SCOTTSDALE, AZ. February 10, 2014 – Just days after President Barack Obama signed a new five-year farm bill, members of the crop insurance industry celebrated the strides they made in establishing this public-private partnership as the new cornerstone of federal farm policy.
But still, industry leaders underscored the fact that this shift – away from direct payments to programs where farmers have “skin in the game” won’t be easy and comes with even more responsibilities.
"We applaud our congressional leaders for overwhelmingly passing a Farm Bill that strengthens, not weakens, our commitment to crop insurance even in the face of federal spending pressure," said Tim Weber, Chairman of the American Association of Crop Insurers and National Crop Insurance Services. "I truly believe that 10 years down the road, when we look back at the 2014
Farm Bill, it will be elevated to one of the major legislative initiatives that established landmark developments for crop insurance and production agriculture."
Since its inception in 1938, crop insurance has steadily evolved and today protects 90 percent of planted cropland in America. The industry played a key role in helping rural America rebound after the devastating droughts of 2011 and 2012.
Weber told participants at the group’s annual meeting that industry achievements have been built upon, and will continue to rely on, three key elements: Affordability, Availability and Viability.
“One of the greatest hurdles crop insurance faced prior to 1994 was that for many farmers, it simply wasn’t affordable,” Weber explained. “Understanding that one of the keys to eliminating the need for future ad hoc disaster bills was to ensure that crop insurance must be affordable to farmers of all sizes, Congress enhanced the premium discount. Unlike farm programs of the past, the premium discount does not transfer money to farmers; it simply discounts the out-of pocket-premium that they use to purchase crop insurance.
“As Senate Agriculture Committee Chairwoman Debbie Stabenow has noted, "Crop insurance is insurance. The farmer gets a bill, not a check."
The second key to success is availability. During the first several decades after its inception, federal crop insurance wasn’t widely available, and thus was not a realistic or effective risk management tool for most farmers, Weber said.
But the industry has expanded, even though the number of participating companies has declined.
Currently policies are sold and serviced by some 15,000 crop insurance agents who work with the 18 participating companies and are incentivized to serve American’s farmers and ranchers. In 2012, more than 1.2 million policies were sold to farmers and, despite facing one of the worst agriculture disasters in decades, companies were able to deliver indemnities to farmers within weeks.
The third pillar of crop insurance is viability, Weber noted. “Unfortunately, one of the industry’s most significant challenges has been the repeated reductions in crop insurance funding, which harms the viability of private sector delivery.”
Weber said that Industry underwriting results have been highly volatile since the inception of the current Standard Reinsurance Agreement (SRA).
“Even though 2013 final results are not yet known, we currently project the industry’s return on net retained premium will finish in the mid-single digits. The comparable results for 2011 and 2012 were 17.5 percent and negative 15.2 percent, respectively. As a result, over the three-year period of the current SRA, the industry’s average return on net retained premium will be approximately four percent. When considering the industry’s expense deficit over the same three year period, the industry will incur a negative return on net retained premium after expenses.
“This low level of profitability is clearly a matter of grave concern for the industry. The large rate reductions implemented by RMA in recent years, coupled with the less favorable SRA underwriting gain provisions, only add to that concern, he noted.
Despite these challenges, Weber emphasized that, because Congress has entrusted the Crop Insurance Industry with the responsibility of becoming the lynch pin for the country’s farm safety net, “we have a duty to all American farmers, including the underserved and socially disadvantaged, to provide effective risk management solutions and, when disasters strike, to deliver on our promise to settle claims timely. We also have a duty to the American taxpayer to do so in a cost effective manner.”
Weber focused on four key points for the future of the industry:
· Continuing to invest in new insurance products and training initiatives to broaden the reach of our program;
· Renewing our strong and effective partnership with RMA, particular as we work to implement the new crop insurance provisions of the current Farm Bill;
· Continuing to work collaboratively with RMA to ensure program integrity; and,
· Continuing our commitment to invest in new technology and data capabilities to improve program efficiency and accuracy.
“Our increased position of prominence does, however, come at a cost. It not only brings a higher expectation from the public but it also brings a higher degree of visibility and more intense criticism for our detractors. Therefore, it is incumbent upon all program participants to be good steward of the public trust,” Weber emphasized.
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