Crop Insurance Industry Letter to House and Senate Agriculture Committee Leadership
March 19, 2008

Dear Chairmen and Ranking Members:

As you complete the House/Senate Conference on the new Farm Bill, we urge you to protect the Federal crop insurance program by including no greater budget reductions than are included in the Senate-passed bill for the program. We are opposed to the magnitude of cuts to crop insurance in the House-passed Bill, which would undermine the delivery of the crop insurance program at a time of great economic uncertainty.

In fairness to the House Agriculture Committee, the additional cuts were not made at the Committee level, but were added during a late night session of the House Rules Committee without consideration of the impact of these additional cuts on American Agriculture. Unfortunately, we understand that the level of cuts produced by the Rules Committee and incorporated into the House-passed bill is still being advanced in conference deliberations.

We do not believe that the kind of severe cuts that were adopted in the House without any consideration of their unintended consequences should be seriously considered by the conferees. When these cuts were made in July 2007, the nation was not in the current crisis that threatens our financial system and our entire economy today. While the farm economy is currently strong, we should be careful to avoid doing anything that could undermine the financial infrastructure of rural America. Although farm prices are generally up, farm input costs have risen even faster in many cases. This makes crop insurance even more important to farmers who need credit in order to plant a crop.

Additional cuts will prevent the program from providing service to America’s farmers as has been prescribed by Congress. Indeed, some of the options we have seen, such as a 5 point cut in the A&O reimbursement, would simply mean that crop insurance would be unavailable in some of the higher loss states represented by Members of the House and Senate Agriculture Committees. This would mean a whopping 25 percent cut in a reimbursement level that is already below the cost of delivery. USDA’s own data show that payments to crop insurance companies do not cover all approved delivery costs currently, and a recent study by a national accounting firm demonstrates that it costs 24.6 percent of premium to deliver crop insurance and the industry is reimbursed only 20.3 percent on average.

Over the years, Congress has insisted on having the Federal crop insurance program reach out to all farmers, especially small, beginning and limited-resource farmers, in a fair, equitable and non-discriminatory manner and serve as an effective risk management tool. Repeatedly, testimony by the Risk Management Agency indicates that the industry has done just that. The level of cuts in the House-passed farm bill will make it impossible for the crop insurance industry to continue to fulfill its mandate.

In addition to serving farmers as their premier risk management tool, the crop insurance program helps provide both landlords and lenders with the necessary confidence to contract with farmers. The last development we need today is to create a credit crisis for America’s farmers who would no longer be able to secure financing and rent land without an effective crop insurance program. Furthermore, the crop insurance program, as it works today, helps farmers have the confidence to more effectively market their crops through the futures market, where they can capture higher prices.

In summary, we urge you to oppose budget reductions beyond the Senate-passed Farm Bill levels for the following reasons:

(1) The crop insurance program has already been cut to fund the Farm Bill—cuts of over $5 billion over the next ten years are included in the Senate Bill.

(2) USDA’s own data show that payments to crop insurance companies do not cover all approved delivery costs currently, and therefore, the program cannot be delivered if an additional 25 percent cut is made in reimbursements.

(3) The GAO report on the profitability of the crop insurance industry has been routinely disputed by reports of large, national accounting firms, including Price Waterhouse Coopers (1997, 1999), Deloitte & Touché (2004) and Grant Thornton (2007). Reports by these national accounting firms consistently conclude crop insurance profitability is less than the profitability of all property and casualty (P&C) lines of insurance while embracing greater risk and volatility. Furthermore, under questioning by the House Agriculture Committee, GAO recently submitted a one-page report to the Committee admitting their 2005 report comparing the profitability of crop insurance and P&C insurance did not use the exact same years in the analysis and that using different years understated P&C profitability for the comparison by 67 percent.

Thank you for your favorable consideration of our views. We look forward to answering any questions you may have regarding our position.

Sincerely,
National Association of Crop Insurance Agents
American Association of Crop Insurers
Crop Insurance Professionals Association
Crop Insurance Research Bureau
Independent Insurance Agents and Brokers of America
Professional Insurance Agents
Rain and Hail L.L.C.
Rural Community Insurance Services

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