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RMA is reforming federal crop insurance premiums
Illinois Correspondent

WARSAW, Ind. — A yearlong review of crop insurance premium rates by the USDA’s Risk Management Agency (RMA) has led to a re-rating of federal crop insurance premiums for corn, soybeans, grain sorghum, spring wheat, rice and cotton.

Though revised rates were offered for corn and soybeans in most counties for 2012, the RMA announced on Nov. 27 it will continue to update premiums for those six commodities during the next two years.

“This effort ensures that appropriate and fair costs are charged for crop insurance,” said RMA Administrator William J. Murphy, when announcing the decision.

RMA’s decision to continue to re-rate premiums is based on findings of an independent study and a peer review process. The intent of the study and review was to improve the actuarial soundness of premium rates, according to the agency.

Specifically, the current revised premium rates for 2012 and 2013 include improvements such as:

•The integration of weather data into the premium rating process. Rare weather events resulting in losses will receive an appropriate weight in the overall experience used to set rates.

•The refinement of premium loads for prevented planting and replant payments. Before re-rating, loads were set at state or regional levels. They will now be determined based on weather districts within each state, reducing the impact excess losses in affected areas of the state have on premium rates in other, unaffected parts of the state.

•The placement of more weight on loss experience from recent years, better reflecting current agronomics and a modern crop insurance program.

Several corn organizations, including the National Corn Growers Assoc. (NCGA), were quick to commend USDA’s progress on crop insurance rate reforms. NCGA President Pam Johnson said crop insurance rating reforms have been a priority for its members for many years.

“NCGA feels the (RMA’s) announcement represents real reform in decreasing the widening gap between the loss ratio for corn and the premiums charged to growers for policy coverage,” said Johnson. “The rate adjustments made for the 2012 crop year were a great first step and we are pleased to see the RMA following through with additional modifications. Corn farmers have historically paid more than their fair share of crop insurance premiums.”

Illinois corn growers also lauded the RMA for commitment to providing the best, most accurate rates while setting an example of how to get things done.

“As the nation stands at the edge of the so-called ‘fiscal cliff,’ a common-sense measure like this crop insurance premium re-rate shows that prudent decisions are still achievable in Washington,” said Jeff Scates, immediate past president of the Illinois Corn Growers Assoc.

“We commend Administrator Murphy and his team of experts for staying the course in their efforts to re-rate crop insurance premiums. Their decision is fiscally sound and budget-wise.”
Scott Silveus, co-owner and president of Silveus Insurance Group in Warsaw, Ind., said he has had a chance to examine some recent samples of premium rates paid by farmers throughout the Corn Belt.

“Some of the areas of the country saw rates change ever so slightly (as a result of the RMA’s actions). We saw corn and soybean rates come down in parts of the Midwest. They weren’t big changes downward, but they were down,” said Silveus, whose fourth-generation, family-owned company provides crop insurance and brokerage services in nearly all states.

“Most farmers purchase revenue-type coverage. While rates can affect what farmers pay, prices and volatility in the spring have a much bigger impact on what they pay. (RMA) could lower the rate for corn down by 3 percent, but if we have a higher price and volatility farmers’ premiums can still go up in February.
“We really don’t know what rates will cost for corn and soybean producers until the month of February, and so much rides on that February price. Overall, the RMA re-rating is a good thing, but farmers are kind of unaffected because they are such small changes,” he said.

Silveus added he offers his clients a new way to save money on crop insurance by allowing them to lock in rates in months other than February.

“This is new for this year; in the past farmers had to take the February price. We work with some of our insurance carriers to come up with products to allow producers to price insurance in months prior to and after February,” he explained.

The RMA’s revised rates for grain sorghum, spring wheat, rice and cotton will be available in 2013. RMA will continue to phase in new rates to ensure greater stability of premiums and limit year-to-year premium changes, according to the agency.