NACIA Washington Update
February 4, 2010

After the first month, 2010 is already shaping up to be a tough year for crop insurance agents. The Administration is proposing drastic cuts to agents’ main source of income in the current SRA renegotiations, and does not seem to understand the amount and the vital nature of the work that agents do in delivering this program to farmers and ranchers. This is evidenced by comments at a recent meeting. Earlier this week, RMA held a briefing for producer groups intending to debunk many of the arguments NACIA and others in the crop insurance industry have made against the proposed cuts. During this meeting, RMA made the following assertions: 

• Nothing in the first draft will cause a company to leave an area currently being served in the program.
• Claims that the proposals in the first draft would cause job loss in rural America are “not legitimate”—the A&O provisions would provide income stability for agents.
• The SURE Program created in the 2008 program has helped companies and agents because it requires crop insurance coverage for eligibility.
• The first draft of the SRA would not force companies out of the program or cause consolidation. Consolidation has been occurring recently, after the two most profitable years of the program. In addition, the optimal number of AIPs is not currently known—there is greater efficiency in delivery by large companies. 
• AIPs are not properly calculating the return percentages because they are incorporating current expense levels. The expenses of companies (what they are paying agents) will have to change.
• All additional funding provided to the companies last year went straight to the agents. 
• For years companies have requested RMA to cap the number of agents in the program, but now they have a perfect excuse to address the excessive commissions agents are making. 
• The recent GAO report cites disproportionate agent commissions, as does anecdotal evidence from producers across the country. 
• Agents themselves believe that their commission levels are not sustainable and bad for the crop insurance program. 

In addition, on Monday of this week, the President released his Fiscal Year (FY) 2011 budget request. While the request is not usually enacted by Congress without alteration, it is very telling because it outlines the Administration’s spending priorities and highlights areas that the Administration favors cutting to obtain sources of revenue. Further analysis of the crop insurance portion of the budget request is below, but the long and short of it is that they have incorporated the $8 billion in cuts proposed in the first SRA draft into the budget, meaning they are depending on that amount for their budget.

As a result of these political forces seeking to weaken the crop insurance program and damage this vital aspect of farmers’ safety net, it is essential that you support NACIA. NACIA serves as the voice of crop insurance agents in Washington, and does not receive any money from any company, other outside organization, or other type of agent – only from crop insurance agents. As a result, your submission of your 2010 NACIA dues is extremely important. NACIA is fighting hard on a daily basis to educate RMA and Members of Congress and fight against the Administration’s efforts to gut the program. Please visit our secure website and submit your dues here, or send in your check to the address at the bottom of this update. If you have already submitted your 2010 dues, we sincerely than you! Your participation is vital, and we would encourage you to urge other agents to join and strengthen our voice here in Washington. 

Regarding the Budget:

Funding for the Risk Management Agency itself remains basically intact, no small achievement in a year of wide-spread cuts. The agency’s appropriation for salaries and expenses rises from $80 to $83 million, the increase to cover salary costs and IT upgrades. But the budget contains language pointing to the ongoing renegotiation of the SRA that indicates a very difficult time for participating insurance companies and agents. Specifically, the budget officially quantifies the amount of budget savings (ie. cuts to underwriting gains and A&O payments) that USDA and OMB expect to impose through the SRA renegotiation process:  $8 billion over ten years, with the cut in A&O being proportionately larger than the cut to underwriting gains as reflected in recent RMA proposals. In fact, the cut to A&O is twice the percentage of the cut to underwriting gains. It is clear that the Administration feels that agents are overpaid and not an important part of the program. 

In the “Explanatory Notes” section of the budget request, RMA states the following: 

“The Budget also includes a proposal that will save billions of dollars by reforming how the Federal Government administers the crop insurance program. Crop insurance companies currently benefit from huge windfall profits due to the structure and terms of the Government’s contract with the companies, called the Standard Reinsurance Agreement (SRA). Through the SRA renegotiation process, which will occur in 2010, USDA will pursue reforms to the financial terms in the SRA that will allow the Department to offer the same program benefits to farmers and ranchers with significantly reduced costs—saving $8 billion over 10 years.”

The budget documents also assert the following: 

“The Administration wants to promote change in the crop insurance program through the SRA re-negotiation. There is currently excess subsidy in the program for the companies, and the government should be able to offer the same program at less cost through the changes to the SRA proposed by the Administration on December 4, 2009. The Budget assumes that the SRA proposal will save the government $8 Billion over 10 years.”

Taken at face value, this language indicates that USDA and OMB are now counting on this $8 billion in SRA savings as part of their long-term budget assumptions, and despite what they say, do not view this as a negotiation. They want the $8 billion dollars they made in cuts in the first draft. The budget does not say exactly how the projected savings might be applied – whether they would be off-set against projected spending increases in other areas or programs, applied to reduce the Federal budget deficit, or otherwise. Still, laying down this explicit marker will put a great deal of pressure on USDA and RMA to bargain hard in the SRA to reach the target, or come as close as possible. That means hard bargaining ahead. Buckle up.

Thank you for your actions in support of the crop insurance program, and as always, please let us know if you have any questions. 

Brent W. Gattis
NACIA Washington Representative

Please send 2010 dues checks to the following address:
Brent W. Gattis
NACIA Washington Representative
1400 16^th Street NW
Suite 400
Washington, D.C. 20036

OR

Click here to pay dues online.

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