WASHINGTON -- Crop insurers have proposed to take only a $100 million-per-year cut in its subsidies, much less than the $800 million the Agriculture Department's Risk Management Agency is believed to want as part of a renegotiation of the five-year standard reinsurance agreement, the contract under which 15 companies provide crop insurance.
The negotiations do not affect crop insurance premiums and do not cover this year's crop because they go into effect for the 2011 crop year.
National Crop Insurance Services President Robert Parkerson, who represents the companies in the negotiations, said in an interview Jan. 22 that RMA's initial offer had shocked the industry, but that he had delivered the industry's return offer at a meeting Jan. 21. Negotiations are proceeding in good faith and the companies do not plan, at least at this point, to ask Congress to address the matter legislatively, Parkerson said.
RMA officials declined to comment directly on the industry offer, but a spokesman for Agriculture Secretary Tom Vilsack said, "As with any negotiation, there is a period of give and take. And when these negotiations are complete, we believe there will be a stronger, more balanced federal crop insurance program to help sustain the long-term success of the program."
The spokesman also noted that payments to the insurance industry had doubled from $1.8 billion to $3.8 billion between fiscal year 2006 and fiscal year 2009 while the number of policies decreased from 1.3 million to 1.1 million.
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More cuts a concern
Meanwhile, a bipartisan coalition of 26 farm state senators led by Senate Agriculture Committee Chairman Blanche Lincoln, D-Ark., and ranking member Saxby Chambliss, R-Ga., sent RMA Administrator Bill Murphy a letter reminding him that Congress already cut the crop insurance budget in the 2008 farm bill by $5.6 billion over 10 years compared with the March 2007 Congressional Budget Office baseline. They said a big cut could force some companies out of business.
"With an estimated 18,000 jobs tied to the crop insurance sector, our rural economies can't stand to lose the jobs and necessary incomes that would occur as a result of these cuts," the senators said.
RMA officials contend that companies have made unusually large amounts of money in recent years and can take a cut in subsidies and still make a substantial profit. The companies acknowledge that they will have to take a cut, but contend that the reductions RMA has proposed would result in a lower level of service to farmers. Administration officials
RMA made an initial proposal to the companies Dec. 4, and National Crop Insurance Services Inc., a group representing the companies, delivered a response Jan. 20. While RMA had proposed a 40 percent cut in underwriting gains, the crop insurance industry term for profits, in the Corn Belt states, the companies proposed a 20 percent cut. The Corn Belt states of Indiana, Illinois, Iowa, Nebraska and Minnesota are the most profitable for the insurance companies because they have good growing conditions and a smaller risk of a weather-related disaster. RMA said the government would take a higher level of risk in the Corn Belt states, but the companies said in their response they prefer to continue to take their current level of risk. RMA, which wants to improve insurance coverage in the other 45 states, proposed putting those states into three groups based on risk, but the industry said those states should be put into one group.
In addition, NCIS provided RMA with a legal opinion from the firm of Fulbright & Jaworksi that both RMA's and the crop insurance industry's proposals to make reductions in the subsidies for administrative and operating the program would violate provisions of the farm bill. Parkerson said the companies were not playing "gotcha" with that opinion because the opinion said both proposals were faulty.
