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 of America said today they will go to court if necessary to block expansion of a federal program that slices members’ commissions on crop insurance sold over the Internet.
Maria Berthoud, IIABA federal government affairs senior vice president, said the group is currently appealing the premium discount plan to the U.S. Department of Agriculture’s national appeals division and “will litigate if necessary.”
According to IIABA, the controversial farm insurance plan, if it were 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 leave the crop insurance delivery system.”
“The bottom line is this: we feel that this particular Premium Discount Program is leading to some unfair competition,” said Bob Skow, chief executive officer of the Independent Insurance Agents of Iowa.
What has the association so upset is a decision by the Federal Crop Insurance Corporation Board to approve a premium discount plan underwritten by Converium Insurance North America Inc., formerly Zurich Re headquartered in Zug, Switzerland, and sold through Crop 1 Insurance Direct, headquartered in Des Moines, Iowa.
Crop 1 is a managing general agent. The plan offers crop insurance over the Internet, through agents, farm cooperatives and other financial farm services at discounted rates. The discounts, the association argues, are achievable because there is no independent agent commission involved and that saving is passed onto the farmer.
The program, which is underwritten by 17 insurance companies nationally and a host of smaller underwriters, according to data available on the United States Department of Agriculture Web site, handled close to $3 billion in premium about this time last year.
More than 15,000 agents are involved in the crop program throughout the country. These agents, argued Mr. Skow, have spent more than two decades building what in 1982 was a failed system, and helped to fashion it into one of the most successful federal insurance programs today.
The disputed program began in Dec. 2002, when the FCID approved Crop 1 to sell insurance over the Internet after a seven-state trial program in Iowa, Illinois, Indiana, North Dakota, Nebraska, Minnesota and Kansas. The primary mandate was to reduce costs but still provide the service and coverage farmers need.
Association executives contend that the plan has not demonstrated financial soundness, does not sell insurance through a licensed agent as required under state insurance statutes, and denies clients the advice and training required to properly apply for coverage.
Mr. Skow said that crop insurance is a very complicated policy, much like commercial insurance, requiring agents to spend a lot of time with the risk and gather much information to properly underwrite a policy.
Under the pilot program, not many farmers took advantage of the Internet program, said Mr. Skow. But, if it were to become successful, agents would see their nominal commission rate on the policies 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 their commission is typical to what they get for other services,” noted Mr. Skow. “If agents took these commission rates, they would go broke.”
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 met with all RMA regulations before approval was granted for selling insurance.
The program, he said, must meet with state regulations for the selling of insurance, and any violations would be dealt with through those channels. Concerning commissions, that is an internal issue between the company and agents, and not controlled by the agency, 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 to other companies to adopt similar programs.
A section on rules governing rebates that appears on the RMA Web site (www.rma.usda.gov) says that savings made through the reduction of commission to agents, using the Internet, can be passed on to the insured in the form of reduced premium.
Ms. Berthoud said IABA is also lobbying Congress to take a closer look at the program and its approval.
A request for comment from Crop 1 was not immediately returned.