Minding Ag's Business
Crop Insurers Battle Image in Farm Bill Debate
After the humbling 195-234 farm bill defeat on the floor of the U.S. House last week, anguished ag groups are encouraging their members to contact their representatives to press for another chance at passage.
Texas is struggling in the face of a multi-year drought that has devastated cattle herds and crops, but surprisingly 15 of the state's 36 legislators voted against the bill. This week's Stalk Talk e-newsletter from the Corn Producers Association of Texas politely encouraged its members to contact representatives and discuss the significance of a 5-year bill.
Crop insurance industry representatives are more vocal. They want to correct charges by Rep. Ron Kind (R., Wis.) that seemed to rally conservative Republicans and public opinion against the bill.
Correcting the record is critical, they believe. Opponents like the Environmental Working Group--an especially harsh critic of crop revenue policies--observe that of the 62 Republicans who voted against the House farm bill, 40 voted for the crop insurance reform amendment offered by Reps. Ron Kind (D-Wis.) and Tom Petri (R-Wis.).
"If they’d had a chance, even more were likely to have voted for other farm subsidy reforms that were blocked from floor consideration by the House Rules Committee," EWG says in a recent blog. What's more, the public interest group contends that if 40 of the same Republicans who voted for crop insurance reform had voted for final passage, the bill would have narrowly passed. So that could make cuts in crop insurance one of the linchpins in the next round of farm bill debate.
You recall that Iowa State University economist Bruce Babcock and EWG have raised concerns about administrative costs that have more than tripled since 2001 and taxpayer subsidies that pay more than 60% of growers' premiums. While other farm expenses like seed, fertilizer and rent have escalated in recent years, corn and soybean spending on crop insurance premiums have actually fallen.
Kind charged more reforms are needed for crop insurance, arguing that the "government guarantees a 14% profit for insurance companies with virtually no risk to the companies, while paying 100% of administrative and operating expenses." His amendment, which was narrowly defeated, would have curbed underwriting gains and agent commissions; established a limit of $50,000 in subsidies to any person (about 1,100 acre Iowa corn grower or 2,000 acre Kansas wheat grower); and also required anyone with gross sales over $250,000 to pay unsubsidized insurance rates on policy coverage. Other provisions would have required USDA to make certain crop insurance claims public information.
Rick Gibson, a consultant for NAU Country Insurance and one of the executives who pioneered revenue-based crop insurance in the 1990s, questions Kind's premise and has encouraged agents to rebut it.
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The charge that the insurance industry is guaranteed a profit "just isn't true," he says. "If we were guaranteed a profit, how did we lose money last year?"
The industry and USDA are still counting losses from the Great Drought of 2012, he notes. It's made complicated because each company has a different loss sharing agreement. Estimates vary but some believe that private industry could lose $3 billion to $5 billion, he says.
Crop insurance companies also lost money in 1983, 1984, 1988, 1993 and 2002, according to the National Crop Insurance Services. It claims that is in sharp contrast to providers of everyday property and casualty insurance, which have only lost money once over the past 50 years. That loss was in 2001—the year of the 9-11 attacks.
"In 1993, the loss ratio from Iowa's flood was 400%, but commodity prices weren't nearly as high as 2012 and participation wasn't as widespread," Gibson says. Crop insurance companies expect 2012 losses to hit a new record when the tally is finalized.
Gibson also disputes that USDA covers 100% reimbursement for Administrative and Operating expenses. That's supposed to cover operating expense, claims expense and commissions. Gibson says companies have expenses of approximately 5% in excess of A&O. Other crop insurance companies contacted by DTN support that case.
However, as DTN Farm Policy Editor Chris Clayton has reported, conservatives could gain leverage in the next farm bill vote. EWG is building a wish list of targets to appeal to them. Among the EWG's wish list for more crop insurance cuts/savings that might attract some Republican votes are:
--Eliminate the Harvest Price Option, saving an estimated $8 billion over 10 years, according to the Congressional Budget Office;
--Lowering subsidies to crop insurance companies by reducing the administrative cap could save another $5.4 billion over 10 years;
-- Adding a means test and limiting premium subsidies to $50,000 per farmer would generate $5.3 billion in savings over 10 years.
While ISU's Babcock has been raising Cain over crop insurance costs for years, he said maybe only five people in Congress agreed with his positions when I interviewed him last month. Obviously, some people take crop insurance critics more seriously than that.
See EWG's arguments for more crop insurance cuts at
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