Crop Insurers Comment on President’s Proposed Budget

The White House today released details of its FY2018 proposed budget, which included steep cuts to crop insurance and other farm policies.

The American Association of Crop Insurers, Crop Insurance and Reinsurance Bureau, Crop Insurance Professionals Association, Independent Insurance Agents and Brokers of America, National Association of Professional Insurance Agents, and National Crop Insurance Services released the following joint statement in response:

“Weakening crop insurance and making it more difficult for farmers to bounce back during tough times will jeopardize rural jobs and will find little support in rural America or on Capitol Hill. The rural economy is already suffering through a period of low prices and a multitude of spring weather disasters. Yet, the Administration’s budget proposal targets the primary tool farmers use to handle these risks.

“Lawmakers favor crop insurance because it reduces taxpayer risk exposure and has come in under budget since the 2014 Farm Bill was passed. Farmers are willing to help fund their own safety nets – collectively spending $50 billion out of their own pockets on crop insurance since 2000 – because they know private-sector efficiency will speed aid when it is needed most.

“Destructive cuts to crop insurance have been proposed by past Administrations and soundly rejected by Congressional leaders, who recognize the importance of maintaining a strong farm safety net. We fully expect that to be the case again this year, and we are hopeful to engage in meaningful dialogue about how to support America’s hardworking farmers and ranchers in difficult times like these.”

Tom Zacharias Interview on AgriTalk – December, 2014

“If you look over the last couple of years, we have faced some headwinds.  Take the situation in 2012 with the extensive drought we had in the Midwest.  Last year, when we had the swing in prices and a lot of other revenue policies kicked in, so there were indemnities paid there.  The last couple of years have not met expectations for the private sector.  That said, again, these companies are in business for the long run, so we are optimistic for 2014 to see how the returns come out.  Companies have made long-term investments so they require long-term adequate return on their capital.”

To read a transcript of the entire interview, please click here.

Joint Statement on Farm Bill Conference Committee Report

Contact: Laurie Langstraat, NCIS – 913-685-2767

(January 28, 2014) – American Association of Crop Insurers, Crop Insurance and Reinsurance Bureau and National Crop Insurance Services, in response to the Farm Bill conference committee filing its conference report last night, released the following statement:

“We are pleased that Senate and House conferees have reached a bipartisan compromise and produced a legislative package that gives modern-day agriculture the tools it needs for success in today’s world. There is a strong consensus among lawmakers that crop insurance should be enhanced and serve as the centerpiece of the farm safety net moving forward, which underscores the success the policy has seen over the years and the popularity it enjoys among farmers.

“Since crop insurance’s rise to prominence, overall farm policy spending has gone down because farmers and private insurers help shoulder risk that was otherwise borne by taxpayers. In addition, rural economies have benefited because crop insurance makes sure farmers quickly and accurately receive the help then they need it the most.

“We also applaud conferees for rejecting multiple attempts to minimize crop insurance’s effectiveness by making it more difficult for all farmers to obtain a key risk management tool. The Farm Bill is now one step closer to completion and we urge the House and Senate to approve the farm bill expeditiously. Farmers need the peace of mind provided by a 5-year farm bill and a vibrant crop insurance infrastructure to ensure that this nation’s agriculture sector remains vibrant and productive.”

###

NCIS Responds to OIG Prevented Planting Report

Contact Laurie Langstraat, 913-685-2767

The following statement regarding the USDA/OIG report “RMA: Controls Over Prevented Planting” should be attributed to Tom Zacharias, president, National Crop Insurance Services.

“Prevented planting is a potentially devastating situation which is why many farmers purchase crop insurance to help mitigate the risk. It is important that preventing planting coverage provisions be clarified to control loss situations and improve the integrity of the crop insurance program. ”

“In addition, it should be noted that crop insurance companies have millions of dollars at stake on these policies, so it is also in our best interest that any ambiguities be addressed. To that end, the industry has made a number of recommendations to RMA to further clarify the provisions of the crop insurance policy and promote program integrity. Several of these recommendations are to be implemented for the 2014 and succeeding crop years. Crop insurance is the primary risk management tool for America’s farmers and any changes that strengthen the program benefits farmers, taxpayers and participating companies alike.”

 ###

NCIS Responds to Bloomberg News Series on Crop Insurance

Contact Laurie Langstraat, 913-685-2767

The following statement should be attributed to Tom Zacharias, president, National Crop Insurance Services, in response to the Bloomberg News series on crop insurance:

“Over the last decade, elected officials, financial institutions, farm leaders and farmers have reached a general consensus that crop insurance is the best risk management tool available. That conclusion was reached because crop insurance reduces the risk exposure to taxpayers while requiring farmers to purchase policies with their own money before enjoying the relative protection of insurance. In short, it forces farmers to manage risk before, not after it happens, which saves taxpayers money.

