tool for farmers,” said Zacharias.

To watch the video, please visit: http://youtu.be/0bU_WNTEVks.

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FOR IMMEDIATE RELEASE
February 14, 2012

(SCOTTSDALE, Ariz.) — Commenting that while her reign as Miss America has ended, her passion for agriculture continues on, Miss America 2011, Teresa Scanlan, addressed the annual meeting of the crop insurance industry today and assured attendees that her heart still remains in rural America.

“This is one of my first appearances ‘post-crown,’ and I have to say, it’s so nice to feel like I’m still a part of the farming community,” Scanlan told the group. “Agriculture really has been one of my favorite groups to work with… I mean, why else would I agree to spend Valentine’s Day with you?”

Scanlan became a favorite daughter of rural America when she made defense of modern- day agriculture one of her public platforms. Raised in Gering, Neb., Scanlan told the group she knows how important agriculture is to this country’s economy and security, and how devastating natural disasters can be to farming communities.

Scanlan, who did not grow up on a farm, said she learned a lot amount about crop insurance this past year while traveling the country, meeting with farmers and lawmakers.

“The fact that growers will be able to plant again this year after the record floods, droughts and freezes of last year shouldn’t be taken for granted,” she said.

As for the ongoing Farm Bill discussions, she gave some perspective about where she thinks agriculture and crop insurance should fit into tight federal budgets.

“I may not know much about the federal budget, but I do know that in my family, food is the first priority, and the last thing that would ever be cut from our budget,” she said.

“And if American families think that way, shouldn’t the American government take that into consideration?” NCIS is a not-for-profit trade association whose members include every crop insurance company that participates in the Federal crop insurance program. NCIS and its predecessor organizations have provided members support in their crop insurance businesses since 1915. NCIS is also a licensed advisory organization and statistical agent for the crop insurance industry and assists the industry in meeting its state regulatory requirements.

FOR IMMEDIATE RELEASE
January 24, 2011

OVERLAND PARK, Kansas – January 24, 2011 – The private insurance industry supports USDA’s decision to implement a good performance‐based program for famers.

“The Good Performance Refund (GPR) program has its merits, and we were pleased to see the savings resulting from the renegotiation of the 2011 Standard Reinsurance Agreement reinvested into the program” said Tom Zacharias, President of National Crop Insurance Services, a trade association representing the private crop insurance companies. “However, it would have been preferable to have more time to evaluate the proposal and provide effective input.”

One of the major concerns is that the industry is not being effectively utilized in the delivery of the proposed initiative. The public/private partnership has worked for over three decades to deliver a program characterized by high levels of participation.

“Farmers will logically turn to their agents first if they have questions about their refund,” said Zacharias. “It is unfortunate that the private companies and their agents are not directly in the loop for this initiative.”

Despite their reservations with the Good Performance Refund proposal, the industry encourages USDA to continue implementation for those who deserve this economic benefit.

“With market volatility and rising input costs, it’s important for RMA to push forward with this program,” said Zacharias. “We do hope that following the 2011 implementation of the GPR concept RMA will re‐evaluate the program and include its delivery partners in the process.”

FOR IMMEDIATE RELEASE
July 22, 2010

Mr. Chairman, Mr. Ranking Member and other Members of the Subcommittee, thank you for inviting the National Crop Insurance Services to appear at today’s hearing to discuss the Standard Reinsurance Agreement (SRA) and its implications for the future of the crop insurance industry.  I will briefly describe the role of NCIS and the approved insurance providers (the companies) in the negotiations of the 2011 SRA, identify some key issues of agreement and controversy, and conclude with an assessment of why the new SRA, combined with other factors, raise serious concerns for the crop insurance industry as it moves ahead, striving to provide the best in risk management service to America’s agricultural producers.

The Function of NCIS in the Crop Insurance Industry

NCIS is a not-for-profit trade association whose members include every crop insurance company that participates in the Federal crop insurance program.  NCIS and its predecessor organizations have provided members support in their crop insurance businesses since 1915.  NCIS has worked actively with the Risk Management Agency (RMA) as an approved contractor and with the Board of the Federal Crop Insurance Corporation (FCIC) as an expert reviewer.

NCIS is also a licensed advisory organization and statistical agent for private Crop-Hail insurance in forty-nine of the fifty states, and it assists the crop insurance industry in meeting the regulatory requirements of these states.  This is accomplished by filing the appropriate policy forms and statistical information with state insurance departments.  Further, NCIS serves as a liaison with individual state insurance departments through active participation with the National Association of Insurance Commissioners (NAIC).

