Feds Put Brake on More Direct-to-Consumer Crop Insurance Pending Further Review

November 22, 2004

American farmers and independent insurance agents selling crop insurance reportedly scored an important victory late Friday, when the Federal Crop Insurance Corp. (FCIC) Board put the brakes on the proliferation of Premium Reduction Plans (PRPs) pending further review.

The FCIC board, in Friday’s meeting, denied all pending PRP applications for the 2005 reinsurance year and further mandated that no new PRP applications will be approved until the U.S. Department of Agriculture’s Risk Management Agency (RMA) completes a comprehensive rulemaking procedure.

Significantly, the FCIC Board also directed RMA to seek comments from agents, in addition to companies and farmers, on how the rules governing these plans are promulgated. Without a comprehensive set of rules to govern the distribution of PRPs, there would reportedly be no mechanism in place to ensure that all farmers, regardless of their size, location, or loss history, would receive the same quality of service.

“Had these companies been approved prior to any rulemaking, the damage created in the marketplace would have brought the crop-insurance industry to its knees,” said Patrick O’Brien, Big “I” director of federal government affairs. “The likely result would have been a mass exodus of agents from crop-insurance sales, interrupted service to smaller farmers, some farming bankruptcies, and a forced consolidation of crop insurers. The FCIC Board’s wise and laudable decision will result in a much-needed, comprehensive review of this system, and importantly, it will give independent agents—the backbone of the crop-insurance delivery system—an important say in the rulemaking process.”

Friday’s board action was the second recent success for the Big “I” and independent agents on the crop-insurance issue. After a meeting last month with Big “I” national staff and the Independent Insurance Agents of Texas, House Agriculture Appropriations Subcommittee Chairman Henry Bonilla (R-Texas) wrote a letter to Agriculture Secretary Ann Veneman calling for a “full and formal rule making process regarding the expansion of premium discount insurance plans in the crop insurance program” and advocating a “full and in-depth review of any such program before instituting an expansion.”

“Chairman Bonilla’s concern for farmers and the private sector crop insurance delivery system is both important and greatly appreciated,” said O’Brien.

With Friday’s board action, the only company approved to offer a PRP for the 2005 reinsurance year is Crop 1 Insurance Direct. Crop 1 received approval in February and will have to reapply for the 2006 reinsurance year under the same standards as every other company.

The Big “I” has voiced serious concerns about the PRP program, which allows the selling and servicing of crop policies primarily through a Web site, reportedly creates an uneven playing field for the industry and severely undermines the crop insurance delivery system.

Under this plan, growers reportedly give up the expertise of independent agents, who can provide invaluable assistance to growers with deadlines for reporting, quality control, and screening information sent back from companies, for only a minimal discount—, often less than a dollar per acre. Independent agents have worked hand-in-hand with American farmers to ensure they are adequately protected.

“We are very pleased with the FCIC Board’s action, which will allow a comprehensive examination of the system, and the effects of PRPs, and will give independent agents the input they deserve,” said Charles Symington, Big “I’ senior vice president of federal government affairs. “We will continue to work hard to ensure that the crop-insurance industry continues to thrive, and that agents will be able to remain in business and offer their years of expertise and good counsel to farmers across America. This is an important development for both farmers and agents.”

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