“The factual errors, blatant omissions and obvious bias in this series were stunning and it is unfortunate that the editors of Bloomberg News agreed to release these stories publicly. It was a great disservice to their readers and a personal insult to the hardworking farmers and ranchers of this nation.”

 ###

NCIS Responds to Bloomberg News Series on Crop Insurance

Contact Laurie Langstraat, 913-685-2767

The following statement should be attributed to Tom Zacharias, president, National Crop Insurance Services, in response to the Bloomberg News series on crop insurance:

“Over the last decade, elected officials, financial institutions, farm leaders and farmers have reached a general consensus that crop insurance is the best risk management tool available. That conclusion was reached because crop insurance reduces the risk exposure to taxpayers while requiring farmers to purchase policies with their own money before enjoying the relative protection of insurance. In short, it forces farmers to manage risk before, not after it happens, which saves taxpayers money.

“The factual errors, blatant omissions and obvious bias in this series were stunning and it is unfortunate that the editors of Bloomberg News agreed to release these stories publicly. It was a great disservice to their readers and a personal insult to the hardworking farmers and ranchers of this nation.”

 ###

NCIS Responds to Bloomberg News Story

Contact: Laurie Langstraat, 913-685-2767

The following statement should be attributed to Tom Zacharias, president, National Crop Insurance Services and is in response to the Bloomberg News story “Taxpayers turn U.S. farmers into fat cats with subsidies”:

“The primary reason behind the growth and success of crop insurance over the last decade is that farmers, farm groups, banks and other lenders, elected officials and those who live and work in rural America understand that it is the best, most cost-effective risk management tool farmers have.   That is why the lack of balance and clear agenda behind the first in this series of articles is so troubling.

“For example, the article claims that the government “pays farmers to buy coverage,” which is absolutely false.  Farmers purchase crop insurance policies with money out of their own pockets.  If a loss does not occur, which is the case for most farmers in most years, then purchasing crop insurance is a net loss, not a gain, for farmers.

“In truth, crop insurance is a win-win scenario for all stakeholders in agriculture and the public in general.  For farmers and the rural economies they support, it is a critical risk management tool that helps farmers who purchase policies recover from natural disasters.   For financial institutions, a crop insurance policy serves as collateral for a farmer’s production loan that might otherwise not be feasible.  For taxpayers, crop insurance has all but eliminated large-scale emergency disaster bills, which fell fully on their laps every time and cost more than $70 billion since 1989.

“It should be noted that overall farm safety net spending has fallen dramatically since the rise of crop insurance. Unfortunately, this series is providing a platform to the critics of crop insurance, who for various reasons want to implode any farm safety net and return America to the past days of costly, cumbersome agriculture disaster bills and financial disruption for America’s farmers.

“Crop insurance is a modern-day farm policy for today’s unique weather and market challenges and it, and the farmers who raise our feed, food and fuel, deserve praise, not condemnation.”

 ###

NCIS Responds to Environmental Working Group’s Accusations – May 1, 2013

A recent report prepared by Bruce Babcock and funded by the Environmental Working Group calls crop insurance “a bloated, taxpayer-funded income support program” and that farmers are profiting from the 2012 drought because of crop insurance. Is this true?

Absolutely not. It should come as no great surprise that the recent EWG report prepared by Bruce Babcock is highly critical of the crop insurance program. Once again, the public is being led to believe by the EWG that farmers are somehow profiting from the drought of 2012 and crop insurance indemnities. This is simply not true. In 2012, indemnities paid to farmers for losses will total approximately $17 billion.

The report states that crop insurance has ‘turned more into a farm income support program than a crop insurance program…’ Unfortunately, EWG fails to acknowledge that before farmers received a single dime in crop insurance indemnity payments, they shouldered $12.7 billion in losses as part of their crop insurance policy deductibles, and an additional $4.1 billion was paid out by farmers to purchase their policies. Thus, farmers absorbed approximately $17 billion in uninsured losses and premium expenditures out of their own pockets before insurance.”

Compared to ad hoc disaster relief, the private sector delivery system allows for indemnity payments to be made on a timely basis. With crop insurance, farmers are able to plant their crops for 2013 and stay in business. Contrast this to the experience of victims of Hurricane Sandy who struggled to get relief and then have waited for its distribution.

This report also ignores the fact that crop insurance companies will suffer losses due to the 2012 drought, and that the federal government made nearly $4 billion in underwriting gains from 2001-2010. The report focuses primarily on the unusual, 1-in-25-year drought of 2012 and not the long term performance and improvements that have been made to the crop insurance.

