RMA proceeding with crop insurance premium reductions

By Matt Reese

Those who use crop insurance in Ohio should see some welcome changes in their premiums this year and in following years. Late last year, the USDA Risk Management Agency (RMA) announced that Ohio would have some of the biggest proposed decreases in the nation resulting from updated methodology to set crop insurance premiums.  

The RMA announced that many states, including Ohio, would see significant decreases in crop insurance premiums based on the decreasing risk levels due to a number of factors. 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.

RMA periodically reviews premium rates and makes necessary adjustments for actuarial soundness, aiming to establish the most appropriate premium rates. The current approach makes 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.

The actual amount of decrease farmers could see this year, though, will vary by the specifics of the situation. And, only a portion of the decreases will be implemented this year.

“The potential rollback for Ohio farmers as far as the cost of their insurance relative to other farmers across the nation will be implemented in phases,” said Gene Baumgardner, an Ohio Corn and Wheat Growers Association Board Member who recently met with RMA officials. “It will be 2013 before corn and soybean growers see the full benefit of the rollbacks.”

The RMA was ready to move forward with the complete cuts in premiums this year, but after the comment period, felt that all of the viewpoints should be fully considered. The result is a more gradual phase in of the cuts over the next two or three years.

“One third of rollback will be implemented this year, one third next year and they were pretty certain that they would have it fully implemented by 2013,” Baumgardner said.

 

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