Vote on Crop Insurance Discount Plans Could Come Soon

Big money is at stake for both farmers and insurance industry. Compiled by staff 

Published on: May 10, 2005

Farmers deserve to have the right to continue receiving a discount on their crop insurance premiums. That’s the position Billy Rose, CEO of Crop1 Insurance, Des Moines, Iowa, staked out during a U.S. House subcommittee meeting May 5.

Insurance lobby representatives do not think the discount is needed.

The U.S. House Appropriations Committee could consider an amendment that could effectively take away farmers’ rights to buy crop insurance at a discount as early May 16.

A look back at the issue

Congress wants farmers to use crop insurance rather than rely on ad hoc disaster legislation. To encourage farmers to buy crop insurance, USDA’s Risk Management Agency has been subsidizing premiums for a market basket of insurance products plus paying administrative costs of about 22% of the premium written.

To simplify farm decision-making, crop insurance legislation requires all companies to offer identical crop insurance products at identical prices. However, to also protect taxpayer interests, legislation contains a provision allowing insurance companies to compete on price (premium) if the companies can demonstrate that cost savings to allow them to charge a lower premium come out of company costs, not service to farmers.

Crop1 is the first, and so far only, insurance company to go that route. It began offering Premium Reduction Plans (PRP) in 2003.

Are small farmers being served?

The American Association of Crop Insurers (AACI) and Big I Insurance lobby have voiced concerns regarding the effects of PRP on small farm operations. They assert that Crop1 has made no attempt to insure that the premium discounting company is not discriminating against small farmers.

Kurt Koester, is an independent crop insurance agent based in Waukee, Iowa. An analysis of Koester’s insured producers indicates that nearly 45% of his base is insuring less than 500 acres for an average of 399 acres. His agency insured about 290 producers who will save nearly $150,000 in crop insurance premium this year.

Ross J. Davidson, Jr., RMA administrator, testified that 66% of Crop1’s farm customers have 255 acres or less.

Keith Collins, USDA chief economist, testified that Crop1 has been scrutinized, reviewed and audited more than any other approved crop insurance provider.