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Change expected in crop insurance under next farm bill: Reimbursement

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FARGO, N.D. -- The federal crop insurance program is working reasonably well, officials say.

But change is coming, particularly if the program is revamped in the next farm bill, some say.

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"Everything will be on the table," including federal crop insurance, in upcoming farm bill negotiations, says Mike Connealy, chief executive officer of ProAg in Amarillo, Texas.

Connealy spoke Jan. 17 at the 18th annual crop insurance conference in Fargo, N.D. About 200 people, most of them insurance agents from North Dakota and Minnesota, attended the event, hosted by the North Dakota State University Extension Service.

The federal crop insurance program, administered by the U.S. Department of Agriculture's Risk Management Agency, seeks to protect crop producers from "unavoidable risk" associated with bad weather, crop disease and insects, according to information from the federal government.

Crop insurance policies are sold and serviced through private companies. The federal government subsidizes the program to keep it affordable, paying crop insurers $3.8 billion in 2009, according to the Associated Press.

Nationwide, 256 million acres were covered by the federal crop insurance program in the 2009 crop year, according to Michael Alston, deputy administrator for insurance services for the Risk Management Agency, who spoke Jan. 17 in Fargo.

Premiums paid totaled $7.6 billion, with $3.4 billion paid out in claims, for a 0.45 loss ratio.

In North Dakota, for crop year 2010, 24 million acres were covered, with total premiums of $663 million and claims paid of $405 million, for a loss ratio of 0.61.

In Minnesota, for crop year 2010, 17 million acres were covered, with total premiums of $625 million and claims paid of $73 million, for a loss ratio of 0.14.

Alston says crop insurance makes more sense than ever for farmers and that his agency will do its part to make the program successful for producers, insurance companies and their agents, consumers and taxpayers.

Reimbursement

The Standard Reimbursement Agreement is a contract between the federal government and crop insurance companies. It determines how losses in the federal crop insurance program are shared between the public and private sectors and how much the private companies will be reimbursed for expenses.

USDA and crop insurance companies renegotiated the agreement last year. USDA says the new agreement, which includes caps on agents' commissions, will save $6 billion in premium subsidies in the next 10 years.

Alston says government officials listened carefully to what insurance agents and companies had to say.

Connealy says USDA conducted "a very effective public relations job."

Complaining about the new contract won't do any good, he says.

"It is what it is. It's not going to get any better or any worse," he says.

The new agreement includes a number of provisions that will squeeze the finances of crop insurance companies, he says.

For instance, companies will need a "huge" operating line of credit, he says.

Connealy predicts consolidation among crop insurance companies.

He also predicts there will be a major push in the next U.S. farm bill to reduce spending on the federal crop insurance program.

"My opinion is it's going to be all about the money. All the programs in the ag budget will be on the table, including ours," he says.

Jonathan Knutson writes for Agweek, which is owned by Forum Communications Co.

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