Number range CHAPTER**STATEMENT OF KEITH COLLINS**

**CHIEF ECONOMIST, U.S. DEPARTMENT OF AGRICULTURE**

**BEFORE THE U.S. SENATE COMMITTEE ON AGRICULTURE,**

**NUTRITION, AND FORESTRY**

## June 12, 2003

Mr. Chairman and Members of the Committee, thank you for the opportunity
to be at today's hearing on crop insurance and risk management issues
for U.S. agriculture. I currently serve as Chairperson of the Board of
Directors (Board) of the Federal Crop Insurance Corporation (FCIC). My
remarks today will focus on the activities of the Board since passage of
the Agricultural Risk Protection Act (ARPA) of 2000.

ARPA made substantial changes to both the functions and responsibilities
of the FCIC. In today's hearing, Mr. Ross Davidson, Manager of FCIC and
Administrator of the Risk Management Agency (RMA), and other witnesses
will discuss many of these changes, including:

-   Expanding pilot programs to include livestock, a sector of
    agriculture specifically excluded in the past,

-   Emphasizing service to underserved states, underserved crops, and
    underserved producers,

-   Outsourcing the internal research and development of crop insurance
    products,

-   Increasing risk management and crop insurance education and

-   Expanding the role and the use of cutting edge technology, such as
    data mining, to increase risk management compliance.

ARPA also changed the management of FCIC to facilitate the changes in
priorities and the increased activity mandated by this new legislation.
Prior to the enactment of ARPA, the Board of Directors consisted of: the
Corporation Manager; two Under Secretaries of Agriculture, one
responsible for the Federal crop insurance program; a crop insurance
professional not otherwise employed by the Federal government; and three
active producers who were policyholders and not otherwise employed by
the Federal government

Under ARPA, the number of private sector Board members has increased.
The new structure of the Board is: the Corporation Manager as an ex
officio non-voting member; two Under Secretaries of Agriculture, one
responsible for the Federal crop insurance program; the U.S. Department
of Agriculture's Chief Economist; one crop insurance professional; one
member experienced in reinsurance or the regulation of insurance; four
active producers who are policyholders from different geographic areas
of the United States, and represent a cross-section of agricultural
commodities, including at least one specialty crop producer.

The Board has met thirty-one times since enactment of ARPA in June 2000,
compared to twenty-seven times from 1996 through 2000. Several factors
contributed to this increase in activity, including the increased
submission of private products under section 508(h) of the Federal Crop
Insurance Act (Act), and the requirement that the Board use independent
expert reviewers to assist in the decision making of the Board.

Section 508(h) of the Act authorizes the reimbursement of certain costs
associated with the development and submission of products from persons
outside FCIC. This incentive, along with the expansion of allowable
commodities, such as livestock, has fueled an increase in the number of
private submissions. The legislation also requires FCIC to make
determinations on submissions to the Board by issuing a notice of intent
to disapprove a product not later than 90 days and approve or disapprove
a product not later than 120 days after receipt of a complete
submission.

ARPA also requires the Board to contract with independent actuarial and
underwriting experts for the independent review of policies, plans of
insurance, and related materials prior to the Board giving approval for
such products. In making its decisions, the Board must take the results
of the expert reviews into consideration before its determination of
approval or disapproval. Since the enactment of ARPA, over 150
independent expert reviews have been conducted on over two-dozen
submitted products and program modifications. The Board currently has
nearly forty expert reviewers under contract. The recruitment and
retention of qualified expert reviewers is an ongoing task.

The Board approved several new risk management products over the past
two years, including the Livestock Risk Protection (LRP) and Livestock
Gross Margin (LGM) plans, as well as whole farm insurance policies such
as AGR-Lite, and a Nutrient Best Management Practices insurance plan.
New specialty crop insurance program proposals have been approved
including caneberries and forage seed. The Board has also approved the
expansion of certain pilot programs, such as the pecan insurance pilot
program.

The Board generally delegates ratemaking issues to the Manager of FCIC.
However, due to the magnitude of the potential changes to the rating
structure of major FCIC products, the Board decided to be directly
involved in the review of the rating methods for several products,
including APH, Revenue Assurance, and Crop Revenue Coverage. This review
may lead to substantial changes in the way most crop insurance is rated.
The Board also reviewed Crop1's Premium Discount Plan and recommended
its approval if the criteria in the procedure, created by the Board,
were met.

As we look to the future of FCIC, the Board will be focusing on a range
of issues crucial to improving the risk management capacity of farmers
and ranchers. In order to ensure that FCIC's resources are used in the
best possible way to meet the needs of producers and the industry, the
Board has authorized a set of studies looking at the FCIC's current and
future products. The first is a comprehensive review of policies, plans
of insurance and related materials. This study focuses on any
inconsistencies or overlaps between the program legislation, regulation
and program materials. The second is an analysis of the FCIC product
portfolio, with specific attention on coverage overlap and gaps. We
believe this study will help the Board and RMA deal with the large
number of pilot programs and feasibility studies that are in the
pipeline. The results of both of these studies should give FCIC valuable
assistance in developing a strategic product development plan.

The Board is also mindful of the statutory charge that "The management
of the Corporation shall be vested in a Board of Directors subject to
the general supervision of the Secretary." While the Board is very
active in the general management of FCIC, the Board cannot and should
not manage day-to-day activities and issues that continually arise in
this complex program. That is the task of Under Secretary Penn and
Administrator Davidson, and they are doing an excellent job.

In order for the Board to manage its considerable responsibilities of
guidance and oversight placed on it by the Act, as amended by ARPA, the
Board has created a committee structure to help ensure appropriate
attention is given to the full range of issues the Board must address.
Newly created Governance and Audit and Finance Committees are the first
stop for many of the issues that need Board attention. For example, the
Governance Committee is currently addressing the delegation of
authorities from the Board to the Manager of FCIC. The Board expects its
review and reformulation of the delegations to be finished this summer.

The Board is fulfilling, and will continue to fulfill, its statutory
responsibilities, including the provision of oversight, guidance and
direction to FCIC and RMA. The Board is committed to strengthening the
nation's crop insurance and other risk management programs and the
regulatory functions of RMA. All of the Board members are pleased to
have the opportunity to serve American agriculture and all are working
diligently to ensure this crucial part of the farm safety net functions
as efficiently and as effectively as possible.

That completes my remarks. Thank you.