In 2009, NCIS member companies wrote nearly $9 billion in Federal multiple peril crop insurance and related revenue products premium and $620 million in private Crop-Hail insurance products premium.  The potential liability between both programs was approximately $105 billion.  NCIS member companies service policies that encompass all farmers participating in the federal and private programs, including limited resource and socially disadvantaged farmers.  In partnership with the Federal government, our participating member companies comprise the safety net that equitably provides the preeminent risk management program to America’s farmers.
Role of NCIS and the Companies in the SRA Negotiations

NCIS began preparations for the new SRA early in 2008 by engaging company leaders on the future of the industry.  By early 2009, after being advised by the administration that the 2005 SRA was unlikely to be renewed for the 2011 reinsurance year, NCIS and all 16 companies that deliver the Federal crop insurance program to America’s farmers met and initiated a specific plan for negotiating the new SRA.  NCIS organized five working groups, chaired by and consisting of representatives from all 16 crop insurance companies.  The working groups addressed five subject areas:  financial provisions, the Plan of Operations, information technology and data, quality standards and controls and education and training.   The working groups met beginning last spring, reviewing the performance of the 2005 SRA and developing recommendations for the 2011 SRA.

In September 2009, RMA notified Congress that the 2005 SRA would not be renewed.  In October 2009, in response to RMA’s request for SRA proposals from the industry, NCIS submitted formal recommendations for the 2011 SRA on behalf of its member companies and reflecting the efforts of the working groups.  Since December 2009 when RMA released the first SRA draft until mid-July 2010, when the 2011 SRA went into effect, NCIS and the companies held frequent meetings with RMA and provided substantial written comments to RMA on the first and second drafts.  NCIS also organized a technical, legal review of the final SRA conducted by NCIS and company attorneys.  Throughout the process, NCIS was very aware of antitrust issues and worked closely with USDA’s Office of General Counsel, RMA leadership, industry leadership and third party legal counsel to ensure the negotiations were conducted properly.  On behalf of the industry, we thank Members of Congress for including language in the 2008 Farm Bill that ensured the companies could confer with one another and with RMA in developing the new SRA.

NCIS and its member companies organized and carried out their activities with the primary objective of negotiating transparently and in good faith.  Among our objectives was a new agreement that ensures effective service to producers, safeguards taxpayers’ interests, and provides an opportunity for the insurance companies to earn a reasonable return relative to other lines of insurance, accounting for their relative risks.  Unfortunately, the final agreement may put all these objectives at risk.

The Negotiations:  Substantive Issues but a Predetermined Outcome

The first draft of the SRA released in December 2009 set an ominous tone for the negotiations.  The first draft was a significant overreach by the administration.  The administration proposed an unprecedented and potentially very damaging reduction of $8.4 billion over 10 years in program funding.  They proposed an inflexible formula for calculating administrative and operating (A&O) expense payments to the companies that would have used a proxy measure of premiums based on fixed “reference prices.”  These reference prices were sharply below policy prices and would never change.  The first draft replaced the Assigned Risk Fund with a “Residual Fund” that would have enabled companies writing bad business to shift their risks to other companies.  The first draft’s reinsurance terms created separate gain and loss provisions for four different groups of states; groupings that had little apparent rationalization.  The reinsurance terms sharply reduced potential gains while also reducing potential losses, in effect shifting risk to taxpayers and crowding out private reinsurance.  Moreover, the administration proposed increasing the net book quota share—its tax on underwriting gains—from 5% to 10%.  Crop insurance companies are in the business of taking on and managing risks, but the administration wanted to take over risks and the potential for gains as well, moving away from the Federal Crop Insurance Act’s reliance on private industry and exposing the taxpayer to greater losses in bad years.

I will not belabor the industry’s position at the beginning of the process, beyond saying that the administration’s first-draft overreach was so great that subsequent concessions by them would still leave the companies at a serious disadvantage.  Clearly, the 2011 SRA was a budget-driven process that took full advantage of the companies’ short-term inability to exit the program.  Congress authorized a negotiation in the 2008 Farm Bill presumably with the idea that it be open and balanced.  But, the administration had a budget cutting target and simply staked out an extreme position to the right of it, knowing full well that, in the end, the companies had no choice but to accept the final outcome.

In the second and third drafts of the 2011 SRA, the gap between the administration’s proposals and the companies’ proposals narrowed.  The reference price concept was thrown out, the Residual Fund concept was dropped, the number of state groups for reinsurance terms was reduced from four to two (the first group includes the Corn Belt states of Iowa, Illinois, Indiana, Minnesota, and Nebraska and the second comprises all other states), and the reinsurance terms were improved for the companies.  There were a number of concepts that companies and the administration could agree upon.  Both sides wanted to address the concern that A&O payments could unnecessarily shoot up when there are market price spikes, such as occurred in 2008.   Both sides agreed that reinsurance gain and loss provisions should be made more profitable for the lowest return states and reduced for the highest return states.  This “rebalancing” of returns would help companies cover costs and hopefully earn a small underwriting profit in the low return states.

