Crop insurance rebates

Call it a “safe driver” discount for farmers. Growers who have paid into the crop insurance program but who seldom make claims on their crop insurance coverage could qualify for annual refunds under a new plan proposal by USDA’s Risk Management Agency.

RMA oversees the federal crop insurance program, which subsidizes private crop insurance policies. The new refund plan has a maximum payment limit of $25,000 per farmer per year, and a minimum of $25. The first year of the program will use data from 2009 because not all 2010 data is finalized.

Farmers in Iowa and surrounding states with low claim rates are likely to get much of the $75 million in annual “Good Performance Refunds” by RMA. William Murphy, RMA administrator, says the prospect of receiving refunds should discourage growers from making small claims. Farmers, in turn, could use the refund to buy higher levels of insurance coverage on the next year’s crops, he notes.

Key Points

RMA will reward farmers participating in federal crop insurance program.

Growers who seldom make claims on crop insurance could qualify for a refund.

Estimated average refund amount per producer this year will be about $1,000.

The amount of the refund payments will vary by producer. To qualify for the proposed program, farmers cannot have had a claim in the last four to six years, or no more than one claim in seven to 10 years. New farmers also could qualify for refunds if they have paid more in premiums than they have received in claims.

Amounts vary by producer

About 67,000 of the 1.1 million policyholders nationwide are expected to qualify for refunds. The average refund is likely to be about $1,000 per farm this year. But numerous refunds in Iowa and neighboring states, where the policies are popular and crop losses are relatively small, could reach the maximum of $25,000 per farmer.

Iowa farmers paid about $250 million in insurance premiums last year, or about $12 an acre, says Chad Hart, an Iowa State University Extension economist. Farmers in Iowa and a few other corn-growing states consistently pay more in premiums than they get back in claims. “This program will address some of that shortfall,” he says.

The program also would benefit insurance companies that sell the federally subsidized policies, if farmers use the savings to buy higher levels of coverage, says Keith Collins, a former USDA chief economist who’s been advising the insurance industry. “The refund plan is good for the federal crop insurance program,” he says. “It’s good for the companies. It’s good for farmers.” Four of the 16 companies selling crop insurance are headquartered in Iowa: Rain and Hail LLC of Johnston, Farmers Mutual Hail Insurance Co. in West Des Moines, John Deere Insurance Co. in Johnston, and Agro National Inc. in Council Bluffs.

Refunds to benefit farmers

It is estimated the new program will benefit farmers and ranchers in over two-thirds of the counties nationwide. In addition to Iowa and corn-growing states in the Midwest, other areas that are expected to get a significant number of refunds include Florida, California’s Central Valley, the Pacific Northwest, and the Red River Valley of North Dakota and Minnesota.

Money for the refunds initially will come from savings realized as a result of USDA’s recent renegotiation of the Standard Reinsurance Agreement between USDA’s Federal Crop Insurance Corp. and the private insurance industry. While USDA’s operating agreement with the insurance companies will provide for refunds made in 2011, Murphy says additional funding must be found when Congress writes the next farm bill, the 2012 Farm Bill.

USDA took public comments on the proposed refund program until Jan. 21. Based on comments received, once RMA writes the final rules, the program will be put into effect. Refunds could go out before the spring planting season.

Source: Risk Management Agency

More information on this new refund program is at “We encourage you to make any comments or submit your opinion to RMA on this matter,” says William Murphy, RMA administrator.

This article published in the February, 2011 edition of WALLACES FARMER.

All rights reserved. Copyright Farm Progress Cos. 2011.