The report ignores the fact that farmers may pay premiums for many years and suffer no losses, or losses within their deductibles, in order to have sufficient protection for the years like 2012. The report ignores the substantial funding reductions in the safety net for farmers that will be part of the new farm bill.

The report is also highly critical of a type of insurance that farmers can purchase known as the Harvest Price Option. Without the harvest price option, the producer’s loss would be indemnified at the lower price projected at the start of the season. Unfortunately, such an indemnity would place many farmers in financial jeopardy. Many farmers enter a forward contract to sell a portion of their production before harvest. Usually these contracts pay the producer for the production they deliver after harvest based on harvest prices.

If the producer loses the crop, the producer is still obligated to deliver under the forward contract. But since the producer has lost the crop, the producer would have to buy the commodity at the harvest price and deliver that or financially settle the buyer’s contract at the harvest price. The purpose of the harvest price option is to provide the producer with sufficient funds to settle the forward contract.

Farmers utilize crop insurance because it enables them to manage their own risk, be it weather or market related. Congress supports crop insurance because it shifts the risk of natural disaster from taxpayers and takes the politics out of natural disasters.

NCIS Responds to Chicago Tribune Editorial

It is unfortunate that the Chicago Tribune would choose to criticize crop insurance, a new hybrid of private-public risk management that is saving taxpayers lots of money and shielding them from risk (“Farm Bill? Later. Political gridlock may save U.S. from bad farm legislation,” Editorial, Sept. 17).

In the past, agriculture disasters like this year’s historic drought would have resulted in huge and costly agriculture disaster bills. In fact, since 1989, 42 such bills cost taxpayers $70 billion, according to the Congressional Research Service.

Crop insurance represents a whole new chapter in agriculture risk management. First and foremost, farmers must purchase a policy — ensuring that they have “skin in the game” — to be eligible to collect an indemnity for damages. In 2011, farmers paid more than $4.5 billion in premiums.

Since the emergence of the modern-day crop-insurance system, spending on farm safety-net programs has gone down by roughly 36 percent. Crop insurance alone has had its funding reduced by $12 billion since just 2008.

Last year’s string of natural disasters lasting the entire year was a case study in the efficacy of crop insurance. Despite freezes, floods, droughts, wildfires and hurricanes, there was not a single call fordisaster assistance from America’s farmers.

Why is that? Because 84 percent of eligible farmland, some 266 million acres growing food, feed, fuel and fiber for this nation and the world, was protected by crop-insurance policies.

Crop insurance has become the most lauded risk management tool by farmers, bankers and many elected officials of both parties for onereason: It works.

In today’s politically charged environment, there are few things that both Republicans and Democrats can agree upon. Yet despite thatfact, members from both sides of the aisle have voted for a strong crop-insurance policy as a cornerstone risk-management tool in the 2012 Farm Bill.

— Thomas P. Zacharias, president, National Crop Insurance Services, Overland Park, Kan. (September 25, 2012)

 

NCIS Responds to American Enterprise Institute

The American Enterprise Institute (AEI) released a paper in September 2012 claiming potential costs of $20 billion per year for the Price Loss Coverage (PLC) and Supplemental Coverage Option (SCO) programs in the Congressional 2012 Farm Bill proposals. The release is apparently intended to create alarm over potentially high costs of future farm policy. Unfortunately, AEI is following the model of other farm policy critics by employing inaccurate data and failing to tell whole story.

Read more…

NCIS Responds to August 10, 2012, USDA Crop Progress Report

The following statement is in response to the August 10 USDA Crop Report. The statement should be attributed to Thomas P. Zacharias, president, National Crop Insurance Services.

“As expected, the Agriculture Department lowered the corn and soybean production forecast in its August 10 crop production report released today, due to heat stress and extreme drought throughout much of the Corn Belt.

“Although this was the largest corn crop planted since 1937, production is projected to be down 13 percent, the lowest output since 2006. Corn yields are expected to average 123.4 bushels per acre, down nearly 24 bushels from last year, which would be the lowest average yield since 1995. Soybeans tell a similar story. Soybean production is forecast to be down by 12 percent from last year, and if realized, would have the lowest average yield since 2003.

“Thankfully, the vast majority of the farms in these drought-ravaged areas are protected by crop insurance. Farmers purchase crop insurance polices to protect themselves against situations just like this. Some of the farmers in these affected areas have purchased crop insurance policies for years and have never collected an indemnity. This year, their decision to purchase crop insurance confirms their practice of sound risk management.

“Obviously, there will be continued speculation about the ultimate cost of the 2012 drought. Even with today’s report, it is still too early to provide precise estimates of the losses. We are analyzing the August 10 report and will compare that with reports from the field along with the crop insurance policy data that is still being processed and reported to RMA. Again, we do not yet have a complete picture of the situation and final outcomes will vary by state, crop and types of policies purchased.

