NU Online News Service, May 9, 9:00 a.m. EDT--Insurers and agents spoke out against a proposed Premium Reduction Plan for crop insurance at a house subcommittee hearing, while the one company currently offering a PRP defended the program.

At a hearing last week of the House Agriculture Subcommittee on General Farm Commodities and Risk Management, Norman Nielsen, president of Preston, Iowa-based Associated Insurance Counselors Inc., testified on behalf of the Independent Insurance Agents and Brokers of America. He told lawmakers that the group is staunchly opposed to the PRP program, which allows the seller to discount the policies utilizing technology and selling policies directly to farmers, bypassing the independent agent network. Additionally, he questioned why the Risk Management Association [the federal agency running the program] allows only one company, Crop 1, to offer the product while it has suspended others from doing so during the rulemaking process.

"If this is RMA's idea of promoting competition in the industry, then the future looks very bleak for anyone involved in the delivery of this important risk management program, and I shudder to think of the impact it will have on America's agriculture producers," Mr. Nielsen said.

The problem with PRPs, Mr. Nielsen explained, is that they reduce the role of agents in the sales process. The IIABA is concerned, he said, that those selling PRP programs are less experienced with crop insurance issues. Additionally, he expressed concern that those selling PRPs could begin "cherry-picking" larger, more profitable clients at the expense of small farmers.

That sentiment was echoed in the testimony of Greg Burger, president of Wisconsin-based Farmers Crop Insurance Alliance and vice chairman of the American Association of Crop Insurers. The RMA, he said, has been attempting to push PRP programs through the rulemaking process, despite the fact that it runs counter to their own regulations, among others, requiring an insurer who offers crop insurance in a state to offer coverage to all eligible farmers in the state.

"RMA is misrepresenting the plain meaning of the law by saying that the law requires that they implement a PRP rule this year," Mr. Burger said in testimony submitted to the committee. "The law does not require any such thing. If they cannot devise a rule that does not discriminate against small farmers and a rule that meets all of their other rules, limitation and procedures, they should not issue a final rule."

Mr. Burger also sought to counter RMA claims that insurers were driving the rulemaking process. "Nothing could be further from the truth," he said. "Several companies did apply for a PRP program last year in order to meet the unfair competition of the one company that was approved for discounting. However, this was done only as a defensive strategy. All of the established companies that deliver the program are strongly opposed to the PRP. Only the one, small start-up company that is now allowed to offer premium discounts favors the rule. I believe the comments filed on the proposed PRP rule will bear this out."

The head of the only company offering a PRP product, Crop 1's President and Chief Executive Officer Billy Rose, defended the program, saying that it will increase the availability of coverage and increase competition. Additionally, he noted that PRPs would change how companies compete with each other.

"Prior to PRP, crop insurance companies did not compete on the premium price offered to producers, but rather competed with each other on agent commissions," he said. "Companies recruited other firms' agents by offering higher and higher commissions, leading to the departure from the marketplace of companies that could not afford the bidding war. While we do not support a federal cap on agent commissions, Crop 1 reiterates that PRP allows companies to compete not just on which firm can pay the most to an agent, but on price and service to their customers--exactly the way other successful businesses operate."

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