Crop Insurance Industry Testifies Before House Committee on Agriculture Hearing Comes on Heels of Crop Insurance Companies Signing SRA, Industry Remains Concerned About Preserving Farm Safety Net


July 22, 2010

OVERLAND PARK, KAN, July 22, 2010… Bob Parkerson, president of National Crop Insurance Services (NCIS), testified today on behalf of the crop insurance industry before the U.S. House Agriculture Subcommittee on General Farm Commodities and Risk Management.

“The federal crop insurance program is the largest part of the federal farm safety net, protecting $80 billion in America’s agriculture production,” said Parkerson. “It’s the best and most effective risk management tool available to farmers, and we continue to be committed to providing producers and ranchers with a sound and effective crop insurance program.”

“Yet, in light of the recent Standard Reinsurance Agreement (SRA), the uncertain and lingering financial impact of the 2008 Farm Bill, and current deliberations on the 2012 Farm Bill,” he added, “we think it’s critical to lend our perspective to these deliberations and raise awareness of the challenges we face as an industry due to these budget cuts, particularly how they could potentially disrupt the program, and diminish the level of service and coverage to farmers.”

An Arduous SRA Negotiation: A Predestined Outcome
Member companies of the crop insurance program recently signed the SRA after a long and, at times, challenging negotiation with USDA. The new agreement calls for a $6 billion cut from the program over 10 years, which can be added to a $6.4 billion reduction from the 2008 Farm Bill.
Parkerson testified that the SRA process started in 2009, with the industry entering discussions with USDA’s Risk Management Agency (RMA) in the spirit of open and fair negotiation, as deemed by Congress in the 2008 Farm Bill.

He testified that the industry created working committees and provided detailed comments to each of RMA’s first two drafts, yet the two sides emerged from the negotiations with several issues still unresolved. Data requested by the industry, for example, was never provided by RMA, and there were wholly new concepts introduced by the Agency in the final draft that were never submitted for public, or industry comment.

“We share the same goals of Congress and the Administration for deficit reduction and a cost-efficient program,” said Parkerson, “and we have contributed toward meeting these goals for the industry and production agriculture.”

Parkerson asked the Committee and Congress to carefully consider the recent SRA negotiation process and give adequate recognition of these cuts as the 2012 Farm Bill hearings continue, with the understanding that the industry is still trying to determine how to manage reductions from both the SRA and the 2008 Farm Bill without any control on setting premium rates – something that is unique to crop insurance as compared to other types of insurance.

He added that companies have tough choices to make with respect to major operational changes as a result of these financial concessions, including possible consolidation and less investment in technology. Many companies will also have to consider the feasibility of regional offices and re-evaluate whether they can continue to develop innovative peril products, which some companies created for farmers to cover crops or perils not currently covered under the federal program.
The industry is also concerned about delayed service and payments to farmers due to the possibility of having fewer adjusters.

“Something has to give, and we don’t want it to be at the expense of the farmer,” Parkerson said. “But I don’t know how we’ll replace service to those who might be impacted by consolidation,” he said.

Parkerson vowed that the industry will remain committed to the program. “Our industry can’t, and will not walk away from farmers and our responsibility to provide them with an effective farm safety net. We will continue to work with Congress through the farm bill process to preserve the industry’s private delivery system, which has proven so effective throughout this program’s public-private partnership.”