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Crop Insurance Works Well, But Could Be Improved

The House Agriculture Subcommittee on General Agriculture and Risk Management held a hearing Wednesday to review the federal crop insurance program. Several witnesses presented testimony and answered questions by the committee.

"Crop insurance generally is working fairly well," said National Farmers Union President Roger Johnson. "Lots of folks carry it and that's a very good thing, we want to encourage them to carry it."

American Farm Bureau Federation President Bob Stallman agreed with Johnson that for the most part the crop insurance program works well for most producers.

"Participation in the program hovers at about 80% of eligible acres," Stallman said.  "In addition, about 85% of the insured acreage is now covered by a buy-up policy rather than simply a catastrophic policy. Our farmers and ranchers are annually provided more than $90 billion in risk management protection, up from $31 billion in protection just 10 years ago."

Johnson also stressed the importance of the Supplemental Agricultural Disaster Assistance program that was established in the 2008 Farm Bill. He told the committee it was very important that should they change the crop insurance program they be cognizant of that provision because the two are very closely linked.

Both Johnson and Stallman also talked to the committee about shallow loss provisions under the crop insurance program, which the permanent disaster program was designed to deal with.

"That's always, as long as I can remember, been a concern of producers," Johnson said. "The worst situation is if 30% of your normal yield is lost, because normally crop insurance doesn't pick up until you've got a pretty significant loss."

An area of crop insurance that Johnson said needs improvement is dealing with quality losses.

"There are a number of circumstances where you have crops that are damaged," Johnson said. "The yield is still good, it may even be better than normal, but the value of the crop goes down because something happened to the quality. It was rained on too much, it's sprouted, it's got falling number issues, it's whatever; there are discounts that happen relative to quality losses. They need to somehow be covered by crop insurance. There's not a very good system for it right now; there's a system of charts and tables that unfortunately doesn't fit very well with what the marketplace actually does in the case of quality loss."

There were several questions from the committee about losses that occur on a multi-year basis. Johnson says it's particularly a problem when there is a disaster one year and then along comes another one the next year.

"They need a system to somehow accommodate and recognize those back-to-back losses without driving the potential indemnity payments so low that folks just decide they can't afford to carry it," Johnson said.

Johnson also talked about a problem with the Standard Reassurance Agreement that is a part of their control to prevent waste, fraud and abuse.

"Basically it says that any producer who is scheduled to receive more than $100,000 in crop insurance payments in a year is automatically chosen for an audit," Johnson said. "They are required to verify production over at least the previous three years. Well that's all fine and good, unless you had the same problem last year or the year before."

In that instance they come back again and make you re-verify what they verified last year, which Johnson says is an inefficiency that needs to be addressed. He also says some other aspects need to be looked at in regards to these provisions.

"That problem is really a problem when you go into an area with fairly widespread losses," Johnson says. "Because if you think about it, if you have a whole bunch of farmers clustered in an area that are all putting in insurance claims that doesn't really indicate that there's a high likelihood of waste, fraud or abuse. It's much more likely that you have a real disaster in the area."

Johnson suggested that in those circumstances something other than an automatic audit should be considered.  He said maybe audit a few, but that it is pointless to audit everyone in such an area.

"If you've got outliers it makes a lot of sense," Johnson said. "If I'm the only guy in the whole three county area that's got a big loss, then come audit me, it makes sense. Something happened that's unusual there."