“What is certain is that the crop insurance industry is on the ground in the drought-stricken areas, mobilizing loss-adjuster teams. Farmers can be assured their claims will be paid, and that the companies will move as quickly and as efficiently as possible, given the expected volume of claims, to assess damages and get indemnity checks into the hands of farmers.

“In order to be approved to sell federal crop insurance, companies must have adequate surplus and reinsurance at their disposal so that even if a catastrophe of this magnitude strikes, and then one strikes again the next year, the company is still capable of paying indemnities on the policies they sell.

“In addition to company surplus and reinsurance, the federal government, serves as the backstop reinsurer for all companies that sell crop insurance. As such, the federal government shares in the gains and the losses of the program. Gains in prior years can and will be used to offset losses in years like this one.

“In terms of the industry’s ability to handle the claims load that will be generated over the next several months, the industry has 5,000 claims adjusters and 15,000 agents working tirelessly right now to help growers cope. These adjusters are working hard to get money to farmers who have suffered losses, already paying out $822 million in indemnities to date. Companies are also mobilizing adjusters away from other parts of the country that have not been affected by drought and sending those adjusters to the hard-hit states.

“With their crop insurance policies in hand, farmers will not only survive this drought but plant again next year, ensuring a continuity of the food, feed, fiber and fuel supply for this nation and an increasingly hungry world.”

 

###

 

Plowed Under ‐ Redux

By Thomas P. Zacharias, President, National Crop Insurance Services

The Environmental Working Group’s (EWG) most recent report entitled Plowed Under (August 6, 2012) deserves a few candid observations. By all outward appearances, the document appears to be a standalone “research effort.”

As such, the report has no real analytical or science‐based foundation. The report attributes recent crop land use conversion rates to the existence of crop insurance. How is this substantiated? By way of a series of mapping overlays, EWG associates loss of wildlife habitat solely due to farmers’ use of crop insurance. There is no demonstration of any formal analysis, such as statistical or economic considerations. It is not obvious that the reportunderwent any form of peer‐review, nor is there is any reference in the report to any similar analysis that has been published in peerreviewed journals.

This is quite unfortunate and irresponsible. Fortunately, one does not have to search too far to find a series of peer‐reviewed studies on this very topic. I have provided such a review of the subject here.

So, what do we know…

In a paper presented at the 2011 Annual Meeting of the Agricultural and Applied Economics Association, authors Miao, Feng, and Hennessy (Iowa State University) find crop land use effects attributable to crop insurance to be quite small. Conversely, the authors find product price to be the more dominant factor in farmer’s land use decision. This is consistent with most published literature.

More recently in the August 2012 Journal of Agricultural and Resource Economics, authors Walters, Shumway, Chouinard, and Wandschneider find “…. small, but not universal, tendency for increased crop insurance participation to create “noticeable” environmental effects …evidence shows both positive and negative effects as cropping patterns change. On average, the contribution of crop insurance to adverse environmental effects is slightly less than 1%…” A careful reading of their paper also indicates that product price is the dominant factor in farmers’ acreage decisions, again consistent with the existing literature.

These are peer‐reviewed studies that are based on formal analytical and statistical techniques; not for the faintof heart. This should be the essence of the policy debate. The assertion by EWG that farmers are planting on less‐productive land simply and solely to collect insurance indemnities is unfounded.

Partial and incomplete analysis of important agricultural and environmental policy issues does not serve the public well, particularly in the midst of the Farm Bill debate and the current drought situation in the Midwest. Maybe farmers are praying for rain instead of drought, and maybe policy makers are praying for intellectual honesty instead of glib, one‐line headline seekers.Farmers are probably not laughing at ill‐informed critics,nor are they laughing at burned‐out corn and soybean fields.

Who can know the heart?

Plowed Under ‐ Redux

By Thomas P. Zacharias, President, National Crop Insurance Services

The Environmental Working Group’s (EWG) most recent report entitled Plowed Under (August 6, 2012) deserves a few candid observations. By all outward appearances, the document appears to be a standalone “research effort.”

As such, the report has no real analytical or science‐based foundation. The report attributes recent crop land use conversion rates to the existence of crop insurance. How is this substantiated? By way of a series of mapping overlays, EWG associates loss of wildlife habitat solely due to farmers’ use of crop insurance. There is no demonstration of any formal analysis, such as statistical or economic considerations. It is not obvious that the reportunderwent any form of peer‐review, nor is there is any reference in the report to any similar analysis that has been published in peerreviewed journals.

This is quite unfortunate and irresponsible. Fortunately, one does not have to search too far to find a series of peer‐reviewed studies on this very topic. I have provided such a review of the subject here.

