Big ‘I’ Continues Fight to Protect Crop Insurance Program

The Big “I” Crop Insurance Task Force recently met with the Obama Administration to discuss ways to enhance the product delivery of the Multi Peril Crop Insurance (MPCI) program and to request that independent agents be included in the upcoming Standard Reinsurance Agreement (SRA) negotiations.

The roundtable discussion with newly-appointed USDA Risk Management Agency (RMA) Administrator William Murphy was led by Task Force Chairman Brian McSherry and included Big “I” senior staff, senior RMA advisors and other members of the task force via conference call.

The SRA is an agreement between the Federal Crop Insurance Corporation (FCIC), which is part of RMA, and crop insurance companies. Part of this comprehensive agreement sets the reinsurance rate on eligible crop insurance contracts sold by companies through independent agents. Additionally, it sets codes of conduct among agents, decides how claims are paid and adjusted and sets standards for compliance.

Previously, agents were not allowed a seat at the table during these important renegotiation discussions since the agreement is between the government and the companies. However, Administrator Murphy seemed receptive to considering agents’ suggestions and invited comments and additional meetings once an initial draft of the SRA is released.

Mr. Murphy and his team specifically noted the value of the “agent perspective” during these renegotiation sessions. Although agents may not be a formal negotiating partner in the renegotiation terms, the RMA staff said they believe agents are an essential interpreter between the crop policy and the client who purchases the contract. The task force is energized by the administrator’s positive comments and willingness to listen to agents who believe in the merits of the crop insurance program.

Earlier this summer, the Big “I” also joined forces with other organizations representing America’s agricultural interests and farmers in a letter to Congress opposing a Government Accountability Office (GAO) report that proposes changes to the crop insurance program that will hurt agents, farmers and consumers.

The private sector initiative, the drive of the approved insurance companies and the tireless efforts of many dedicated crop insurance agents are the backbone of the program’s success.

The GAO report criticizes the crop insurance program and specifically targets insurance companies and agents. Over the past year, an estimated record-high $8.6 billion have been paid to farmers to cover losses for the 2008-2009 crop year, and more farmers than ever are participating in this important risk management tool. Acres enrolled in the program have increased from 100 million in 1994 to 272 million in 2008, with the vast majority now protected at the higher levels of available coverage.

The Big “I” strongly disagrees with the GAO’s conclusions regarding “excessive commissions” paid to insurance agents in the sale of crop insurance. In fact, the independent accounting firm Grant Thornton studied the U.S. crop insurance program costs and concluded that the ratio of commission expenses to premiums in the crop insurance industry were actually below those of the overall property-casualty insurance industry every year from 1992 to 2007 (the last year of available data).

The increase for commission rates cited in the GAO report was the result of increased commodity prices in 2008. Commodity prices are also expected to decline by as much as 30% for the 2009 crop year resulting in corresponding agent commission reductions. Finally, GAO’s comments on agent commissions were already addressed in the 2008 Farm Bill, which included a 2.3 percentage point reduction in administrative and operating expenses (A&O) and three other factors used to pay agent commissions.

Margarita Tapia (margarita.tapia@iiaba.net) is Big “I” director of public affairs.


House Passes Surplus Lines Bill

The U.S. House of Representatives has passed H.R. 2571, the Nonadmitted and Reinsurance Reform Act of 2009, also known as the surplus lines bill. Independent insurance agents and brokers play a crucial role in surplus lines (or nonadmitted) insurance, which provides coverage for unique or hard-to-place property-casualty risks.

The bipartisan legislation, sponsored by Rep. Dennis Moore (D-Kan.) and Rep. Scott Garrett(R-N.J.), has been hailed by the Big “I” as an excellent example of a pragmatic approach to bringing targeted reform to the state insurance regulatory system. By applying single-state regulation and uniform standards to the nonadmitted and reinsurance markets, this bill, along with giving the state sole regulatory authority, will strengthen the state based insurance regulatory system.

The bill will make the insured’s home state the source of regulation for individual surplus lines transactions and reduce overlapping, multiple-state regulation of reinsurer financial conditions and credit-for reinsurance on the balance sheets of ceding insurers.

Similar legislation passed the House in the 109th and 110th Congresses with overwhelming support from both sides of the aisle. The Big “I” believes that such strong bipartisan congressional and near unanimous industry support proves that this model of limited reform is the appropriate and most practical approach to modernize insurance regulation.

-M.T.