Risk in farming is a given. Even so, an endless number of variables can imperil a crop — from weather to market downturns to government mandates. For crop insurance companies, trying to measure risk and build an actuarial table around it is nearly mission impossible.

“There are not many types of insurance where what's being insured is as dynamic as a growing crop,” says Paul Horel, president of the Crop Insurance Resource Bureau (www.cropinsurance.org).

As a result, the crop insurance program, though now a necessity, seems to undergo constant change — and 2004 is no exception.

Perhaps the most notable changes this year involve the companies that underwrite policies. Companies have merged, declared bankruptcy and chosen to exit the crop insurance-writing business entirely, resulting in fewer options for farmers.

The trend toward fewer companies has been ongoing for years. Only 14 companies (see table, p. 28) will write federally subsidized Multiple Peril Crop Insurance in 2004 compared with roughly 50 companies 20 years ago.

Bob Metz, who farms in northeastern South Dakota and is a vice president of the American Soybean Association, stresses that consolidation in the insurance industry is something producers should be concerned about.

“Fewer companies — especially companies that do business nationwide — will mean fewer agents and fewer choices for farmers,” he says.

Despite declining numbers of companies, the crop insurance program continues to grow. The Risk Management Agency (RMA) estimates that 80% of cropland is insured (see chart) and more than 100 crops are part of the program.

PROGRAM CHANGES

One notable change in the federal crop insurance program this year involves double insurance and prevented planting.

In the past, if a crop was lost early in the year, a grower could make a claim on that land and then replant to a second crop and insure that crop as well. As an example, say a farmer planted corn and lost it early. By the time the field was ready to replant, it was too late for corn, so he planted soybeans.

Under the old rules, the farmer could receive payment for the full amount of the corn loss. Then he could plant and insure the soybeans. If that crop were lost as well, he could receive payment for a full bean loss.

Using this same scenario under the new rules, the farmer will only receive 35% of his claim for the corn planting if he replants to soybeans, says Tim Hoffmann of RMA's national office in Kansas City. If the soybean crop produces a yield and the farmer doesn't have a loss on that acreage, he will receive the balance of the corn indemnity.

Growers can decide whether to insure the soybeans planted on corn acreage or can choose not to insure the soybeans in order to collect the full corn indemnity. Hoffmann encourages insured producers to discuss these new provisions with their local crop insurance agents.

The Premium Discount Plan (PDP), which provides crop insurance at up to a 10% discount, came to the market with much fanfare last year. This year its future is cloudy.

As of early November 2003, Crop1 Insurance, which exclusively offered PDP in 2003, was unsure whether the program would be offered again in 2004. Dale Ward, marketing vice president for Crop1, says his company has every intention of offering the plan again. However, approval must be granted from RMA because Crop1 is changing its policy-issuing company from Converium to a new company not yet identified.

Hoffmann adds that no other company has filed to offer PDP in 2004.

Industry groups, such as the National Association of Crop Insurance Agents, criticized PDP. They believed service would suffer and put producers at risk of not having the right policy in place. However, Ward says, “There are efficiencies within the system, but it does not affect service levels. In fact, we've received good reviews from the service levels to date.”

Check www.Crop1insurance.com for updates on the availability of this product.

STUDIES UNDER WAY

Around the industry, efforts are under way to improve crop insurance in the future.

The National Corn Growers Association is conducting a survey it hopes “will provide up-to-date feedback on how crop insurance needs are being met and what can be improved to fill in the gaps,” according to Sam Willett, senior director of public policy.

“The timing of the survey comes after the first full year of experience with the new Farm Bill safety net and counter-cyclical payments,” Willett explains. He expects to present survey results to the RMA and House and Senate Ag committees in 2004.

The Crop Insurance Research Bureau just completed the first year of a three-year project to assess the use of satellite imaging to provide more accurate loss adjustment procedures, says President Horel.

This study is being done initially on hail claims, which are not part of the federal crop insurance program. But, Horel says, “this product will eventually have an impact on the federal side as well.”

This technology should help adjusters know exactly where they need to go to make counts, he adds.

CONSOLIDATION AND THE SRA

The Standard Reinsurance Agreement (SRA) has been the topic of discussion in the industry recently.

The RMA has been under pressure to reduce the cost of the crop insurance program. One way it may do this is by renegotiating this agreement, specifically the portions of the agreement that provide expense reimbursement for insurance companies.

Industry groups are concerned that a less-favorable agreement will result in fewer companies writing crop insurance policies. Given the number of companies that have pulled out in recent years, any further consolidation could begin to have serious repercussions, these groups argue.

“Farmers need companies competing to develop new products, recruit the best agents and adjusters and service their claims quickly and fairly,” explains ASA's Metz. “The SRA has a big impact on how many companies want to be in the crop insurance business.”

Reinsurance expands a company's opportunity to write policies, because it basically insures the insurance company. Each company has a finite amount of capital, and if it only relies on that capital, it could only write a limited number of policies. By using reinsurance, it can write more policies and still cover claims.

According to groups like the Crop Insurance Research Bureau, some companies that provide reinsurance are withdrawing capital and putting it into more profitable lines, which is a concern.

If the private reinsurance market dries up, Horel says the companies that need it won't be able to write in as many states. In the extreme sense it could have a huge negative effect, and farmers in some parts of the country may not be able to buy insurance.

For more information on the progress of the SRA, visit the RMA Web site at www.rma.usda.gov.

2004 MPCI Insurance Writers By State

AFBI — American Farm Bureau Insurance Services, Inc.
800-356-5485 — www.afbisinc.com

ARM — ARMtech Insurance Services
800-335-0120 — www.armt.com

CTY — COUNTRY Mutual Insurance Company
800-255-7965 — www.countrycos.com

CROP — CROP1 Insurance
866-765-0552 — www.crop1insurance.com

FCIA — Farmers Crop Insurance Alliance, Inc.
800-826-7090 — www.nccinet.com

FBIC — Farm Bureau Mutual Insurance Company
785-587-6000 — www.fbfs.com

FMH — Farmers Mutual Hail Insurance Co. of Iowa
800-247-5248 — www.fmh.com

GA — Great American Insurance Company
877-4AGLINK — www.MyAgritrust.com

HART — The Hartford
800-295-1815 — www.thehartford.com/ag

HEART — Heartland Crop Insurance, Inc.
888-789-5566 — www.heartlandcrop insurance.com

NAU — NAU Country Insurance Company
800-942-6557 — www.naucom.com

PLIC — Producers Lloyds Insurance Company
800-366-2767 — www.producerslloyds.com

R&H — Rain and Hail L.L.C.
800-776-4045 — www.rainhail.com

RCIS — Rural Community Insurance Services
800-451-3836 — www.rcis.com

Source: National Crop Insurance Services