Crop Insurers Expect Congress May Ramp Up Oversight

Insurers participating in crop insurance, who have half their costs paid by taxpayers, are concerned they may face increased congressional scrutiny this year including possible hearings regarding their rates and agent commissions.

In preparation for greater oversight by lawmakers, the industry has had an accounting firm update a study which it believes counters the view of its critics who argue that the industry is easily as profitable as the property-casualty industry.

Crop insurers are also anticipating the March release of a Government Accountability Office study that was ordered by Congress in 2007 examining whether the government inappropriately subsidizes the commissions crop insurance underwriters pay their agents.

David Graves, a lawyer who represents the American Association of Crop Insurers, which lobbies for the industry’s companies, agents and reinsurers, cautioned that while the industry is gearing up for continued congressional scrutiny, it is “unclear what Congress will do,” other than release the GAO study.

“We just don’t know how significant oversight of this industry will be in the Congress that is convening today,” he cautioned.

He cited the heavy congressional workload, the fact that the Oversight Committee will have a new chairman and that the House Agriculture Committee, which has legislative authority, has other issues to contend with, including defending its oversight of the Commodity Futures Trading Corporation and, especially, CFTC regulation of credit default swaps.

The Independent Insurance Agents and Brokers of America also lobbies for crop insurance agents and is part of an industry task force that represents the industry’s interests in Washington.

An IIABA spokesman estimated that between 5,000 and 10,000 of its members sell crop insurance. He could not estimate how many non-IIABA producers sell the product.

The latest studies are a continuation of a May 2007 hearing convened by the House Oversight and Government Reform Committee.

The committee claims on its Web site that the hearing resulted in $1.8 billion in cuts in crop insurance subsidies to pay for other programs in the farm subsidy enacted last May.

Rep. Henry Waxman, D-Calif., former chairman of the panel who was recently elected to head the Energy and Commerce Committee, notes on the Oversight panel’s Web site that because of the May hearing the farm bill passed last June contains $3.4 billion in savings for the taxpayer from the program over 10 years.

He said on the Web site that the savings will come about because the bill “reduces excessive subsidies for insurers, provides new funding for program enforcement, and modifies other provisions resulting in waste and abuse by farmers and insurers…”

The study the GAO is expected to release in March is designed to analyze whether the government is paying the private crop insurers who administer the program more than they should because the companies provide incentives to agents to place coverage with them, rather than their competitors.

In his May 31, 2007 letter seeking the study, Rep. Waxman, citing testimony at the hearing, said commissions “are the industry’s number one cost,” with “commissions varying dramatically depending on how attractive an agent’s customers are to competing crop insurance companies.

According to the industry study—prepared by Grant Thornton, L.L.P., at the request of National Crop Insurance Services Inc., Kansas City, Mo.—the industry generated total premiums in 2007 of $6.6 billion, of which $3.8 billion was subsidized by the government.

NCIS President Bob Parkerson recently visited Washington to provide the study to appropriate congressional committees, and a spokesman said he visits Washington frequently to advocate for the industry and meet with appropriate regulatory agency officials.

The subsidy is paid for through an agency of the Agriculture Department which sets rates and otherwise oversees the program. The government provided $3.8 billion in subsidies to the program, which distributed $3.8 billion in indemnity payments to farmers. The program provides coverage on 272 million acres of major crops, with potential liability of $67.4 billion.

The Grant Thornton study states that the primary insurance program, the Multi-Peril Crop Insurance Program, is not as profitable as the property-casualty industry and writing the coverage “entails greater risk” than imposed on p-c insurers.

No major insurer owns a stake in the 16 crop insurance companies, most based in the Midwest, according to industry officials. Some are stock companies, others are mutual insurers, and one company, Rural Community Insurance Services, based in Anoka, Minn., is owned by Wells Fargo Corp.