NU Online News Service, March 1, 12:44 p.m. EST

Both crop insurers and agents are questioning President Obama's 2013 budget proposals to make cuts to subsidies provided to the industry.

“While the President's recent budget proposals are offered with the claim of “not harming the delivery system,” the proposals instead will have a devastating impact, especially when combined with multiple years of budget cuts,” a group of six trade groups representing crop insurers, agents and reinsurers says in a letter to the members of the House and Senate Agriculture committees.

The letter says that in addition to cuts in the 2011 Standard Reinsurance Agreement (SRA), recent rating-methodology changes are expected to have an impact in various areas as well.

Under the Obama administration's proposal, subsidies for the industry would be cut $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.

The industry is concerned that the new proposed cuts will be incorporated into the omnibus farm bill now being negotiated in Congress. Authorizations under the existing farm bill expire Sept. 30.

Under the Obama proposal, 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.

The proposal also calls for reducing producer premium subsidies by 2 basis points, or two-tenths of a percent.

The industry cites statistics indicating that crop insurance has contributed more than $12 billion towards reduced government spending and deficit reduction since 2008.

And since 2008, private crop insurance companies have put more than $27 billion into the hands of farmers and ranchers to help them pick up the pieces after disasters. “Simply put, the crop insurance industry has done more with less,” the industry letter says.

Tom Zacharias, the president of National Crop Insurance Services, says in a statement, “Unfortunately, the additional disproportionate reductions being proposed would weaken a crop-insurance infrastructure at the very time we need it the most.”

He says the industry fears that “such reductions would undermine the successful public-private partnership that was specifically designed by Congress to minimize taxpayer exposure to risk.”

Zacharias adds that crop insurance is “the centerpiece of modern-day farm policy, and we look forward to working closely with Congress and our partners in the Administration to ensure it will underpin farm policy's future.”

Charles Symington, senior vice president for government affairs for the Independent Insurance Agents and Brokers of America, says that as negotiations continue on the 2012 Farm Bill, the IIABA will work to halt additional cuts to the program.

“As strong advocates for the farm crop-insurance program and as the largest trade group representing crop-insurance agents, the IIABA will urge Congress to protect the program against further destabilizing reductions,” he says.

The six groups representing crop insurers who signed the letter to Congress include: the American Association of Crop Insurers; the Crop Insurance and Reinsurance Bureau; the Crop Insurance Professionals Association; the IIABA; the National Association of Professional Insurance Agents; and the Reinsurance Association of America.

Special Reports /

Crop Insurers, Agents Dismayed at New Proposed Cuts

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