Filed Under:Markets, Regulation/Legislation

Industry Reps Testify Against Further Crop-Insurance Program Cuts

Updated 3:16 p.m.

NU Online News Service, March 19, 12:16 p.m. EDT

Insurance companies and agents joined together Thursday in asking Congress “to do no harm” to the existing crop-insurance-subsidy program, citing concerns with Obama-administration proposals that call for further cuts.

In written testimony given on behalf of the Independent Insurance Agents and Brokers of America, Ruth Gerdes, president of Auburn Agency Crop Insurance, Inc., Auburn, Neb., offered strong support for a robust farm-safety net and spoke out against additional cuts to the Federal Crop Insurance Program (FCIP) in the upcoming Farm Bill negotiations.

Gerdes said, “Do no harm to the crop-insurance program already in place.”

Steve Rutledge, chairman of Farmers Mutual Hail Insurance Company of Iowa,West Des Moines, Iowa, added that “crop insurance should remain the core risk-management tool, and we are committed to the public-private partnership of program delivery, which directly supports more than 20,000 private-sector jobs across the country.”

Gerdes and Rutledge made their comments at a Senate Agriculture Committee hearing on the 2012 farm bill, which would govern federal-agricultural policies, subsides and rules going forward.

The new farm bill would replace legislation enacted in 2008. The authorization for that legislation expires Sept. 30.

The omnibus legislation serves to reauthorize such programs as crop insurance, specialty crops, conservation, foreign agriculture and food aid, farm loans, energy and forestry, Title IV nutrition programs, Title I and the SIRE Program, research programs, subsidies, dairy programs, and rural development.

Gerdes and Rutledge testified amid industry concerns that the next farm bill would incorporate provisions of the 2013 farm-program-budget proposals outlined last month by the Obama administration.

In addition to cuts in the 2011 standard reinsurance agreement negotiated with the Agriculture Department, rating-methodology changes recently implemented are expected to impose further cuts in the crop-subsidy program.

Under the Obama administration’s proposal, subsidies for the industry would be cut by $8 billion over 10 years. This is in addition to the $6 billion in cuts over 10 years contained in a contract with underwriters that went into effect last year.

Private companies’ subsidies for administrative and operating expenses would be reduced to $300 million annually, to $900 million. Under the contract signed in 2011 with the industry by the Agriculture Department, subsidies for administrative and operating costs were reduced to $1.2 billion.

The administrative and operating cost budget is also used to pay commissions to insurance agents who sell the products.

The 2013 budget proposal would also reduce the return on investment for crop insurers to 12 percent from the current 14 percent, and it also calls for reducing producer-premium subsidies by 2 basis points, or two-tenths of a percent.

In her testimony, Gerdes talked about the shift of the crop program from a public to a private-delivery system, and noted that the efficiency of program delivery by agents and the expansion of insured acres could never be replicated by a government agency. She said that in 2011 there were 18,000 crop agents servicing 1.15 million policies. “The growth and overall success of the FCIP is due to motivated program participants, good lawmaking, quality products and a dedicated agent force,” Gerdes said.

Rutledge testified that the crop-insurance-delivery system is currently “in a unique situation.”

He said companies are still processing and delivering record payouts to farmers and ranchers for their 2011 losses. At the same time, crop prices remain elevated far above historic levels, and projections show that farmers will continue to take advantage of that and push themselves to plant to capacity, he said.

“This indicates [that] the need for crop insurance is likely to rise, as will insurers’ risk exposure,” Rutledge said. “With this growth comes an increasing sensitivity to additional changes to the program and the delivery system—because the industry’s administration and organizational infrastructure continues to be pushed to the limit,” he said.

Updated to clarify that Ruth Gerdes' testimony was written.

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