According to a new study commissioned by the National Corn Growers Association (NCGA), private crop insurance company returns are down significantly from 2010, when the Standard Reinsurance Agreement (SRA) was renegotiated between insurance companies and the federal government. Returns are still in line with benchmarks laid out by USDA’s Risk Management Agency, according to NCGA.
“The federal crop insurance program is the cornerstone of farm bill risk management programs, and it is more important than ever, given the state of the farm economy,” according to Steve Ebke, the Nebraska farmer who chairs the NCGA Risk Management Action Team. “We commissioned an independent analysis of the crop insurance industry’s performance to determine whether criticisms against the insurers’ returns have merit.”
The analysis determined that the returns that private crop insurance companies receive are smaller than opponents claim, Ebke says. From 1998 to 2010, average net return for crop insurance companies was 14.1%. But from 2011 to 2015, returns only averaged 1.5%.
However, the expected net return was 5% during this period, so the report suggests that returns have been reduced due to the 2010 SRA renegotiations. These renegotiations substantially cut Administrative and Operating reimbursements and limited the share of underwriting gains crop insurance companies were able to receive.
The report’s summary questions whether these return trends are substantial enough to keep an adequate number of private crop insurance providers committed to serving the agriculture industry.
“As of yet, there has not been a broad exodus of companies from the industry, suggesting that returns are adequate,“ according to the report. “However, there are elements that could occur in the future that would make net returns less attractive.“
For example, a “string of high loss years” could cause private insurance companies to reevaluate the desirability to remain in the crop insurance industry.
The study was commissioned by NCGA and conducted by Dr. Gary Schnitkey, professor of agricultural and consumer economics at the University of Illinois; Dr. Joshua Woodard, assistant professor and the Zaitz Family Faculty Fellow of Agricultural Business and Finance at Cornell University; and Dr. Bruce Sherrick, professor of agricultural and consumer economics and Director of the TIAA-CREF Center for Farmland Research at the University of Illinois.
To read the full study, click here.