With the crop insurance industry releasing an open letter to Congress and USDA last week defending itself against proposed cuts in the standard reinsurance agreement, other groups have been doing their own analysis of the numbers.

A key focus is looking at the "expense deficit" regarding crop insurers. That's the gap between what is paid to insurers for administrative and operating expenses and the actual expenses. Essentially, the insurance industry has used a portion of underwriting gains to help offset the expenses in recent years.

The industry's report on profitability done by Grant Thornton LLP last October looked at this issue to highlight that A&O payments have not kept pace with expense. The data provided, however, also makes USDA's case that crop insurance agents are the driving force behind the rise in expenses.

Since 1992, the expenses paid to the crop insurance industry per-policy have risen from about $400 per policy to about $1,450 per policy in 2008. When you look at the expenses, company costs for issues such as information technology, loss adjustment and other overhead have remained relatively constant for the industry. Yet, commission expenses have risen parallel the overall total expenses really since 1992. Agent commissions account for almost all of the rise in A&O.

Thus, the fight continues over whether companies will be able to make a profit under the proposed SRA. The Risk Management Agency argues a cap on agent commissions would actually do more to keep companies solvent than allowing the current trend to continue because if agents are not only consuming the lion's share of A&O expenses, but also a piece of the underwriting gains, what happens to a company that actually shows an underwriting loss?

The crop insurance industry's letter last week can be found at http://www.nacia.org/…

Tax Extenders update

The Senate is supposed to vote Tuesday on a series of votes and amendments for a tax-extenders package that would include renewing the $1 biodiesel tax credit. The package also includes the $1.5 billion disaster aid for farmers who suffered crop losses in 2009. The bill will need some Republican votes to pass. Sen. Charles Grassley, R-Iowa, said Tuesday he was conflicted on how to vote regarding the package because he supports the tax extenders, which are not paid for but do not need offsets. Yet some of the spending provisions in the package, such as the disaster aid, don't have spending offsets.