Myth: The crop insurance industry makes excessive profits
At least once a year, someone writes an article purporting that crop insurance companies make excessive profits. Over the years and across many national media reviews, none of these stories have resonated. Why?
Fact: Underwriting gains are not profits
The national media mistakenly characterize underwriting gains as profits. Underwriting gains occur when premiums exceed indemnities; the industry keeps a portion of the overage (underwriting gain). Conversely the industry pays a share of the loss when indemnities exceed premium (underwriting loss). Underwriting gains pay for private market reinsurance, expenses to operate the program not covered by the administrative and operating expense and taxes. Profits occur after all expenses are paid. Moreover, the industry uses profits to build capital for future catastrophic losses. Profits are typically invested, contributing to the health of the economy.
Fact: Crop insurance is a more risky business than other lines of insurance and subject to lower rates of return.
Multiple studies have shown that crop insurance profitability is lower and more volatile than other lines of property and casualty insurance (Deloitte and Touché 2004, Price Waterhouse Coopers 1999 and 1997, Milliman and Roberts 2002). Indeed any analysis of Best’s Aggregates and Averages will demonstrate this fact. The Deloitte and Touché study reported a 10 year profitability measure of 7.9 percent for the crop insurance program with a standard deviation of 12.9 percent, while other lines of property and casualty insurance ran a 12.7 percent return with an 8.9 percent standard deviation (1992 – 2002).
Fact: The government has control of the program, the rates and the reinsurance terms.
Companies deliver the program within the government’s parameters. Thus, companies are not in a position to manipulate the program or its returns.
The Agricultural Risk Protection Act of 2000 (ARPA) was signed into law in June 2000. This legislation changed the process by which RMA develops and maintains pilot programs. Section 131 of the Act prohibits the Federal Crop Insurance Corporation (FCIC) from conducting research and development for any new policies, and requires that new product development be accomplished through contracts or partnerships. The legislation also allows grower organizations and other groups to develop new policies at their own expense and request reimbursement from FCIC after products are approved.
The Risk Management Agency maintains a one-page, national Summary of Business Report for crop insurance and livestock insurance policies. Each report provides current year-to-date information for 2004 -2007. Additionally, a historical report for crop policies is available for the period 1994-2003.
The Risk Management Agency (RMA) of the U.S. Department of Agriculture provides on its website a list of Frequently Asked Questions (FAQ) that are grouped by topic.
The role of USDA’s Risk Management Agency (RMA) is to help producers manage their business risks through effective, market-based risk management solutions. RMA’s mission is to promote, support, and regulate sound risk management solutions to preserve and strenghten the economic stability of America’s agricultural producers. As part of this mission, RMA operates and manages the Federal Crop Insurance Corporation (FCIC). RMA was created in 1996; the FCIC was founded in 1938. Click the following link for more information on the role of RMA in crop insurance.
Regional Offices (ROs) are RMA’s eyes in the field, keeping in close contact with local producers, grower groups, universities, and government agencies. ROs provide information on local pilot programs, growing conditions, participating crop reinsurance companies/agents, and events.
Check out the Regional Office link on the RMA website for location and other information on these important operations.
The USDA Risk Management Agency (RMA) provides company and agent information as part of its customer service objective. According to RMA, all company and agent data displayed on its website is provided by insurance providers operating under a reinsurance agreement. Thus, it is the responsibility of these insurance providers to accurately maintain this information. To access this information, click this link: Company and Agent Locator.
February 28 and March 15 are sales closing dates for the crop insurance program for a significant number of policies. These sales closing dates apply to most of the spring-planted crops in the following States. For a list of the crops covered by these dates and other information, select the above link.
Funding Opportunity Title: Community Outreach and Assistance Partnership Program.
Announcement Type: Request for Applications (RFA) Community Outreach and Assistance Partnership Program: Initial Announcement. CFDA Number: 10.455.
Dates: The closing date and time for receipt of an application is 5 p.m. eastern time on May 1, 2007. Applications received after the deadline will not be considered for funding. All awards will be made
and partnership agreements completed no later than September 30, 2007.
Overview: In accordance with section 522(d) of the Federal Crop Insurance Act (Act), the Federal Crop Insurance Corporation (FCIC), operating through the Risk Management Agency (RMA), announces the availability of approximately $5 million in fiscal year 2007 for collaborative outreach and assistance programs for limited resource, socially disadvantaged and other traditionally under-served farmers and ranchers, who produce Priority Commodities as defined in Part I.C.
Awards under this program will be made on a competitive basis for projects of up to one year. Recipients of awards must demonstrate non-financial benefits from a partnership agreement and must agree to the substantial involvement of RMA in the project. This announcement lists the information needed to submit an application under this program.
Crop Insurance Education in Targeted States (Targeted States Program)
Announcement Type: Announcement of Availability of Funds and Request for Application for Competitive Cooperative Agreements.
Catalog of Federal Domestic Assistance Number (CFDA): 10.458. Dates: Applications are due 5 p.m. EDT, April 23, 2007.
Summary: The Federal Crop Insurance Corporation (FCIC), operating through the Risk Management Agency (RMA), announces the availability of approximately $4.5 million to fund cooperative agreements under the Crop Insurance Education in Targeted States program (the Targeted
States Program). The purpose of this cooperative agreement program is to deliver crop insurance education and information to U.S. agricultural producers in certain States that have been designated as historically underserved with respect to crop insurance. The states, collectively referred to as Targeted States, are Connecticut, Delaware, Maine, Maryland, Massachusetts, Nevada, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Utah, Vermont, West Virginia, and Wyoming. A maximum of 15 cooperative agreements will be funded, one in each of the 15 Targeted States. Awardees of awards must agree to the
substantial involvement of RMA in the project. Funding availability for this program may be announced at approximately the same time as funding availability for similar but separate programs–CFDA No. 10.455 (Community Outreach and Assistance Partnerships), CFDA No. 10.456 (Risk Management Research Partnerships) CFDA No. 10.457 (Commodity Partnerships for Risk Management Education), and CFDA No. 10.459 (Commodity Partnerships for Small Agricultural Risk Management Education Sessions). Prospective applicants should carefully examine and compare the notices for each program.
