Agent associations joined the National Crop Insurance Services in criticizing the Obama administration's decision to cut the federal crop insurance program by $6 billion over the next 10 years.

Last week, the Overland Park, Kan.-based NCIS, representing crop insurance companies, promised to meet with company representatives to discuss the government action.

"We negotiated this contract in good faith with the USDA [United States Department of Agriculture] and we are frustrated that our concerns for the financial stability of this 30-year program were not adequately addressed," said Bob Parkerson, president of NCIS, in a statement.

He said the industry is still dealing with $6.4 billion in cuts made in the 2008 Farm Bill, and wondered how the latest cuts would not seriously undermine the federal crop insurance program.

"Unfortunately, USDA seems to have lost sight that this program is in place to provide a sound financial risk management tool for America's farmers and ranchers," Mr. Parkerson said.

Aside from some named perils–such as crop hail–coverage for crops is provided under a public/private partnership that was arranged in 1980. Rates are set by the government, risk is shared by the government and private insurers, and insurers are reimbursed for the costs of delivering insurance.

The USDA's Risk Management Agency, which administers the federal crop insurance program, released its final version of the new standards earlier this month.

The department said the new agreement "will generally maintain the current Administrative and Operating (A&O) subsidy structure but remove the possibility of windfall government payments based on high commodity price spikes by limiting the level of A&O payments that the industry can receive."

USDA said RMA lowered the projected long-term return for insurers to about 14.5 percent by modifying the terms under which RMA provides reinsurance.

Of the $6 billion in savings, $2 billion will be used to "strengthen successful, targeted risk management and conservation programs," and the remaining $4 billion will go to reduce the national deficit.

The NCIS said the USDA's financial terms are more complex than they would initially appear. The association was also critical of what it says were "significant terms" that appeared in the final draft that were not in earlier ones.

The Independent Insurance Agents & Brokers of America was equally critical of the USDA's decision.

"We do not believe that the recent RMA proposal 'reforms' the program but rather needlessly weakens it and cripples an important aspect of the rural economy that currently provides tens of thousands of jobs," said Charles Symington, IIABA senior vice president of government affairs.

Separately, Dan Weber, chair of the National Crop Insurance Working Group of the National Association of Professional Insurance Agents, said, "Cuts of this magnitude, as proposed in the final SRA, are a threat to our nation's farm safety net, all in the middle of one of America's worst economic recessions."

A letter PIA distributed to its members, obtained by NU, added that many of the 2008 cuts have yet to be implemented.

IIABA's Mr. Symington said the new cuts, on top of a commission-cap proposal, "will have a compromising and destabilizing effect on the program, on agents, and eventually on farmers and ranchers."

IIABA explained that the final Standard Reinsurance Agreement (SRA) released by the RMA puts an 80 percent cap on agent commissions.

"In an unprecedented move, this represents the very first time that RMA has attempted to directly regulate agent crop insurance commissions rather than allow the marketplace to determine the appropriate commission," IIABA said.

A spokesperson for the USDA did not return a phone call seeking comment.

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