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Published February 13, 2012, 10:17 AM

Public versus private

SCOTTSDALE, Ariz. — The National Association of Farm Service Agency County Office Employees is contending that the government could save up to $2.5 billion per year by taking the crop insurance program away from insurance companies and agents and turning it over to the county offices, but the American Association of Crop Insurers says the private delivery system works fine and that it will fight the proposal.

By: Jerry Hagstrom, Agweek

SCOTTSDALE, Ariz. — The National Association of Farm Service Agency County Office Employees is contending that the government could save up to $2.5 billion per year by taking the crop insurance program away from insurance companies and agents and turning it over to the county offices, but the American Association of Crop Insurers says the private delivery system works fine and that it will fight the proposal.

NASCOE, as the association of county employees is known, released a study in Washington on Feb. 8, just as the crop insurance industry officials were headed to Scottsdale, Ariz., for their annual meetings.

If nothing else, Congress should at least save some money by turning over reporting work to the county offices, NASCOE said.

Shifting some crop insurance responsibilities to the county offices could save money, assure program integrity and provide an increased role for the county offices as other farm subsidies decline, said Mike Mayfield, a Tennessee county office employee who is the national legislative co-chair of NASCOE.

Transferring responsibility for certain reports that both the county offices and the crop insurance agents must prepare is a top priority, Mayfield said. But 200 NASCOE members from 45 states presented members of Congress with a report outlining four options prepared by Informa Economics, a consulting firm, including one to give the entire crop insurance program to the FSA offices.

“If Congress deems they like the savings and want to give (the program) to us we’re not going to fight them,” said Dan Root, a Minnesota county employee who is the other NASCOE legislative co-chairman.

Bob Redding, the association’s Washington lobbyist, said the presence of the NASCOE members in Washington when the crop industry lobbyists are out of town was not planned.

The American Association of Crop Insurers members have been working for two years to explain how the crop insurance program has evolved, said David Graves, the executive director of AACI, speaking on the sidelines of the Crop Insurance and Reinsurance Bureau meeting.

“Crop insurance companies have invested hundreds of millions of dollars in providing services to farmers,” Graves said.

Farmers’ statements about the importance of crop insurance “reflect delivery as much as the program. Farmers complain about program provisions, not service.”

Serving farmers

He noted, however, that there are many newer members of Congress who do not know the 30-year history of the program and said his group is making sure newer members learn about it.

Graves also pointed to a paper that AACI developed in May on its positions on the 2012 farm bill.

“Private sector delivery is a major factor in the success of the modern crop insurance program,” the AACI paper says. “Private companies and agencies have the built-in incentive and ingenuity to provide the service farmers, ranchers and growers need and depend on in making risk management decisions in using the federal crop insurance program.”

The group also said that, when farmers have a choice of buying a policy from the government or an agent, studies show that the private sector is more efficient than the government in delivering the program.

Those who call for greater FSA involvement in the program “as a way of saving federal jobs in the countryside do not have the interests of farmers at heart,” AACI said.

Michael Torrey, executive vice president of the Crop Insurance and Reinsurance Bureau, said in an interview that while he appreciated the effort to preserve jobs, private companies and agents “have brought ingenuity that serves the customers well. In the end of the day it is about the customer.”

Robert Parkerson, former president of National Crop Insurance Services, an industry research group, said in an interview that crop insurance agents “are hard-working people who have gone out and explained to farmers the benefits of crop insurance.”

American Farm Bureau Federation lobbyist Mary Kay Thatcher said that the crop insurance program is too important to risk changing the delivery.

“It is complex, and the agents have been at it for years,” she said. “That is where it ought to stay.”

Thatcher also warned that once direct payments are eliminated from the farm program, there will be pressure to cut spending on crop insurance because it has become the most expensive part of the farm program.

“You’re not the low-hanging fruit now, but you will be when this farm bill is over,” Thatcher told the insurers.

Conflicts between county offices and the crop insurance industry aren’t new.

The Franklin Roosevelt administration established the FSA county offices in the 1930s to certify farmers as eligible for federal programs and to distribute subsidies. The Agriculture Department has combined some of the offices in recent years and the Obama administration has announced a proposal to merge offices that are less than 20 miles apart. There are 7,800 employees in the county offices and the state offices that oversee them who are members of NASCOE.

Many members of Congress have said that the system of crop insurance companies and agents works because the agents encourage farmers to buy insurance. But Mayfield said he does not think that salesmanship is necessary any longer because so many farm programs require farmers to sign up for crop insurance.

Crop insurance is subsidized because each crop is produced in a fairly contiguous part of the country, making it difficult to spread risk and raising the possibility that a crop failure could bankrupt an insurance company.

The government started crop insurance in the 1930s. It was run by the county offices, but few farmers signed up. The subsidized program was revived in 1980, with private companies writing policies.

The program is popular but controversial because insurance costs and the subsidies rise with the value of the crop. With crop prices projected to remain high, the Congressional Budget Office recently estimated that the crop insurance program will cost $8 billion to $9 billion per year over the next 10 years. The government pays about 65 percent of the cost of the program.

Fitting in

Mayfield said NASCOE’s board realized last year that the direct payments program was unlikely to be continued, and that risk management was likely to be the centerpiece of the next farm bill. With that in mind, the group decided to “figure out where we fit in,” and hired Informa to conduct a study.

While Informa said it wouldn’t judge whether the program should be changed or whether insurance company profits are too high, it provided four options:

• If the county offices were to run the program, sell the policies and service them when a farmer experiences a loss, the government could save $1.9 billion to $2.5 billion, including $1.6 billion in underwriting gains and the agent commissions that the companies averaged over the five years ending in 2010.

• If the county offices took over only the servicing of the policies, the cost savings would be $1.9 billion.

• If the county offices took over only the sales of policies, the savings would be $323 million to $672 million.

• A fourth option, for the companies to take over reporting, was also included, but Informa said data was not available to calculate how much that would save the government.

Under the current policy, the crop insurance companies pay the indemnities when there are losses. Under the most ambitious NASCOE option, the government would be responsible for the indemnities, which vary dramatically from year to year.

Crystal Carpenter, a senior consultant with Informa, said the study assumed that the government would continue premium subsidies to farmers, and that this money would be available to pay indemnities when losses occur. The study also assumed that county offices would retain their current number of employees but also incorporated the need to hire as many as two to five employees in each office if the offices were to take over the entire crop insurance program, Carpenter said.

NASCOE also maintains that giving the county offices a greater role in crop insurance would resolve the issue of some areas of the country not having insurance agents close by.

Some crop insurance executives have claimed that NASCOE is a union, but Redding said it is a trade association. NASCOE does not take positions on whether one farm program is good or bad, but only on how it is run, Root said.

Redding said that NASCOE has not presented the study to either USDA Risk Management Agency Administrator Bill Murphy, who runs the crop insurance program, or to acting Undersecretary for Farm and Foreign Agricultural Services Michael Scuse, who oversees RMA and FSA.

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