So, what do we know…

In a paper presented at the 2011 Annual Meeting of the Agricultural and Applied Economics Association, authors Miao, Feng, and Hennessy (Iowa State University) find crop land use effects attributable to crop insurance to be quite small. Conversely, the authors find product price to be the more dominant factor in farmer’s land use decision. This is consistent with most published literature.

More recently in the August 2012 Journal of Agricultural and Resource Economics, authors Walters, Shumway, Chouinard, and Wandschneider find “…. small, but not universal, tendency for increased crop insurance participation to create “noticeable” environmental effects …evidence shows both positive and negative effects as cropping patterns change. On average, the contribution of crop insurance to adverse environmental effects is slightly less than 1%…” A careful reading of their paper also indicates that product price is the dominant factor in farmers’ acreage decisions, again consistent with the existing literature.

These are peer‐reviewed studies that are based on formal analytical and statistical techniques; not for the faintof heart. This should be the essence of the policy debate. The assertion by EWG that farmers are planting on less‐productive land simply and solely to collect insurance indemnities is unfounded.

Partial and incomplete analysis of important agricultural and environmental policy issues does not serve the public well, particularly in the midst of the Farm Bill debate and the current drought situation in the Midwest. Maybe farmers are praying for rain instead of drought, and maybe policy makers are praying for intellectual honesty instead of glib, one‐line headline seekers.Farmers are probably not laughing at ill‐informed critics,nor are they laughing at burned‐out corn and soybean fields.

Who can know the heart?

EWG Study A Reckless Attack on Farmers’ Best Risk Management Tool

(OVERLAND PARK, Kan.) — “The Environmental Working Group has an unprecedented track record of promoting and funding misleading and flawed analysis, as well as mischaracterizing data to generate news headlines. Its latest attack on farmers’ most important risk management tool is no different. For example:

  • EWG seems to be criticizing government support of crop insurance. Yet, EWG fails to mention that it is promoting a plan on Capitol Hill to provide farmers with 100 percent subsidized crop insurance coverage administered by the government instead of efficient private insurers.
  • The same fruit and vegetable growers EWG supposedly champions are likely some of the largest crop insurance benefit recipients on its list of ‘offenders.’
  • EWG fails to account for the fact that these ‘subsidies’ are premium discounts that are accounting transactions that take place within the USDA. There are no government subsidy checks to farmers. Unless indemnities are paid to a farmer, there is no outlay on that famer’s policy. Even when there is a loss, taxpayer cost is minimized by government underwriting gains on other policies, which is why CBO estimates for crop insurance have historically been so much higher than actual costs.

“Only telling part of the story is nothing new for EWG when it comes to agriculture. Its controversial database of direct and counter cyclical payments quietly combines multiple years, and in many cases multiple farmers, to distort the facts. Ironically, many of the ‘rich and famous’ subsidy recipients EWG has used in the past to make news headlines about farm program payments receive only conservation subsidy payments that EWG supports.

“Crop insurance is extremely popular with lawmakers from both sides of the aisle, as well as with farmers, their lenders, and nearly everyone with a stake in rural America. That is because crop insurance gives producers a fighting chance after disaster strikes or markets collapse. After recent reductions in farm policies, it is the single most important risk management tool remaining for U.S. farmers and ranchers.

“One must question the motive of EWG. Is it to leave America’s farmers and ranchers without the ability to survive and successfully manage agricultural disasters?”

 ###

 

EWG Study A Reckless Attack on Farmers’ Best Risk Management Tool

(OVERLAND PARK, Kan.) — “The Environmental Working Group has an unprecedented track record of promoting and funding misleading and flawed analysis, as well as mischaracterizing data to generate news headlines. Its latest attack on farmers’ most important risk management tool is no different. For example:

  • EWG seems to be criticizing government support of crop insurance. Yet, EWG fails to mention that it is promoting a plan on Capitol Hill to provide farmers with 100 percent subsidized crop insurance coverage administered by the government instead of efficient private insurers.
  • The same fruit and vegetable growers EWG supposedly champions are likely some of the largest crop insurance benefit recipients on its list of ‘offenders.’
  • EWG fails to account for the fact that these ‘subsidies’ are premium discounts that are accounting transactions that take place within the USDA. There are no government subsidy checks to farmers. Unless indemnities are paid to a farmer, there is no outlay on that famer’s policy. Even when there is a loss, taxpayer cost is minimized by government underwriting gains on other policies, which is why CBO estimates for crop insurance have historically been so much higher than actual costs.

