Farmers received exciting news this year when it was announced that for the first time a program with the potential to reduce crop insurance premiums would be widely available.
However, next came news that elements of the program had changed significantly from recent years, and now it appears the program will lose its funding for 2007. What a difference a year makes.
The Premium Reduction Plan (PRP) was included in the Agriculture Risk Protection Act of 2000 and has been in use for several years. Still, only one company qualified to participate in the program during those years — Crop1 Insurance (now in the process of being acquired by Farm Bureau Mutual Insurance Company).
For the 2006 crop year, that situation changed when the program's requirements were altered and a number of insurance companies applied to participate in the program (see table, pg. 58), effectively expanding access to the program to all 50 states. By purchasing crop insurance from any one of these companies, farmers put themselves in position to receive a discount should a number of variables be met.
In theory, PRP gives farmers a chance to receive a discount if their insurance company is able to reduce administrative and operating costs. Crop1 Insurance had shown in recent years that it was able to reduce costs through the use of technology and by paying lower agent commissions, and the Risk Management Agency (RMA) had approved the Crop1 plan to offer discounts of up to 10% off the premium price at the time a policy was purchased.
Over the past three years, farmers received discounts of roughly $4 million from the Crop1 program, according to Billy Rose, Crop1 CEO.
For the 2006 crop year, companies don't have to show they can achieve these cost savings up front. Instead, they apply to be eligible for the program, and if at the end of the crop year they can show savings were achieved they may then submit this information to RMA to be approved to pay the discount.
In other words, premium discounts will be paid more like a dividend since it comes after the season, rather than at the time of purchase, says Rod Nelson, Rural Community Insurance Services manager of sales and service. “There is a long tail on this for 2006…it's possible that the discount for the 2006 crop won't be paid until spring of 2008.”
What are the chances an insurance company will actually deliver a discount? Tim Witt, RMA deputy administrator, says, “At this time, it is hard to say (if farmers will see discounts) since the new rules are different than how prior discounts were paid. However, RMA would expect that any company that realizes an efficiency will honor the commitments it has advertised to assure the satisfaction of its clientele with the expectation of keeping them as valued customers in the future.”
Rose says Crop1 will pay discounts as early as possible, and he advises farmers to ask their insurance companies about the possibility of receiving a discount.
Even if there are payouts, Bill Craig, a University of Minnesota Extension educator, says, “I don't know how much the grower will benefit. From what I understand, there may not be much of a discount.”
Craig is correct in that potential discounts can be no more than 4% of the base premium, says Nelson. This doesn't sound like much, but percentages do increase from that level when viewed as a percent of what farmers actually pay — the subsidized premium.
For example, if a farmer has a $1,000 base premium, and receives a 2% discount, he would receive $20 back, Nelson explains. However, the farmer may actually only pay $600 in premium after subsidies are applied, so the actual discount in this scenario is equal to 3.33% of the paid premium.
Finally, despite all the changes to the program for this year, PRP has been “de-funded” for 2007.
“We know we have it (PRP) for 2006, but funding has been taken away for 2007,” Nelson says. “However, it could be back in 2008.”
A relatively new insurance product, Adjusted Gross Revenue-Lite (AGR-Lite), has the potential to better insure farmers who have more diversified operations.
University of Minnesota Extension educator Bill Craig says, “I think AGR-Lite will be attractive to some producers, especially those with specialty crops and organic products.” He adds that farmers with livestock also could benefit from this new product.
AGR-Lite is currently being pilot tested and revised and refined as the Risk Management Agency (RMA) and the submitter, the Pennsylvania Department of Agriculture, learn more, says RMA deputy administrator Tim Witt.
“AGR-Lite insures the revenue of the whole farm operation (using schedule F Tax forms as a base), not just a specific crop,” explains Witt. “As with any new product, there are challenges to overcome before it is widely accepted.”
For more information on the details of this program, go to www.rma.usda.gov.
|Company/Managing General Agent||States|
|ACE Property and Casualty Insurance Company/Rain and Hail L.L.C||All 50 States|
|Farm Bureau Mutual Insurance Company||Iowa, Kansas, Minnesota, Nebraska, South Dakota|
|Farmers Alliance Mutual Insurance Company/Farmers Crop Insurance Alliance, Inc.||Alabama, Arizona, Arkansas, Colorado, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Tennessee, Texas, Washington, Wisconsin, Wyoming|
|NAU Country Insurance Company||Iowa, Nebraska, South Dakota|
|Occidental Fire & Casualty Company of North Carolina/Crop1 Insurance Direct||Arizona, California, Colorado, Idaho, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, South Dakota, Texas, Washington, Wisconsin|
|Rural Community Insurance Company/Rural Community Insurance Services||All 50 States|
|Stonington Insurance Company/Agro National L.L.C.||California, Idaho, Illinois, Indiana, Iowa, Kansas Michigan, Minnesota, Missouri, Nebraska, Ohio, Wisconsin|
|Westfield Insurance Company/John Deere Risk Protection, Inc.||Alabama, Arizona, Arkansas, California, Colorado, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin, Wyoming|
|XL Reinsurance America, Inc./Heartland Crop Insurance, Inc.||Arkansas, California, Colorado, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Missouri, Montana, Nebraska, North Dakota, Ohio, Oklahoma, South Dakota, Tennessee, Texas, Wisconsin|