Crop Insurance Industry Adapting

October 28, 2010 11:20 PM

The crop insurance industry is in the midst of implementing the new Standard Reinsurance Agreement (SRA) which regulates how programs are administered, reporting requirements and payment levels to companies for delivering the program to farmers.

Not only have several products been combined (so-called Combo policy) and common crop provisions consolidated, but agents and companies have new reporting requirements as the Risk Management Agency and Farm Services Agency move to a common land reporting system. They’ll be doing more field inspections, as well, says Tom Zacharias, president of National Crop Insurance Services.
It’s too soon to tell whether the industry will consolidate due to the provisions of the SRA, says Zacharias. “Companies and agents will have to find efficiencies through more innovation under this SRA as they seek to compete via the service they provide to farmers.”
A concern in the industry is that this SRA was written following several pretty good years in which relatively good weather improved underwriting gains. In addition, high crop prices have meant higher premiums for the program and farmers have been able to afford those higher premiums. “If we go into a period of erratic weather, it could really change the dynamics of the financial side of the program,” says Collins. “That effect probably is underemphasized by the SRA process.”
Looking ahead to the farm bill, the widely differing positions among those in Congress, combined with “a whole slug” of new people, with fewer from rural areas, mean far more uncertainty this time around, says Collins, who has seen the process multiple times from his former position as USDA’s chief economist.
“The 2002 farm bill was crafted coming off the poor financial conditions of the 1990s and included not only baseline spending but an additional $77 billion. In 2008, Pay-Go had gone into effect so in theory they couldn’t spend the baseline—but they did, plus $20 billion,” says Collins. “This time the competition for funds will be even greater. I think we could see a much different outcome.”
The research staff at NCIS will be focusing on carrying the message that crop insurance is the primary risk management tool for American farmers and educating new Congressional staffers about how crop insurance meshes with ACRE and SURE.


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