Shreya Kalra
Crop insurers are abandoning the market, leaving farmers without protection from falling crop prices and adverse weather effects.
The exodus has been triggered by federal government proposals to make further cuts to crop insurance, which would reduce the target rate of return by 38% for licensed crop insurers, making the market unviable.
A letter written by a large coalition group – which includes the National Association of Professional Insurance Agents and the National
Farmers Union, among others, this week – noted that “the crop insurance provision contained in the recently-enacted budget deal would gut the private sector delivery of crop insurance by cutting the US Department of Agriculture’s assumed target rate of return by 38%.”
The coalition claims that under the current rate of return, crop insurance companies have seen negative returns since 2011.
A spokeswoman at the National Crop Insurance Services told
Insurance Business that the current 14% target rate of return is only an assumed target by the US Department of Agriculture and “not a guaranteed one.” Gross returns have been averaging at 5.7% and after admin and other expenses, the net profit comes down to -1.4%, she said.
If further cuts of 38% are made, then this would have a “significant and devastating effect on the crop insurance delivery system,” the spokeswoman said.
National Crop Insurance Services said crop insurance companies cannot operate at a loss, and need a reasonable return.
“Some crop insurance providers are already exiting the system and if others follow, farmers will be left with-out the tools necessary to manage falling crop prices and extreme weather events,” the spokeswoman told Insurance Business.
A source at Technology Insurance Company simply said: “These cuts could put companies out of business.”
But in an interview with Radio 570 WNAX, Anne Weir, a senior economic analyst at Environmental Working Group, took a contrary stance. “The profit margin for crop insurance providers is well above the rate of return seen by the industry.
“The budget savings generated by the proposed cuts of $3 billion over ten years will not negatively impact crop insurance companies,” WNAX reported her as saying.
