Issue comes into focus with hefty claims this year
This spring, unfavorable conditions left millions of acres unplanted. And the tool used by most producers–federal crop insurance–is a little too lucrative, according to a program review by the USDA Inspector General (IG).
During its review, the IG made several key findings, which include: payments received exceeded the costs associated with planting the crop, the coverage discourages farmers from planting a second crop because of the impact on yield history and insurance adjusters didn’t provide enough documentation.
According to the report, coverage levels offered by USDA’s Risk Management Agency (RMA) exceed pre-planting costs by as much as 24% for corn and 13% for wheat.
Additionally, because yield history is calculated for other claims, many opt not to plant a second crop, as lower yields would hurt their average production history (APH) and ultimately lower future premiums. Prevented plantings are not counted against a farm’s APH unless a second crop is planted.
Loss adjusters also got blamed. The IG report noted that they didn’t provide enough documentation to support eligibility on more than $43 million in payments. "RMA needs to improve its guidance to better hold approved insurance providers accountable and prevent acres that are regularly too wet for crop production from receiving prevented planting coverage," the report stated.
However, RMA, having recently commissioned a study of prevented- planting coverage with the goal of assessing whether payments are excessive, is a step ahead of the report. As a result, any changes to the policies will be effective for 2015.
RMA used the opportunity to respond to the recommendations provided by the IG. A few highlights from RMA’s response follow.
Number 1: On average, RMA doesn’t believe the coverage levels are excessive and reflect increased costs before planting a crop. RMA hired a Prevented Planting Evaluation to determine if payments offered under the program are appropriate when a farmer is prevented from planting, but not excessive to the extent that it encourages farmers not to plant.
Number 2: RMA will reevaluate prevented planting coverage levels to assure that the levels used result in reasonable payments.
Number 3: RMA has received an opinion from the Office of General Counsel (OGC) about applying an assigned yield to prevented planting acreage for calculating a farmer’s APH when a second crop is not planted. RMA’s procedures are consistent with statutory language.
Number 4: RMA will assess if any yield assignment is appropriate, but based on prior OGC discussions, RMA does not anticipate this to be the outcome.
Additionally, RMA has revised the "Special Provisions of Insurance" to include a more objective standard relative to eligibility of prevented-planting acreage, and those changes will be effective for 2014.