Archive for January, 2007
Congressional Authorization. Congress amended the Federal Crop Insurance Act (Act) in 1994 to authorize the approval of premium reduction plans within the crop insurance program. Language of the amendment (Amendment) is found in Section 508(e)(3) of the Act [7 U.S.C. §1508(e)(3)], which provides as follows:
“If an approved insurance provider determines that the provider may provide insurance more efficiently than the expense reimbursement amount established by the Federal Crop Insurance Corporation (FCIC), the approved insurance provider may reduce, subject to the approval of the FCIC, the premium charged the insured by an amount corresponding to the efficiency. The approved insurance provider shall apply to the FCIC for authority to reduce the premium before making such a reduction, and the reduction shall be subject to the rules, limitations, and procedures established by the FCIC.”
Initial Implementation. RMA implemented the Amendment in 2003 through the Standard Reinsurance Agreement (SRA). In this initial implementation, premium reduction plans (PRPs) were prospective in nature, that is, they allowed farmers to pay a reduced premium up-front (a discount) based on efficiencies that an eligible approved insurance provider (AIP) “projected” it would realize over the course of the reinsurance year. Only one AIP applied.
Second Implementation. In 2005, RMA published an interim federal rule in which it adopted a new approach to administering the Amendment. Where previously, reduced premiums were based on “projected” efficiencies and provided to farmers at issuance of their policies, under the interim federal rule, reduced premiums would have to be based on audited financial reports of AIP operations for the reinsurance year and paid to farmers after the close of the reinsurance year (a rebate). Companies have yet completed all aspects of the PRP program for the 2006 crop insurance year, therefore it is not yet known how many will submit the application required by the rule to determine which, if any, of the nine eligible AIPs will be approved to pay a rebate.
Halting of PRP. However, over concerns about fairness, equity and possible discrimination, Congress halted implementation of the PRP Amendment for the 2007 crop insurance year by including the following language in the FY06 Agriculture Appropriations Bill:
“None of the funds appropriated or otherwise made available by this Act shall be used to pay salaries and expenses of personnel who implement or administer section 508(e)(3) of the Federal Crop Insurance Act )7 U.S.C. 1508(e)(3)) or any regulation, bulletin, policy or agency guidance issued pursuant to section 508(e)(3) of such Act for the 2007 reinsurance year.”
Current Situation and Conclusion. RMA has indicated it will restart PRP for the 2008 reinsurance year if Congress does not include relevant halting language in the FY07 Continuing Resolution, which will provide funding for the balance of the fiscal year. With the House having voted to halt PRP for the 2008 reinsurance year, demonstrating a continuing concern about the program, RMA should halt the program until Congress again acts on the amendment. Development of the 2007 Farm Bill will likely provide Congress with that opportunity.
Your comments are welcome.
On January 3, 2007, Eldon Gould, Administrator of the Risk Management Agency (RMA), the Department of Agriculture agency with responsibility for running the Federal Crop Insurance Program, issued his first annual agency review, which covers operations for 2006. Mr. Gould only recently completed his first year in his current position.
The review provides a long list of activities and actions by agency personnel and the Federal Crop Insurance Corporation (FCIC) Board of Directors. In part, Mr. Gould said, “We recognize that RMA is a critical component of the safety net for the business of agriculture in this country.” He went on to say, “In 2007, we will continue to strive toward providing a useful, practical safety net for America’s farmers and ranchers.”
Mr. Gould appears to be off to a good start in his tenure as the RMA Administrator. Successfully managing the complex crop insurance program and its related rules and regulations and agency operations is not, however, an easy job. But his experience as a practicing farmer certainly helps Mr. Gould know what will and what will not work back home on the farm. In the end, that is what RMA should be about—making the crop insurance program function at maximum value to farmers as a risk management tool. The “open door” management style that Mr. Gould follows is a great benefit in his quest.
He will have to strive every day to avoid the pull and tug of the “Washington bureaucracy” dimming the natural vision and understanding he brought with him from the farm. That task, however, is a formidable challenge. Continuously drawing on the knowledge and experience of the leaders of the crop insurance companies and agencies, who work every day as his partners in the federal program, will provide Mr. Gould with an invaluable source of information. After all, of all of the people Mr. Gould will visit with, work with and seek counsel from, no one will have a greater interest in RMA succeeding in providing a highly beneficial federal crop insurance program to America’s farmers, ranchers and growers than the people who constitute the private sector delivery system for the program.
Your comments are welcome.
On February 18-21, 2007 the crop insurance industry will be holding its 27th Annual Meeing at the Renaissance Esmeralda Resort in Indian Wells, California. The meeting is a joint event sponsored by the American Association of Crop Insurers (AACI) and the National Crop Insurance Services (NCIS).
