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March 3, 2010

Will proposed cuts harm delivery of crop insurance?

William Murphy is the administrator of USDA's Risk Management Agency.

> Seeking to Cut Excess Payments

USDA has proposed a Standard Reinsurance Agreement that intends to smooth out the highs and lows of insurance risk. It will also offer financial incentives to provide service to underserved crops, areas and farmers. It will produce significant savings to American taxpayers, while not affecting farmer costs.

Government payments to crop insurance companies have more than doubled, from $1.8 billion in 2006 to $3.8 billion in 2009, primarily because of the commodity price spike. The number of policies delivered has dropped.

We expect a final Standard Reinsurance Agreement by April. We believe it will lead to a stronger federal crop insurance program that helps all producers continue to manage their risk in every region of the country. In addition, we think it will be more financially sustainable and responsible for taxpayers. 

Steve Harms is president of Rain and Hail LLC, one of the nation's largest crop insurance companies.

> Complexity Adds to Costs

Delivering the federal crop insurance program has become increasingly challenging. The administrative and operating subsidy, designed to reduce the delivery cost to keep farmers' premiums affordable, has dropped from 36% of premium in the 1980s to 19% for 2009. A 2008 farm bill provision delays payments to companies beginning in 2011, adding to cash-flow needs.

At the same time, the program's expansion and additional coverage choices add complexity and boost costs for computer, training and loss adjustment. 

Given existing challenges, once the 2011 Standard Reinsurance Agreement is finalized, companies will need to reassess their geographic footprint and the number of employees and adjusters who assist agents and policyholders. Service processes and innovations will also need to be re-evaluated. 

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FEATURED IN: Top Producer - MARCH 2010

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