“Only telling part of the story is nothing new for EWG when it comes to agriculture. Its controversial database of direct and counter cyclical payments quietly combines multiple years, and in many cases multiple farmers, to distort the facts. Ironically, many of the ‘rich and famous’ subsidy recipients EWG has used in the past to make news headlines about farm program payments receive only conservation subsidy payments that EWG supports.

“Crop insurance is extremely popular with lawmakers from both sides of the aisle, as well as with farmers, their lenders, and nearly everyone with a stake in rural America. That is because crop insurance gives producers a fighting chance after disaster strikes or markets collapse. After recent reductions in farm policies, it is the single most important risk management tool remaining for U.S. farmers and ranchers.

“One must question the motive of EWG. Is it to leave America’s farmers and ranchers without the ability to survive and successfully manage agricultural disasters?”

 ###

 

NCIS Comments on Senate Agriculture Committee Farm Bill Passage

The following statement should be attributed to Tom Zacharias, president, National Crop
Insurance Services.

“We commend the Senate Agriculture Committee for its commitment and
determination to write and pass a Farm Bill that saves taxpayers money and provides
confidence to farmers and their lenders as they make business decisions for upcoming
growing seasons. The fact that the Committee successfully reached a bipartisan
consensus in today’s political environment is proof that the Farm Bill is important to all
corners of this nation’s economy and its citizens, both rural and urban.

“The bill passed out of the Committee today responded to calls from growers of most
major crops by keeping crop insurance strong and ensuring that it will remain at the
forefront of modern‐day farm policy. We appreciate the Committee’s efforts to improve
the crop insurance title and limit the adverse impacts of other programs on crop
insurance. The fact that farmers are in the fields planting following a difficult 2011
growing season shows how well the current crop insurance system is working.

“We look forward to working closely with lawmakers to make sure the 2012 Farm Bill
provides a strong safety net for the men and women who produce the world’s best
food, feed, natural fiber, and fuel supply.”

Crop insurance is a public‐private partnership designed to reduce taxpayer risk exposure and
speed assistance to farmers after disaster strikes. Since 2008, private crop insurance companies
have paid out more than $28 billion to farmers to help them recover from losses and remain in
production. Over the same period crop insurance funding has been reduced by more than $12
billion, meaning crop insurers are doing more with less. Avoiding further cuts and maintaining a
strong crop insurance system has been hailed among agriculture’s top priorities for the 2012
Farm Bill.

###

NCIS Responds to Los Angeles Times Article

Below you will find NCIS’ response to the Los Angeles Times article “Farm Insurance Fraud is Cheating Taxpayers out of Millions” from February 6, 2011.

NCIS Response To the Editor: 
(These comments are based on letters submitted to the editor of the Los Angeles Times by Dallas Smith, former Deputy Under Secretary of USDA, and Keith Collins, former USDA Chief Economist and a crop insurance industry consultant, as well as other material.)



Beginning with its sensationalist headline, the Los Angeles Times misrepresents the occurrence of fraud in the Federal crop insurance program. The article fails to tell the success story that private insurers and their licensed agents now provide coverage on $80 billion of America’s agricultural production.

The industry shares the Times’ disdain for fraud, and has implemented effective and unprecedented measures to deter and identify false claims. The program has been a pioneer in the use of data mining, utilizes the large field staff of the Farm Service Agency to spot check questionable operations, employs over 4,700 certified crop loss adjusters and conducts numerous claim reviews. These measures have driven the incidence of program abuse far below other lines of property and casualty insurance.

The Times reports, without evidence, “a wave of scams sprouting across the nation.” Six cases are mentioned. One case, in California, was uncovered by USDA in 2001. Another case mentioned, in North Carolina, was uncovered in 2000. Many measures to prevent fraud and abuse have been implemented since these old cases were first discovered. Moreover, the Times fails to note that 13.3 million crop insurance policies have been sold since 2000. Again without evidence, the Times and Professor Bruce Babcock simply assert that companies have little incentive to fight fraud. To Babcock, it “makes sense.” In reality, the companies take on substantial risk and making unwarranted payments reduces industry profitability. The companies, along with their large, professional loss adjuster workforce, have every incentive not to make unmerited payments. The crop insurance industry, in partnership with USDA, has zero tolerance for fraud, and is making every effort to root it out and protect America’s farmers and taxpayers.

The Times also erred in stating that companies and agents “reap most of the benefits” of the crop insurance program. The article stated farmers received “$1.7 billion” in premium subsidies, implying insurance companies received more than farmers. In fact, farmers received $5.4 billion in premium subsidies in 2009. They received another $1.6 billion in delivery cost subsidies paid to companies on their behalf. Otherwise, such delivery costs would be built into premium rates, the practice in all other lines of insurance. In addition, farmers received the benefits of risk protection that enables farm survival in the event of catastrophe.