Unfortunately, the final 2011 SRA fails to achieve a fair balance among these shared concepts.  The final draft has been signed by the 16 companies, but that hardly means the companies think things are satisfactory.  Here are a few of the glaring issues with the 2011 SRA:

• The size of the overall funding cut remains unsupported and represents a decided risk to the companies.  The administration premised its budget-cutting objective on two RMA-funded studies (contracted to Milliman, Inc.) on the companies’ rate of return on equity.  The flaws in this approach are legion.  First, the administration never provided an explanation of how the Milliman results were utilized to determine the final gain and loss provisions for reinsurance.  Second, the Milliman studies are rebuttable on numerous grounds.  Milliman estimated the equity of crop insurance firms using a model that did not take account actual firm equity and crop insurance regulatory requirements for equity, thus producing unverifiable estimates of industry equity; they failed to consider reinsurance and actual A&O costs; and they did not include a long enough period of time to adequately account for the potential for catastrophic loss.  The administration repeatedly defended its proposals in public based on the returns to companies since 2006, a period that included an unusually rare spike in crop prices and the two lowest loss ratio years in the history of the program dating to 1981.  Arguing for steep budget cuts based on unusual circumstances clearly is not a sound actuarial basis for determining expected future returns and establishing sound policy.  The administration appears to be betting that the program’s good performance in recent years will continue.  The insurance companies have to go along for the ride, but they may have no seat belt on.
• The A&O cap used by the administration in the final SRA is preferable to the use of fixed reference prices; however, RMA’s change in approach does not mask the reality that the A&O cuts remain large coming on top of the A&O funding reductions of the 2008 Farm Bill.  RMA’s own assessment shows A&O cuts of $220 million per year during 2011-2015.  These A&O cuts are being imposed oblivious to the payment delays that will occur in 2012.  As a result of a 2008 Farm Bill budget mechanism, companies will have to wait up to 9 months to receive payments from RMA to fund their businesses.  Operating costs must be paid and companies will have to borrow in difficult credit markets to meet payrolls.  Moreover the new A&O reductions were determined before RMA has completed its study of agent costs of delivery.  RMA agreed with recent GAO findings that a study of agent business costs was necessary to fully understand total delivery expenses and to judge the appropriate level of delivery payments to companies and agents.  In this case, there were insufficient facts to influence a predetermined budget cut.
• The 2011 SRA implements soft and hard caps on the companies’ compensation of agents.  These caps were not proposed by NCIS in its initial recommendations to RMA last October and were not proposed in any comments submitted to RMA on the SRA drafts.  The soft cap, which restricts agent compensation to 80% of the A&O a company receives in a state, first appeared in the second draft SRA.  However, the hard cap, which restricts agent compensation plus profit sharing to 100% of the A&O a company receives in a state, was presented in the final SRA—without the opportunity to comment by the companies.  These A&O provisions are fraught with competitive issues and administrative problems.
• A major problem is that RMA will not know the overall limit on A&O payments until the year is over.  Companies must pay their agents for their work before the year is over.  How will companies know what 80% of their A&O payments are when they won’t know what their total payments will be until the year is over?
• Another critical issue is the definition of compensation.  NCIS has agreed to work with RMA to define agent compensation in a clear way so that companies will be able to implement the caps without being out of compliance.  It is obvious at this point that the caps on agent compensation could easily be violated quite unintentionally by companies that are assiduously trying to stay within the caps.  Penalties for noncompliance may be severe.  We recommend that Congress keep abreast of this issue and help ensure that RMA shows forbearance for unintentional violations.
• Finally, many of our member companies have raised concerns over the impact of the caps on agents.  They fear that agents may shift from one company to another to chase the prospect of better profit sharing.  They fear that the compensation caps could lead to consolidation and reduced service, especially for smaller farm operations that have lower premium volume.  We recommend that Congress monitor closely the structural changes that may take place among agents and companies as a result of the change in A&O payments and agent commission caps.
• The final gain/loss provisions and A&O reductions combined are expected to reduce returns well below historical levels in the Corn Belt states.  In addition, the changes in prospective net returns in other states do not reflect their loss experiences.  The administration rejected the industry’s recommendation that higher return states that were not put into Group 1(Corn Belt)  be given less favorable reinsurance terms than the underserved states.  Preliminary NCIS analysis indicates that had the 2011 SRA been in effect for 2009, the Group 1 states would have had a combined reduction in A&O payments and underwriting gains of nearly 25%.  The remaining states, while seeing an increase in underwriting gains, would still have faced a collective decline of around 6% in A&O payments and underwriting gains combined.  It is unclear how such a decline in returns is going to increase incentives for companies to operate and improve service in low return states, as the administration claims.

