NU Online News Service, July 22, 3:17 p.m.EDT

Agents and underwriters sparred with Agriculture Department(USDA) representatives over agent commission caps put forth as partof the mandated cuts to the federal crop insurance program at aHouse subcommittee hearing.

The comments were made at a hearing before the Subcommittee onGeneral Farm Commodities and Risk Management of the HouseAgriculture Committee.

The comments related to a new Standard Reinsurance Agreement(SRA) that cuts U.S. subsidies to the federal program by $6 billionover 10 years.

The program is administrated by the USDA's Risk ManagementAgency.

The size of the overall funding cut in the program–30 percentover 10 years–"remains unsupported and represents a decided risk tothe companies," said Robert Parkerson, president of National CropInsurance Services, which represents the crop insurancecompanies.

And John F. Dalton, president of Midwest Insurance AssociatesLLC and the Agri-Land Insurance Agency in Council Bluffs, Iowa,added that the contract signed earlier this month between theproducers and the USDA marked the first time any federal agency hasattempted to regulate crop insurance commissions rather than allowthe marketplace to determine the appropriate commission rate.

"This also represents the first time that the federal governmenthas intervened in the agent-company relationship," Mr. Dalton saidas a representative of the Independent Insurance Agents and Brokersof America (IIABA).

"The IIABA strongly opposes the new SRA's commission capprovisions," he said.

But, William Murphy, RMA administrator, said the new contract"provides a reasonable rate of return to the companies fordelivering the program."

In defending the decision to impose both a "hard" and "soft" capon agent commissions, Mr. Murphy said that "even in the face ofadministrative and operating cuts in the program imposed byCongress, companies were unable to contain the escalation in agentcommissions."

Mr. Murphy said, "As regulator for the federal crop insuranceprogram, RMA saw a clear need to ensure that companies havesufficient funds to pay operating expenses (including agentcommissions) without resorting to the reliance on uncertainunderwriting gains."

He added, "History has shown us this step is necessary," citingthe 2002 failure of American Growers Insurance Company, "whichfailed in large part because of high commissions paid to retain andacquire agents."

James Deal, a retired USDA employee who formerly managed theFederal Crop Insurance Corporation, also defended the cuts incommissions.

He said the Risk Management Agency "has been criticized by theGovernment Accountability Office and other oversight bodies forfive years" for the high level of agent commissions.

He added "Many of these agents received substantially more thanall of the administrative and operating expense funds, leaving thecompany with nothing left to provide underwriting and claimsservice to the farmer … a major intent of the subsidy."

Mr. Dalton, though, pointed to research that shows that theaverage commission rate has declined from 2008 to 2009, which hesaid proves that allowing the marketplace to determine commissionrates works.

"The agent cap does not impact the crop insurance budget,doesn't save the federal taxpayer any money, and has no policymerit," he said.

He added, "Because of the work of insurance agents, the cropinsurance program has grown from relative obscurity to the widelyused and successful program we are discussing today."