Meeting attendees will include representatives from all segments of the federal crop insurance program’s private sector delivery system, including companies, U.S and international reinsurers, agents and adjusters. Key speakers will include Representative Collin Peterson (D-MN), who is serving as Chairman of the House Agriculture Committee; Eldon Gould, Administrator of the Risk Management Agency (RMA) of the U.S. Department of Agriculture (USDA); and Charles Stenholm, former Member of Congress from Texas, who served as the ranking member of the House Agriculture Committee.
For more information on the 2007 Crop Insurance Industry Annual Meeting or to register for the event, check with the website maintained by NCIS. I look forward to seeing you in California in a few weeks.
The Federal Crop Insurance Program has succeeded due, in large measure, to the consistent application of the following four fundamental characteristics:
- The federal crop insurance program is a unique public-private partnership that combines the financial resources of the federal government with the operating efficiency of private sector insurance companies, reinsurers and thousands of crop insurance agents over the country.
- The program is based on service competition.
- The program is based on universal availability.
- The program is based on non-discrimination.
In other words, the current crop insurance program works because it strikes a good balance between and among several important factors, including government resources, government regulations, private sector initiative, private sector ingenuity and public policy objectives. The program has had the proper incentives for companies and agents to serve all farmers, regardless of size and location. The private sector delivery system has traditionally had incentives as well as a mandate to offer all farmers the best possible risk management advice.
The top priority of this public/private crop insurance partnership must be to further build on these critical reasons for the program’s success to help assure maximum risk management value and service accrues to America’s farmers, ranchers and growers.
Since crop insurance is a federal program, the industry must not and does not discriminate against any farmer in marketing policies for any reason, especially including farm size, location or financial status. Any farmer interested in purchasing a policy offered by the federal crop insurance program can not be turned away. Thus, non-discrimination means a small or limited-resource or minority farmer is equally entitled to purchase a policy and benefit from the risk management protection provided by the crop insurance program as any other farmer. The same is true for farmers who are operating in high or higher-risk areas of the country.
Non-discrimination is a vital part of the political viability of the federal crop insurance program. Congress could not be expected to continue supporting a federal crop insurance program that encourages the insurance industry to compete for the business of only the largest and most profitable farmers while denying the program’s risk management benefits and services to other farmers. Non-discriminatory access to federal crop insurance is an important and appropriate public policy objective and it should continue to be a central focus of the program.
Your comments are welcome.
A fundamental principle of the Federal Crop Insurance Program is that it should be meaningfully and equally available to all farmers. Throughout the life of the program, universal availability has been understood to be a core building block. In fact, annually, Congress appropriates funds specifically for the purpose of helping the crop insurance program reach a greater number of farmers, especially farmers in states considered to be underserved. New policy options are constantly being developed and tested in order to provide risk protection options to a larger number and wider array of farmers. Additionally, while private sector companies and reinsurers are encouraged to assume some coverage risk, the federal government is willing to take most of the risk in high loss areas to help assure those farmers have fair access to the crop insurance program. This risk sharing arrangement helps assure that crop insurance will be available to all parts of the country, whether low-risk or high-risk. In the final analysis, universal availability is an absolutely essential element to the program’s political viability. By a large majority, the associated private sector companies agree with and actively campaign for the universal availability characteristic.
Your comments are welcome.
There has been no shortage of competition in the marketplace among the companies approved by the Department of Agriculture to sell and service crop insurance policies. These companies are known as Approved Insurance Providers (AIP). However, the competition is based on service to farmers. The Risk Management Agency (RMA) of the Department of Agriculture determines premium rates and competition among AIPs is about being of service to farmers in their purchase and use of federal crop insurance as a risk management tool. Competition has not been about price and price-related factors, including discounts, rebates and dividends, for a very good reason—price is a market-based term and the market did not give birth to the modern crop insurance program. The modern crop insurance program is a creation of Congress, making it a federal program with public policy goals and objectives. The non-price competition feature is a major contributor to the fulfillment of these goals and objectives. This feature also serves an important role in building farmer confidence in the value and objectivity of the private sector delivery system.
Your comments are welcome.
The federal crop insurance program is a unique public-private partnership that combines the financial resources of the federal government with the operating efficiency of private sector insurance companies, reinsurers and thousands of crop insurance agents across the country. Over the past 25 years the program has evolved from an arrangement in which agents were selling government policies into a partnership where companies share the risk with the government and have their own private capital at risk. The modern crop insurance program is based on the premise that, given the proper incentives and reasonable regulation, the private sector can deliver risk management protection to America’s farmers more efficiently than the federal government. Results indicate this partnership is working very successfully.
Your comments are welcome.
