Crop Insurance Must Have Private Companies and Agencies
May 4th, 2007 by David Graves
Administrative and operating (A&O) reimbursements and underwriting gain opportunities are the elements for attracting and keeping private companies, agencies and capital in the business. To the extent that A&O reimbursements are insufficient for the sale and servicing of crop insurance, these expenses must be met through underwriting gains.
The press often makes the mistake of reporting underwritings gain as profits, thus conveying the false impression that the industry is making huge profits. Both A&O reimbursements and underwriting gains are gross revenue earned by approved crop insurance providers (crop insurance companies) under the terms and conditions of the USDA developed and approved SRA that each company must agree to and sign in order to be an eligible program participant. They are not profits. All businesses, including approved crop insurance companies and affiliated agencies, must subtract all expenses from their gross revenue in order to determine their profits. These expenses include unreimbursed delivery expenses, reinsurance premiums, the building of reserves for loss years, and other expenses.