Year after year of drought and intense heat that have cooked crops in Texas also have fueled a clash between USDA and the crop insurance industry that has spilled over into discussions of a new farm bill.
Crop insurers frustrated by years of losses in western Texas were blocked by USDA earlier this year from cancelling contracts with insurance agents but have since slashed agent commissions in the region. Agents are pressuring lawmakers to address the problem.
“This is an issue that could vastly spread” beyond Texas, said Kim Arrigo, an industry consultant who served as counsel to USDA’s Federal Crop Insurance Corporation and Risk Management Agency from 1993 through 2018.
Texas is one of 11 states where claims have exceeded premiums for at least six years during a 12-year span between 2012 and 2023, she said. The others are Arizona, Arkansas, California, Louisiana, Nevada, New Mexico, Oregon, South Carolina, Utah and Washington.
Several Texas counties are showing significant claims for this year, according to USDA data.
Laurie Diaz, operations manager for an insurance agency in Lubbock, Texas, said companies are slashing commissions across 28 counties even on policies for irrigated land because even those farmers have struggled to keep cotton crops growing with temperatures well above 100. The region is one of the largest cotton-growing areas in the country.
“They can't run the pivots enough to keep it [the crop] watered, to be honest with you. So, by the time that pivots come around, it's already dried out. … Even the irrigated stuff has been in a loss situation the last couple of years,” she said.
Agent commissions once amounted to 60% or more of companies’ administrative and operating subsidy. USDA provides A&O expenses to insurance companies that then use the money to compensate agents who sell their policies.
“What makes it hard is they’re almost holding the agencies responsible for these loss ratios, when, in reality, we don't have anything to do with the weather patterns,” she said.
Insurance companies are effectively caught in the middle, unable to deal with chronically high loss ratio regions without many options other than to cut agent commissions or pull out of a state entirely, said an industry lobbyist, who discussed the issue on condition of anonymity.
“They’re losing money in west Texas, so they’re trying to figure out how to deal with that situation. And in any normal business, what you would do is you would increase the rates in west Texas, but we don’t have control over the rates, the government does. When you don’t control the rates, you start looking at other ways to stop the hemorrhaging,” the lobbyist said.
The lobbyist stressed that farmers haven’t lost their access to crop insurance, even if agent commissions are slashed.
In a statement to Agri-Pulse, USDA’s Risk Management Agency expressed concern with the cuts to commissions. RMA issued a "cease and desist" order in March, telling companies, known as approved insurance providers, or AIPs, to stop cancelling agent contracts.
Many companies “have engaged in the cancellation of agent contracts and the reduction of agent commissions to negligible levels. Such actions have the potential to disrupt the delivery of federal crop insurance to American producers,” the statement said.
Crop insurance indemnities for 2024, as of Nov. 18Two groups that represent insurers, the Crop Insurance and Reinsurance Bureau and the American Association of Crop Insurers, issued a statement to Agri-Pulse in response to RMA:
“Despite claims to the contrary, there have been zero reported incidents of any farmer losing or being unable to obtain coverage due to changes in agent compensation structures. If there are farmers who want coverage and remain without coverage, we look forward to working in partnership with RMA to connect those farmers with an agent and company to write them a policy.
“Companies are committed to the success of the Federal Crop Insurance Program. We have long advocated for a big tent for crop insurance, and this is reflected by increased enrollment – from approximately 2.28 million policies in 2022 to more than 2.36 million policies in 2024.”
The groups said the same number of companies are serving Texas as in 2022 and 2023 and that the number of policies sold in the state has grown from 220,000 in 2022 to 238,000 this year.
There has been discussion of including provisions to deal with the issue in a farm bill extension that lawmakers hope to pass this month. However, negotiators have been struggling to agree on higher priority assistance for farmers affected by price declines.
“I think there are a lot of ‘asks’ to be attached to this farm bill extension, and I suspect that additional A&O is not the highest on the list,” the industry lobbyist said.
The 2011 Standard Reinsurance Agreement between USDA and the insurance companies sets terms for expense subsidies and risk sharing. The SRA imposed a cap on A&O reimbursement, which had risen sharply prior to 2011 as a share of premium.
The issue of how to address chronic insurance losses is likely to remain when lawmakers work on a new farm bill in the next Congress.
Senate Ag Chair Debbie StabenowThe farm bill advanced by the House Agriculture Committee in May included provisions to increase A&O funding requested by the industry. The bill would restore an inflation adjustment provision for A&O plus supplemental funding in states with widespread losses.
Under the bill, there also would be a minimum A&O reimbursement rate for specialty crop policies.
A draft farm bill from Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich., in November would set a floor under agent commissions and update RMA’s policy rating methodology. The bill also would authorize USDA to write policies directly through agents.
Arrigo, who has been assisting the Texas agents, said the Stabenow proposals would provide significant new protection for agents.
A committee aide, speaking on condition of anonymity, said the proposals should serve to inform the farm bill debate next year, assuming they don’t make it into a year-end package. “We do think it’s spreading,” the aide said of the challenges facing agents. We frankly had drafted these provisions before west Texas blew up.”
But AACI denounced Stabenow’s proposals soon after the draft bill was released, saying that they would likely push more companies out of the business and ultimately backfire on producers.
Her bill “would further expedite consolidation in an industry that has been shrinking under existing resources. Perhaps this is the goal given the proposal to pilot test government delivery of the program,” AACI President Scott Graves said.
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