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Will discounted crop insurance get the final death blow?

Agriculture.com Staff 05/26/2006 @ 3:00pm

The House of Representatives has killed funding for USDA administration of a discounted crop insurance program for crops planted in 2007 and 2008. But, one crop insurance company is fighting to get funds restored when the Senate votes on ag spending sometime in June.

The change seems to affect mainly one crop insurance business, Crop 1, which is now a wholly-owned subsidiary of Farm Bureau Mutual Insurance Company in West Des Moines, Iowa. Crop 1 was the only company approved by USDA to offer discounts under an older version of crop insurance regulations. This year, seven other companies have been approved to offer delayed refunds after an audit, which is called the Premium Reduction Plan. The refunds would apply to 2006 crops, if they are paid. But the program would essentially stop after that unless the Senate fights for a change in funding for USDA.

"We were on pace to pay just short of $5 million back" to growers in 2007, said Bruce Trost, executive vice president of FBL Financial Group, Inc, which manages Farm Bureau Mutual and Crop 1.

If the Senate doesn't restore funding to run the program, "we're basically without the ability to provide that discount for 2007 or 2008," Trost told Agriculture Online Friday. "Crop 1 will just retain that money and won't be able to deliver it back to the farmers."

Scott Arnold, assistant vice president of marketing for Rain and Hail Insurance Service, says his business supports ending funding for the Premium Reduction Plan or PRP for the next two years, but that it won't necessarily kill the program. It will just give Congress more time to study how it works and if it should be continued.

Rain and Hail is approved for the PRP program but Arnold says that with an already small federal reimbursement to insurance companies for running crop insurance, there are few ways to offer discounts.

"The only way you're going to be eligible to pay any sort of a discount is this thin reimbursement from the federal government is if you cut commissions paid to agents," he told Agriculture Online.

Arnold argues that is likely to hurt service to farmers. That's one reason why his company and the American Association of Crop Insurers oppose restoring funds for PRP in 2007 and 2008.

Trost said that when Farm Bureau Mutual looked into buying Crop 1, they found that the company had been able to provide good service with discounted coverage and that Crop 1 retained 95% of its farmer business. Even after buying Crop 1 early this year, Farm Bureau Mutual, which has mainly been a property casualty insurer, remains a small player in the $4 billion crop insurance industry. It has about 4% of the market.

"The competition, the big companies with all the market share, they tried to stop that company from doing business," Trost said. "That's essentially why we bought Crop 1."

Trost urges farmers who want to see discounts continue to contact their U.S. senators.

"We've spent a lot of time and effort and money in trying to retain that right for the American farmer. We simply need the farmer to speak up and help us," he said.

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