USDA to lower crop insurance premiums

Ohio saw some of the biggest decreases in the nation with the U.S. Department of Agriculture’s (USDA) Risk Management Agency (RMA) announcement that it will update the methodology to set crop insurance premiums, leading to lower insurance premium rates for many corn and soybean producers in the 2012 crop year. The rate adjustment is based on findings of an independent study and peer review process.

The study is part of RMA’s ongoing effort to improve the methodology of determining premium rates for crop insurance. Ohio’s average reduction in soybean insurance premiums will be 13% and it will be and 11% reduction in insurance premiums for corn. Both decreases are significantly larger than the national averages.

“We are improving the formulation of our rate-making methodology, and are moving to establish the most fair and appropriate premium rates for today’s producers,” said William J. Murphy, RMA Administrator. “On average, these new rates should reduce corn farmers’ rates by 7% and soybean farmers’ by 9%. As good stewards of taxpayers’ dollars, we welcome the opportunity to match premium rates more accurately with current risks.”

RMA contracted for a study by Sumaria Systems Inc., which examined premium rates, and the rating process, starting with the United States’ two major commodities: corn and soybeans. RMA then requested an independent expert peer review to provide feedback on the Sumaria study results. RMA will conduct further review and analysis of the study’s recommendations along with comments and issues raised by peer reviewers, making additional adjustments as warranted and appropriate. Accordingly, RMA is taking action to implement adjustments to premium rates in a “phased in” approach that allows for any further adjustment pending additional analysis of peer review comments.

The federally supported crop insurance system was designed to have a loss ratio of 1.0. In theory, farmer-paid premiums paired with USDA-paid premiums, should result in an equal number of dollars paid in claims throughout time. However, the rating methodology has not kept up with yield increases and other factors resulting in increased insurance premiums.

“Today’s technology has reduced some of the risks associated with planting corn and until now, our crop insurance premiums haven’t been adjusted accordingly,” said Mark Wachtman,
Ohio Corn and Wheat Growers Association Chairman.

The decreases will benefit growers around the country.

“Our farmers have historically paid more than their fair share of crop insurance premiums and we are pleased to see this is finally coming to an end,” Garry Niemeyer, president of the National Corn Growers Association. “We will continue to work with the USDA as they implement these new premiums for the 2012 crop year.”

RMA periodically reviews premium rates and makes necessary adjustments for actuarial soundness, aiming to establish the most appropriate premium rates for today’s producers. The current approach will make a concerted effort to adjust premium rates in a manner that recognizes the latest technology, weather, and program performance information. Updated data pertaining to prevented planting, replant payment, and quality adjustment loss experience, was also used in determining rates changes.

“NCGA has been working on this issue for more than eight years,” Niemeyer said.  “We are pleased to hear our farmers will no longer be facing the continued widening gap between the loss for corn and the premiums charged to growers for policy coverage. This is a day long coming.”

RMA will release actuarial documents by November 30 reflecting premium rates and other program information that will be effective for the 2012 spring crop season.

 

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