The article quoted Babcock as saying the industry keeps the most profitable customers and shifts the riskiest, least profitable customers to taxpayers. Unfortunately the Times failed to note that the companies retain risk on the vast majority of policies. Nor did the Times explain that while the companies can cede some policies to the government, the government sets premium rates, not companies, and companies must sell to any farmer wanting insurance. These regulatory requirements cause the companies to take risks over which they have no control and that explains why companies are permitted to cede some, and only some, of the risky policies to the government.
Original Los Angeles Times article can be found here.

NCIS Responds to Los Angeles Times Article

Below you will find NCIS’ response to the Los Angeles Times article “Farm Insurance Fraud is Cheating Taxpayers out of Millions” from February 6, 2011.

NCIS Response To the Editor: 
(These comments are based on letters submitted to the editor of the Los Angeles Times by Dallas Smith, former Deputy Under Secretary of USDA, and Keith Collins, former USDA Chief Economist and a crop insurance industry consultant, as well as other material.)



Beginning with its sensationalist headline, the Los Angeles Times misrepresents the occurrence of fraud in the Federal crop insurance program. The article fails to tell the success story that private insurers and their licensed agents now provide coverage on $80 billion of America’s agricultural production.

The industry shares the Times’ disdain for fraud, and has implemented effective and unprecedented measures to deter and identify false claims. The program has been a pioneer in the use of data mining, utilizes the large field staff of the Farm Service Agency to spot check questionable operations, employs over 4,700 certified crop loss adjusters and conducts numerous claim reviews. These measures have driven the incidence of program abuse far below other lines of property and casualty insurance.

The Times reports, without evidence, “a wave of scams sprouting across the nation.” Six cases are mentioned. One case, in California, was uncovered by USDA in 2001. Another case mentioned, in North Carolina, was uncovered in 2000. Many measures to prevent fraud and abuse have been implemented since these old cases were first discovered. Moreover, the Times fails to note that 13.3 million crop insurance policies have been sold since 2000. Again without evidence, the Times and Professor Bruce Babcock simply assert that companies have little incentive to fight fraud. To Babcock, it “makes sense.” In reality, the companies take on substantial risk and making unwarranted payments reduces industry profitability. The companies, along with their large, professional loss adjuster workforce, have every incentive not to make unmerited payments. The crop insurance industry, in partnership with USDA, has zero tolerance for fraud, and is making every effort to root it out and protect America’s farmers and taxpayers.

The Times also erred in stating that companies and agents “reap most of the benefits” of the crop insurance program. The article stated farmers received “$1.7 billion” in premium subsidies, implying insurance companies received more than farmers. In fact, farmers received $5.4 billion in premium subsidies in 2009. They received another $1.6 billion in delivery cost subsidies paid to companies on their behalf. Otherwise, such delivery costs would be built into premium rates, the practice in all other lines of insurance. In addition, farmers received the benefits of risk protection that enables farm survival in the event of catastrophe.

The article quoted Babcock as saying the industry keeps the most profitable customers and shifts the riskiest, least profitable customers to taxpayers. Unfortunately the Times failed to note that the companies retain risk on the vast majority of policies. Nor did the Times explain that while the companies can cede some policies to the government, the government sets premium rates, not companies, and companies must sell to any farmer wanting insurance. These regulatory requirements cause the companies to take risks over which they have no control and that explains why companies are permitted to cede some, and only some, of the risky policies to the government.
Original Los Angeles Times article can be found here.

NCIS Responds to New York Times Editorial

Below you will find NCIS’ response to the New York Times editorial “Here’s an Easy One” from January 15, 2011.

NCIS Response To the Editor:
The call for billions of dollars in farm subsidy cuts (“Here’s an Easy One“, Jan. 15) offered a misleading treatment of crop insurance.

First, farmers’ premium subsidies do not raise premiums. Premiums are actuarially determined based on actual crop history. Farmers receive premium subsidies, which provide for affordable protection against natural disasters. Crop insurance provides the financial safety net for America’s farmers and ranchers and avoids the multi-billion dollar emergency disaster programs of the past.

Second, The Times omits the new agreement reached in 2010 between the insurance companies and the Administration that provides at least $4 billion in crop insurance program cuts. These cuts are specifically earmarked for deficit reduction. People in agriculture want deficit reduction just as much as the Times. Agriculture is willing to contribute our fair share, based on accurate analysis and recognition that agriculture has just contributed billions, unlike many other sectors of our economy.

Thomas P. Zacharias, President

Original New York Times editorial can be found here: Here’s an Easy One.

