RMA Moves to Lower Insurance Premiums for Corn and Soybean Producers in 2012

November 29, 2011 12:45 AM
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But ICGA says Lucas 'complicated the process'

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

Crop insurance premiums will be lower for many corn and soybean producers in 2012, following an updated rating methodology. USDA Risk Management Agency Administrator (RMA) Bill Murphy made the announcement on Monday, saying that overall it would be about a 7 percent reduction for corn and 9 percent for soybeans.

In the big crop insurance states, the reductions will be greater, averaging 12 to 13 percent for corn in Iowa, Minnesota and Indiana. Murphy said the rate adjustment is based on findings of an independent study of RMA loss ratio data before and after 1995.

Loss ratio. "Prior to '95 our historic loss ratio was about $1.40; for every dollar in premium we took in we paid out about $1.40 or $1.43," Murphy said. "Since that time it's been around 84 cents, so we all have seen this major change that has occurred." That change, Murphy said, is due to improvements in crop insurance policies, a steady increase in the amount of corn and soybean acreage covered, and advances in production technology.

"This year is a prime example," Murphy said. "Look at the losses we are looking at this year and remember the spring we had. In Ohio a lot of the corn didn't get planted until the last planting date. That went across all the way up into North Dakota, yet they for the most part are meeting their APHs so I think you have to look at how the world has changed as far as corn and soybean production goes."

Further downward adjustments in premiums beyond the 2012 crop year are a possibility pending the outcome of additional RMA analysis. The agency plans to review its ratings methodology for wheat, cotton, grain sorghum and potatoes, but said any premium reductions for those commodities won't be available before the 2013 crop year.

National Corn Growers Association President Garry Niemeyer said they are pleased to hear farmers will no longer be facing the continued widening gap between the loss for corn and the premiums charged to growers for policy coverage. He says that this is a day long-coming. "Our farmers have historically paid more than their fair share of crop insurance premiums and we are pleased to see this is finally coming to an end," Niemeyer said. "NCGA has been working on this issue for the past eight years and we will continue to work with USDA as they implement these new premiums for the 2012 crop year."

Other reaction to the RMA announcement was mixed.

The Crop Insurance and Reinsurance Bureau (CIRB) released the following statement: “As providers of crop insurance and jobs across rural America, the member companies of the Crop Insurance and Reinsurance Bureau (CIRB) expressed concerns about USDA’s announcement regarding the implementation of a new rating methodology for setting corn and soybean crop insurance premiums. While CIRB appreciates that the novel methodology proposed in August was not fully adopted, CIRB remains concerned about implementing certain rating adjustments in 2012 – at a time after providers have made business decisions for the upcoming crop year, have already submitted business plans to the Risk Management Agency for approval, and during the period in which providers are in the process of acquiring commercial reinsurance. CIRB supports an actuarially sound crop insurance program and urges USDA to consider all consequences – technical, operational, and programmatic – in a transparent manner as it moves forward with any evaluation of additional rating methodology changes. CIRB looks forward to working with USDA to address the risk management needs of our nation’s producers while maintaining a sound and healthy private sector delivery system.”

The Illinois Corn Growers Association (ICGA) said the RMA decisions “means the crop insurance investment made by Midwestern corn farmers more closely represents their risk, although still misses the mark on making sure that farmer and government investments stay out of corporate pockets.” While ICGA President Jeff Scates commended Murphy’s decision, he said it did not come “without its share of difficulties and falls short of what was earlier proposed.”

Lucas involvement. "Illinois corn farmers, in partnership with the National Corn Growers Association, have been working on this re-rating process for nearly 10 years," Scates said, but then noted that, “House Ag Committee Chairman Frank Lucas (R-Okla.) really complicated this process. His arbitrary objection to RMA’s established actuarial system, followed by obstructionary tactics aimed at politicizing an action that should have been an ordinary course of RMA business, meant that the re-rate did not correct farmer overpayment as much as it could have. Lucas’ actions really demonstrate he isn’t interested in regional equity and what’s best for family farmers.”

The federally supported crop insurance system was designed to have a loss ratio of 1.0. In theory, farmer paid premiums paired with USDA paid premiums, should result in an equal number of dollars paid out in claims over time, Scates noted. “For corn farmers, that has certainly not been the case, as their premium overpayments have accrued to crop insurance companies as profit. "Our members do their due diligence to minimize claims. Obviously the goal each crop year is to farm the farm, not farm insurance programs," Scates added. “Crop insurance companies, however, have farmed the premiums, knowing full well it will grow their profits rather than equal out to a zero-sum game as was intended.”

Comments: Nothing is ever so simple when it comes to crop insurance. Just remember, taxpayers subsidize a lot of the premiums. Period.

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.


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