Latest draft of crop insurance agreement cuts $6 billion, invests in deficit reduction & CRP

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Latest draft of crop insurance agreement cuts $6 billion, invests in deficit reduction and CRP

By Sara Wyant

© Copyright Agri-Pulse Communications, Inc.

 Washington, June 10- The U.S. Department of Agriculture released the third and final draft of a new agreement with the nation's crop insurance industry today, which includes $6 billion in cuts. About $4 billion of those savings will be directed to deficit reduction, while the remaining $2 billion will be invested in expansion of the Pasture, Rangeland, and Forage program; providing a performance discount or refund for qualified producers; increasing Conservation Reserve Program (CRP) acreage to the maximum authorized level of 32 million acres, investing in new and amended Conservation Reserve Enhancement Program initiatives; and investing in CRP monitoring. 

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Agriculture Secretary Tom Vilsack said the CRP is at roughly at 30-30.5 million acres and that this change will allow the agency to enroll as much as 32 million acres during a signup that will be held sometime this summer. No further details are currently available on how the $2 billion will be allocated or how the crop insurance performance discount might be implemented.   

 

The final draft version of a new Standard Reinsurance Agreement (SRA), which details the new terms, roles, and responsibilities for both the USDA and insurance companies that participate in the Federal crop insurance program will be released to crop insurance companies this afternoon and discussed during a meeting next Friday. Risk Management Agency Bill Murphy says the firms will have 30 days to respond and make technical corrections.

 

The final draft agreement will generally maintain the current Administrative and Operating (A&O) subsidy structure, but remove the possibility of windfall government payments based on high commodity price spikes by limiting the level of A&O payments that the industry can receive, according to USDA. However, an inflation factor and consideration for new business is included so that the maximum payment may increase over the length of the agreement.

 

The third draft establishes a “hard cap” on agent commissions within a state, limiting payments to no more than 80% of administrative and operating (A & O) reimbursements in that state and no more than 100% of A & O when profit sharing is included.. Companies will have flexibility in how they deal with individual agents, but the draft would basically provide about $1,140 per policy with an inflation factor.

 

RMA sources say the draft SRA divides the U.S. into three groups and that this change will basically impact agents working in Group One, which includes Iowa, Illinois, Indiana, Nebraska and Minnesota---states they say have experienced “excessive” commissions.

 

Through this negotiation process, RMA has lowered the projected average long-term return for the companies to about 14.5%. To do this, RMA worked closely with the insurance companies to modify the terms under which RMA provides reinsurance. Meanwhile, RMA will increase the return in historically underserved states to provide additional financial incentives for companies to write business in these states. The agency also returned to individual state stop loss protection for the more risky business, thus providing greater reinsurance protection for companies.

 

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