WASHINGTON -- The federally subsidized crop insurance industry, which found itself the subject of a congressional investigation in the last Congress and had give up part of its budget in the farm bill, is trying to beef up its defenses by hiring Keith Collins, the former Agriculture Department chief economist, as a consultant and by releasing a new study of its expenses and profitability.
The Government Accountability Office, the investigative arm of Congress, is working on an investigation focused on crop insurance agents, industry officials said in a recent interview.
Multiperil crop insurance, which protects farmers from weather and market losses, has been subsidized since the 1930s, primarily because crops generally are produced in one area of the country and the risk to a specific crop cannot be spread over a large enough area to be commercially viable at premium rates farmers are willing to pay. But calculating subsidies for premiums and the cost of delivering the policies always has been difficult.
Making comparisons
In 2007, after GAO contended that the crop insurance industry was making outrageous profits in comparison with the property and casualty insurance business and had high administrative and operating expenses, the House Oversight and Government Affairs Committee held a hearing at which Oversight and Government Affairs Chairman Henry Waxman, D-Calif., called the industry a "textbook example of waste, fraud and abuse in federal spending."
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The industry complained to House Agriculture Chairman Collin Peterson that their company officials and agents had not been allowed to testify at that hearing. A House Agriculture subcommittee held a hearing at which industry officials and committee members defended the industry. But rising commodity prices had led to premiums going up faster than any increase in the companies' and agents' costs of delivering service and Peterson, while expressing sympathy for the industry, still insisted on cuts in the crop insurance subsidies over 10 years to pay for other parts of the farm bill. CBO has estimated the cut at $1.8 billion, but the exact amount of the cut will depend on what happens in the economy over the coming years.
The crop insurance industry has contended that GAO made inappropriate comparisons between federal crop insurance and the property and casualty industry. The new study, conducted by Grant Thornton L.L.L.P. and released in December by National Crop Insurance Services, a Kansas City, Kan.-based research group funded by the 16 crop insurance companies, contends that from 1991 to 2007, federal crop insurance was less profitable than the property and casualty industry and had lower expense-to-premium ratios than property and casualty.
Ongoing investigations
Collins, who chaired the federal crop insurance board as part of his USDA duties, said crop insurance needs to be examined over long periods because "the agricultural economy is cyclical by nature, and crop insurance is no exception."
NCIS President Bob Parkerson said that even though Waxman is giving up the chairmanship of Oversight and Government Affairs, he expects Rep. Jim Cooper, D-Tenn., to continue to pursue investigations of crop insurance. Parkerson said industry officials also are worried about the impact of the new average crop revenue program on individuals' crop insurance policies. The ACRE program may involve new calculations on yields, and Parkerson said crop insurance needs to be retained as a "risk-based tool" for individual farmers.