In addition to the problems just identified with the key financial terms of the 2011 SRA, the SRA imposes a range of administrative requirements on the companies.  Many people do not realize that the SRA encompasses hundreds of pages of IT, data reporting (such as common land units and FSA data reconciliation), training and quality control requirements (such as large claim reviews).  These regulatory burdens continue to escalate.  For example, the Crop Insurance Handbook for the 2011 SRA, which specifies the requirements to write crop insurance, is now 834 pages long, compared with 525 for the 2005 SRA.  Appendix III of the 2011 SRA, which specifies information and reporting requirements, is 826 pages, compared with 205 pages for the 2005 SRA.  In addition to these SRA requirements, FCIC continues to approve new products and revise and expand existing products, all of which demand increased servicing by the companies.  For example, between 2000 and 2009, there have been 37 introductions of new crop or insurance plans.

The 2011 SRA:  A Yellow Flag that Augurs for Policy Caution over the Next Several Years

As the industry looks ahead, we can find little security in the developments of the past two years and the economic prospects before us.  Congress and others need to know that the combination of the $6.4 billion in 2008 Farm Bill reductions, the $6 billion in SRA reductions, the delay in payments to companies in 2012 and the increase in workload and investments needed to adequately deliver this program and meet its regulatory requirements are going to strain this industry, even with normal weather over the next several years.  The companies must do more and are going to get paid less, and get paid less frequently, to do it.

The 2011 SRA outcome raises several issues relevant to future actions by Congress.  First, the Federal crop insurance program, the safety net for American farmers and ranchers, has now contributed greatly towards deficit reduction.  We believe we have done so for this industry as well as for production agriculture in general.  We ask that this Committee work to ensure that these funding cuts receive appropriate recognition and prevent further cuts for production agriculture, such as in the 2012 Farm Bill.

Second, while the industry would hope to be able to move forward with no further financial shocks, we emphasize that, unlike private property casualty companies, crop insurance companies do not set premium rates and cannot compete using rate changes.  Nor are the companies able to adjust rates to recoup losses in previous years.  Premium rate changes can have major impacts on industry profitability, and the companies are handicapped by not knowing what will happen with respect to premium rates.  Historically, the companies have not been part of the rate setting process.

Third, Congress should assess the concept of a periodically negotiated SRA.  The companies have little leverage to conduct such a negotiation as an equal partner with RMA.  RMA conducted the negotiations in a mutually respectful fashion but with far less than full transparency.  Requests for key data and analyses were not satisfied.  Even today, as we testify, we do not have the details of the baseline USDA used to score the 2011 SRA.  In the final SRA draft, which was not negotiable, RMA introduced major new concepts that had not received public or industry comment.  These concepts included the hard cap on agent commissions and the requirement that companies forgo legal recourse in the event that the administration has acted illegally with its A&O provisions.  Finally, should multi-billion dollar changes in legislated programs be made through unilateral discretionary actions?

The crop insurance companies are committed to the public-private partnership.  We are committed to the efficient functioning of competition and markets.  We believe the private sector, not the government, is the best way to provide the individual risk management information and tools that are indispensible for farmers today.  We believe that is the way farmers want the program to operate.  We believe this program can be expanded and improved to provide even better protection for farmers and ranchers. We ask that Congress pay careful attention to the impacts of the 2008 Farm Bill and the 2011 SRA and work with the crop insurance industry to strengthen this valued program.

Thank you Mr. Chairman, that completes my statement.

FOR IMMEDIATE RELEASE
July 19, 2010

OVERLAND PARK, KAN…The crop insurance industry announced today that Bob Parkerson, president of National Crop Insurance Services (NCIS) has been invited to testify before the House Committee on Agriculture Thursday about the state of the crop insurance industry, including implications of the recently signed Standard Reinsurance Agreement (SRA) and 2008 Farm Bill.

“We are pleased to have the opportunity to contribute to these deliberations,” said Parkerson. “The crop insurance program is the largest part of the Federal farm safety net, and we are grateful for the chance to lend our perspective on how we can continue to protect farmers through our public-private partnership, particularly as discussions begin on the next farm bill.”

Mr. Parkerson and Dr. Keith Collins, a consultant with the industry, will also be available to speak with the press via conference call at 2pm Thursday.

Who:	Bob Parkerson, President of National Crop Insurance Services.
What:	Mr. Parkerson has been invited to testify before the U.S. House Agriculture Subcommittee on General Farm Commodities and Risk Management.
When:	9:30 AM Thursday, July 22, 2010
Where:	1300 Longworth House Office Building. Washington, D.C.
Details:	Live audio and video will be available at the start of the hearing, and can be accessed at http://agriculture.house.gov/hearings/audio.html.  If in need of special accommodations, please call (202) 225-2171 at least four business days in advance of the event.

NOTE: Mr. Parkerson and Dr. Keith Collins will be available to discuss his testimony at 2 PM.

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