NCIS Response to Chris Clayton

Farmers buying crop insurance as enterprise units get increased federal subsidy
Chris Clayton, AgFax — November 3, 2010

Tom Zacharias, newly-named president of National Crop Insurance Services, said enterprise units have expanded the opportunity for farmers to manage their risk. “I would say, in general, it has been very well-received,” Zacharias said. “There is evidence enterprise units have moved producers from CAT (catastrophic) to buy-up coverage,” Zacharias said. Zacharias said he has heard insurance representatives say that about 40 percent of their business is enterprise units. In the Corn Belt, it looks as if there is more uptake for enterprise units on single-crop ground. There have even been increased sales in other regions of the country, such as the Mississippi Delta. More acres and more diversification reduce the likelihood of a payout, so it reduces the premium substantially, while it increases the premium subsidy. “It provides a pretty good discount,” Zacharias said. “The benefit to the producer is reduced premium.” The benefit to the insurer is reduced risk….

NCIS Response to Chris Clayton
Thank you for the recent discussion we had regarding the status of the crop insurance program which focused on the recent experience with the new enterprise unit pilot program authorized by the 2008 Farm Bill. I appreciate the article you released on November 3 calling attention to this new and popular feature of crop insurance.

I do, however, have a concern regarding the final portion of the piece, and apologize for not contacting you sooner. Your article ended with the following statement attributable to Professor Bruce Babcock: “Of the $13 billion in support for crop insurance, more than $7 billion went to the companies. Farmers received $6 billion in net indemnities,” Babcock testified. “Crop insurance failed the cost-effectiveness test, because it simply makes no sense for taxpayers to spend $13 billion to deliver $6 billion in net payments to farmers.” I take exception with these statements for two reasons: (1) the supposed “efficiency/effectiveness” metric does not accurately measure either efficiency or program benefits and costs and (2) the numbers reported are for 2008 and 2009; they look backward at only two selected years and do not reflect recent program changes and future expectations.

Issue (1). The metric — $7 billion “to the companies” compared with farmers receiving “$6 billion in net indemnities”— does not accurately portray the underlying economics of crop insurance. Let me explain why it is misleading and not a useful comparison.

Farmers’ net income (indemnities less farmer premium) is being compared to company gross income (A&O payments plus underwriting gains). A&O is a producer subsidy paid to the companies on behalf of the producer. The appropriate comparison would be net income to net income. That comparison shows farmer net income for 2008 and 2009 of $6 billion and company net income of, at most, $3.4 billion (assuming A&O payments equal delivery expenses), not $7 billion. In fact, company income would be less than $3.4 billion, as actual delivery expenses for 2008 exceeded A&O payments (this can be found in the Grant Thornton analysis on company profitability). Final expense data for 2009 is not yet available, so company net income cannot yet be determined exactly.
Benefits of crop insurance should not be inappropriately measured as net indemnities to farmers. Farmers buy and benefit from insurance even when indemnities are zero. As you are aware, crop insurance provides farmers with the opportunity to better manage their marketing plans and obtain financing from year to year. Although these types of benefits are difficult to measure explicitly, they are of value and Babcock fails to acknowledge them.

Issue 2. Using only two years, 2008 and 2009, to judge the program is also inappropriate. Because prices and yields vary greatly from year to year, crop insurance premiums and performance are better judged on long-term experience. Moreover, while 2008 may have been a typical year, 2009 had the third lowest level of losses relative to premium in the 29 year history of the program. It was a rare year, which distorts Babcock’s metric. The metric also does not reflect the changes in the new Standard Reinsurance Agreement (SRA), which reduced company funding by $6 billion over 10 years as compared to expected funding prior to the new SRA, nor does his data fully reflect the cuts made in the 2008 Farm Bill. If premiums remain at this year’s level of less than $8 billion, and RMA’s estimates of the expected company rate of return on retained premium for 2011-2015 are used, then future expected net income (net underwriting gains) of the companies would range from $1.0 to $1.2 billion per year, about 30% less than the level used by Babcock. In addition, A&O payments are capped in the new SRA at about $1.3 billion per year, again about 30% less than the level used by Babcock.

I certainly have no issue with articles that comment on crop insurance program costs. My only hope is that such articles make meaningful comparisons and use relevant data.

Thanks again for the recent interview, and please feel free to contact me if I can answer any questions you may have in the future.

Regards,

Tom Zacharias
President
National Crop Insurance Services

Agent Groups Join NCIS Criticism Of Crop Insurance Program Cuts

Agent associations have joined the National Crop Insurance Services’ (NCIS) criticisms of the Obama administration’s decision to cut the federal crop insurance program by $6 billion over the next 10 years. Two national agent associations said today that the cuts could have negative effects on the future of the program. The U.S. Department of Agriculture said last week that $2 billion of the planned cuts will be used to “strengthen successful, targeted risk management and conservation programs,” and the remaining $4 billion will go to reduce the national deficit.