Crop Insurers Sue USDA Over Subsidy Amount

June 16, 2004

A coalition of insurance companies is suing the U.S. Department of Agriculture, claiming the government has shortchanged them millions of dollars in the Federal Crop Insurance Program new Standard Reinsurance Agreement, or SRA.

The lawsuit, and a separate disagreement over new terms set by USDA for the Federal Crop Insurance Program, are the latest battles between the crop insurance industry and the government.

Taxpayers subsidize the program to help farmers who lose crops to natural disasters—such as the flooding, hail and tornadoes that struck across a large swath of the Midwest this spring. The result is lower premiums for farmers, but insurance companies complain they aren’t reimbursed adequately by the government.

“The way it’s been going, you’ve had a significant amount of unreimbursed costs that have been imposed on the companies for years,” said Elizabeth Haws, a lobbyist with the American Association of Crop Insurers, a trade association.

The companies warn that cuts to the program could reduce insurance availability to farmers or force companies in the industry into merging to be able to make a profit. In their lawsuit, filed Monday in U.S. District Court in Council Bluffs, Iowa, they claim the government violated a 1998 contract when Congress cut their fees and subsidies. They said the changes cost the companies at least $60 million between 1999 and 2002.

Eight of the 12 companies in the lawsuit, including ACE Property and Casualty Insurance Co. and Alliance Insurance Cos., continue to take part in the program, originally started in the 1930s to help farmers cope with the Dust Bowl.

USDA this week announced further cuts in subsidies in a new agreement with companies. Companies have until June 30 to decide whether to sign the agreement, which reduces reimbursements industry-wide by $36 million over two years.

Trade groups predict that some of the 14 companies now in the program will opt to drop out or merge. That will mean fewer choices for farmers, especially in high-risk areas where companies don’t want to operate, officials said.

“This year certainly is starting out to be very challenging, so I think the crop insurance industry is justifiably very worried about what’s going on,” said Paul Horel, president of the Crop Insurance Research Bureau in Overland Park, Kan. “It’s going to be real challenging for much of the industry to be profitable over the next couple years with this agreement.”

Farmers and ranchers paid more than $3 billion in premiums to protect 215 million acres of land under the program in 2002, according to the research group. Shirley Pugh, a spokeswoman for USDA’s Risk Management Agency, declined to comment on the lawsuit, but said the new contract was necessary because new technology and planning is allowing farmers to better manage their risk.

“The growing complexity and expansion of risk management tools for farmers has taken us well beyond traditional crop insurance and we need a new forward-looking agreement between the government and the companies,” she said.

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