A congressional watchdog agency has recommended a more than $464 million cut in payments to crop insurance companies.
The Government Accountability Office report released this month recommends how the government can improve the crop insurance program’s delivery of funds as well as reduce costs to the taxpayers who help fund it.
The federal crop insurance program helps protect farmers against income loss, which can result from from low production, declining prices, or crop loss due to floods, droughts and hurricanes.
Overseen by the U.S. Department of Agriculture’s Risk Management Agency, the government partners with private companies to cover the cost of providing crop insurance. The USDA also offsets the cost of premiums farmers pay for the insurance by as much as 60 percent.
In 2016, the USDA paid insurance companies nearly $1.5 billion in fees for administering the crop insurance program, in addition to $2.6 billion in earnings fees, according to government data. (See here)
Sixteen companies are designated by the USDA to provide crop insurance in 2018, according to the Risk Management Agency’s website. (View the complete list on the RMA website)
GAO recommended two major changes: adjust insurance companies’ "target rate of return to reflect market conditions," and "reduce the portion of premiums retained by companies.” Both recommendations would require revisions to the Farm Bill passed in 2014 and would result in lower profits for insurance companies.
According to the report, the average annual rate of return that insurance companies currently expect to earn is at 14.5 percent, but the GAO recommends reducing that to 9.6 percent, decreasing insurers coverage gains by $364 million.
Companies’ returns from premiums would also decrease under the recommendations from 77 percent to 72 percent, resulting in a $100 million decrease in annual underwriting profits, the report found.
Ultimately, the GAO said these changes would require repealing a provision in the 2014 Farm Bill which prevents any revision to the agreement with companies that could reduce their expected gains.
National Crop Insurance Services issued a response to the GAO recommendations Tuesday, and said that the proposed changes would “weaken farmers' primary risk management tool.”
The statement went on to say that the GAO data did not take insurers’ full business expenses into account.
“Luckily, most lawmakers recognize crop insurance's value and are dedicated to keeping it affordable, widely available, and economically viable in the next Farm Bill,” the response from the National Crop Insurance Services stated.
U.S. Rep. Mike Conaway (R – Texas) said that he doubted that the GAO had the correct numbers because insurance companies have reported low profits through crop insurance in recent years.
“Insurance companies have fled the market – mainly because they can't make the same money they make in other places,” said Conaway, after a listening session about the Farm Bill at the Farm Progress Show in Decatur, Ill., on Wednesday.
In 2015, Big Ag companies Monsanto, Cargill and Archer Daniels Midland began selling their crop insurance businesses.
Conaway said that it was important to make sure insurance companies make some money, so the market still exists.
“The most consistent thing said all day was don't mess with crop insurance,” Conaway said.
He said that the private sector model is currently working, as farmers told the House Agricultural Committee during Wednesday’s listening session.
“One thing I always say is figures lie and liars figure. I'm not sure these folks that did this study knew what the heck they were doing,” said U.S. Rep. Collin Peterson (D-Minn.), the ranking Democrat on the House committee.
Peterson said that the market shows that the current crop insurance system isn’t as profitable for companies as the GAO report made it seem.
“If this was such a wonderful place to make all that money, you wouldn’t have people getting out of (crop insurance),” he said. “You would have people getting into it, and that's just not happening.”
U.S. Rep. Ron Kind (D-Wis) views the crop insurance system differently than his Democratic colleague from Minnesota, writing in an editorial published Tuesday that the recent GAO report highlights the need for reform.
“Unfortunately a large percentage of crop insurance subsidies go to a few, big agribusinesses, at the expense of our family farmers,” Kind wrote.
Congress is expected to take up discussions on the 2018 Farm Bill early next year.