USDA Issues Final Draft of Crop Insurance Agreement

Companies that provide crop insurance to farmers will receive $6 billion less in federal funding over 10 years under a USDA final proposal.

Companies that provide crop insurance to farmers will receive $6 billion less in federal funding over 10 years under a USDA final proposal. Under the department's Standard Reinsurance Agreement, $4 billion of the cuts would go for deficit reduction, with most of the remaining $2 billion moving to USDA land-conservation program funding.

Payments for administrative and operating costs subsidized by the government would be capped at $1.3 billion next year with the limit rising to $1.37 billion in 2015, according to the final draft of USDA's offer to companies. Insurers have 30 days to negotiate technical details before the plan is adopted, said Bill Murphy, head of the department's Risk Management Agency.

USDA's Standard Reinsurance Agreement details the new terms, roles, and responsibilities for both USDA and the insurance companies that participate in the federal crop insurance program. The revised proposed agreement issued yesterday would lower average returns to about 14.5 percent from the average of 17 percent that it has been over the past two decades. USDA said an inflation factor and consideration for new business is included so that the maximum payment may reasonably increase over the length of the agreement. The department noted that annual payments to insurers have risen significantly over the past few years.

Meanwhile, RMA says it will increase the return in historically underserved states to provide additional financial incentives for companies to write business in these states. However, the plan also essentially would cap agent commissions at 18 percent on a statewide basis, although payments to individual agents could be more or less than that, according to USDA.

The 2008 farm bill authorizes RMA to renegotiate the agreement effective for the 2011 crop year. Due to significant increases in commodity prices in recent years, annual insurance industry payments more than doubled from $1.8 billion in 2006 to an estimated $3.8 billion in 2009 based on the terms of the previous SRA . Meanwhile, the number of total policies decreased from 2000 to 2009, USDA noted.

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