Agents May Sue On Crop Insurance Commissions

By Mark E. Ruquet

NU Online News Service, April 21, 2:17 p.m.EDT?The Independent Insurance Agents & Brokers ofAmerica said today they will go to court if necessary to blockexpansion of a federal program that slices members' commissions oncrop insurance sold over the Internet.

Maria Berthoud, IIABA federal government affairs senior vicepresident, said the group is currently appealing the premiumdiscount plan to the U.S. Department of Agriculture's nationalappeals division and "will litigate if necessary."

According to IIABA, the controversial farm insurance plan, if itwere expanded, could force its members to leave the market.

"This is the number-one legislative issue for us right now,"said Ms. Berthoud, "It is so bad that independent agents will leavethe crop insurance delivery system."

"The bottom line is this: we feel that this particular PremiumDiscount Program is leading to some unfair competition," said BobSkow, chief executive officer of the Independent Insurance Agentsof Iowa.

What has the association so upset is a decision by the FederalCrop Insurance Corporation Board to approve a premium discount planunderwritten by Converium Insurance North America Inc., formerlyZurich Re headquartered in Zug, Switzerland, and sold through Crop1 Insurance Direct, headquartered in Des Moines, Iowa.

Crop 1 is a managing general agent. The plan offers cropinsurance over the Internet, through agents, farm cooperatives andother financial farm services at discounted rates. The discounts,the association argues, are achievable because there is noindependent agent commission involved and that saving is passedonto the farmer.

The program, which is underwritten by 17 insurance companiesnationally and a host of smaller underwriters, according to dataavailable on the United States Department of Agriculture Web site,handled close to $3 billion in premium about this time lastyear.

More than 15,000 agents are involved in the crop programthroughout the country. These agents, argued Mr. Skow, have spentmore than two decades building what in 1982 was a failed system,and helped to fashion it into one of the most successful federalinsurance programs today.

The disputed program began in Dec. 2002, when the FCID approvedCrop 1 to sell insurance over the Internet after a seven-statetrial program in Iowa, Illinois, Indiana, North Dakota, Nebraska,Minnesota and Kansas. The primary mandate was to reduce costs butstill provide the service and coverage farmers need.

Association executives contend that the plan has notdemonstrated financial soundness, does not sell insurance through alicensed agent as required under state insurance statutes, anddenies clients the advice and training required to properly applyfor coverage.

Mr. Skow said that crop insurance is a very complicated policy,much like commercial insurance, requiring agents to spend a lot oftime with the risk and gather much information to properlyunderwrite a policy.

Under the pilot program, not many farmers took advantage of theInternet program, said Mr. Skow. But, if it were to becomesuccessful, agents would see their nominal commission rate on thepolicies of 15 percent cut by 5-to-10 percent.

"There is a misconception in the Beltway [Washington, D.C.vicinity] that agents are getting rich from this program, but theircommission is typical to what they get for other services," notedMr. Skow. "If agents took these commission rates, they would gobroke."

Eric Edgington, a spokesman for Risk Management Agency, the U.S.Department of Agriculture section in charge of running the program,said that Converium and Crop 1 had "to go through a lot of hoops"to demonstrate the viability of the program. He added that it metwith all RMA regulations before approval was granted for sellinginsurance.

The program, he said, must meet with state regulations for theselling of insurance, and any violations would be dealt withthrough those channels. Concerning commissions, that is an internalissue between the company and agents, and not controlled by theagency, he said.

"We do not determine agent commissions," Mr. Edgington said.

He said the approval of Crop 1's PDP plan does open the door toother companies to adopt similar programs.

A section on rules governing rebates that appears on the RMA Website (www.rma.usda.gov) saysthat savings made through the reduction of commission to agents,using the Internet, can be passed on to the insured in the form ofreduced premium.

Ms. Berthoud said IABA is also lobbying Congress to take acloser look at the program and its approval.

A request for comment from Crop 1 was not immediatelyreturned.