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Corn+Soybean Digest

An Insurance Wish List

Since the last major changes to the federal crop insurance program were passed in 2000, there's general agreement among commodity groups that the industry is moving in the right direction.

“It's much better than it used to be,” says Bob Metz, a corn, soybean and wheat grower from northeastern South Dakota. Metz testified on behalf of the American Soybean Association (ASA) before the House Agriculture Subcommittee on General Farm Commodities and Risk Management. “It still needs some tweaking to make it an even better safety net,” he says.

Sam Willett, senior director of public policy for the National Corn Growers Association (NCGA), adds, “NCGA is supportive of the crop insurance program. But we will continue to make recommendations so the risk management industry can have more confidence in knowing the needs of corn growers.”

The Corn and Soybean Digest spoke with representatives from ASA, NCGA and insurance industry groups. Here are major issues and changes they advocate for the federal crop insurance program.

  • When is a field too wet or too dry to plant?

  • How many acres in a field must be affected before it qualifies for payments under the prevented planting provisions?

Willett says these questions need to be addressed to make the program more reliable where prevented planting is concerned. “We want to see program provisions clarified so the claims process is more predictable,” he says. “However, we also don't want to invite fraud.”

Metz says ASA also would like further study on this issue. Currently, to qualify under the prevented planting provision, 20% or 20 acres of a field must be affected. Metz says, speaking for himself, he would propose criteria of 5% or five acres. “We've never discussed it among the (ASA) board, but that's a good starting point,” he says.

Metz adds that the Risk Management Agency (RMA) has a producer committee to work on prevented planting, and ASA is represented on this committee.

NCGA believes a series of small, yet significant losses are just as devastating to a farm operation as one disastrous season.

Willett explains that's because most producers can't afford to insure more than 75% of their acres. And, typically, any disaster aid will not be available for a 25% loss. As a result, when a producer suffers a 20-30% loss over consecutive years, it can be devastating.

“It's time to look at some alternatives and give producers options to cover the deductible,” Willett says.

NCGA is working on different ideas to protect producers against back-to-back losses — and how to pay for them — by evaluating a supplemental product to cover multi-year losses.

Another ongoing issue with multiple-year losses is how they affect a farm's Actual Production History (APH). A series of losses will reduce a farm's APH and increase its risk profile, which results in higher premiums for lower coverage.

“Members of our committee have suggested various remedies to the multi-year problem. They include allowing a farmer to drop both his highest and lowest year in his APH or replacing the low yield with his own APH yield, which would still be less than his production in normal years,” Metz says.

He'd like to see a committee established to evaluate possible solutions to this situation, similar to the group RMA created to address prevented plantings.

The general thinking — that more is better — is being challenged by RMA, and there have been discussions on reducing the types of policies available.

“When (RMA administrator) Ross Davidson took office, he was amazed at how many different products there are, and how similar many of these products are,” says Paul Horel, president of the Crop Insurance Research Bureau. He says the cost of maintaining so many types of insurance products is expensive, and these costs drive up the overall cost of insurance products.

In fact, RMA is actively combining the base APH product and the Revenue Assurance, Crop Revenue Coverage and Income Protection plans into a single policy structure, says Tim Hoffmann, director of product development for RMA's national office in Kansas City.

“The goal is to get rid of the redundancy in these products,” he explains, adding that growers “could choose the base yield coverage or add the revenue options for upside and downside price protection, all from a single basic policy and crop provisions.”

In addition, Hoffmann says RMA plans to combine the Group Risk Protection and the Group Risk Income Protection plans without eliminating the unique features of each.

Even though the program covers 80% of U.S. cropland, some areas remain underserved. RMA says boosting participation in these areas is one of its top priorities, and NCGA and ASA agree with this assessment.

“We need to eliminate inadequacies for specific crops and regions,” says Metz. “Specifically, long-standing problems with rating must be resolved, especially in the South where participation has been lower.”

Some issues with the program could be resolved if higher levels of coverage were more affordable, NCGA and ASA argue. Presently, most coverage is purchased at the 70-75% coverage levels, because those are the most favorable levels where subsidies are concerned.

“The percentage of acres covered is up, and the percent of policies bought at higher levels of coverage has risen as well,” Willett says. “But we'd like to see additional gains in level of coverage.”

Willett concedes that achieving this goal will be a challenge for the industry, given budget tightening and less predictable weather. But it should be a priority.

To allow for increased subsidies at higher coverage levels — ASA advocates up to 85% — the National Association of Crop Insurance Agents proposes:

  • shifting subsidies from lower levels of coverage to the higher levels,

  • increasing the administration fee for catastrophic (CAT) policies, or

  • entering into contracts with state governments to allow for state subsidies for higher coverage levels.

Despite changes sought by the industry, crop insurance has come a long way. What's needed now are changes that address these individual areas, not a total overhaul.

“In testimony before the House Ag Committee, and earlier before the Senate Ag Committee, NCGA has taken the position that the program is making a positive difference,” says Willett.

Metz concurs and adds, “I know I sleep more comfortably, and so does my banker, when I buy crop insurance.” He's taken advantage of several different products, including revenue insurance products, which he says are one of the more successful parts of the current program.

Crop Insurance Research Bureau's Horel sums it up by saying, “Overall, it's easy to criticize the program. But look back to 1980 and no one would have believed we'd reach the levels we have achieved today. Sometimes we forget — in the big picture — this is a huge success.”

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