Statement by Eldon Gould

Administrator

Risk Management Agency

United States Department of Agriculture

Before the House Agriculture Subcommittee on

General Farm Commodities and Risk Management

Tuesday, May 1, 2007

Mr. Chairman and members of the Subcommittee, I am Eldon Gould,
Administrator of the Risk Management Agency (RMA). I am a life-long
farmer in northern Illinois, with a 1,500 acre corn, soybeans and
wheat farm and a 700 sow farrow-to-wean hog operation. 

My role here today is to report on the progress and challenges of the
Federal crop insurance program and, in particular, to provide an update
on our successes and challenges in implementing the Agricultural Risk
Protection Act of 2000 (ARPA). In fulfillment of the mandates of ARPA,
and under the direction of the Federal Crop Insurance Corporation (FCIC)
Board of Directors (Board), with its Chairman, Dr. Keith Collins, the
Risk Management Agency continues to fulfill the mandates of ARPA by
bringing new and innovative insurance products to the agricultural
community. We work daily to validate the utility of current insurance
products, to ensure outreach to small and limited resource farmers, to
promote equity in risk sharing and to guard against fraud, waste and
abuse within the program.

Secretary Johanns asked me to administer the crop insurance program in a
timely and farmer-friendly manner. True cooperation between the Federal
government and our approved insurance providers (AIP) is necessary to
meet our common goals of providing effective insurance products,
processing timely and accurate claims for producers when losses occur
and identifying and eliminating fraud, waste and abuse in the program to
the greatest extent possible.

Effective outreach to our stakeholders and customers is also necessary
to identify attributes of the program that are working well and the
aspects that need to be changed to improve efficiency and effectiveness.
Administration of the crop insurance program requires all interested
parties working together to identify viable insurance products and
solutions that meet the needs of the agricultural community and follow
legislative guidelines. Moreover, if the program is to continue to be
successful, the checks and balances necessary to guard against the risks
of fraud, waste and abuse need strengthening. Our dual roles of
regulator and reinsurer make this cooperation the path to excellence.

The Standard Reinsurance Agreement (SRA) included key changes for the
2005 and subsequent reinsurance years. These entailed a lowering of the
percentage rate of administrative and operating (A&O) expense
reimbursement and a rebalancing of risk sharing between the government
and AIP's. In addition, RMA enhanced the reporting and monitoring of
AIP's and their affiliates with respect to financial solvency and
program integrity. To complement that enhancement, RMA has strengthened
formal ties with state insurance regulators and the National Association
of Insurance Commissioners.

We now have 16 AIP's selling and servicing crop insurance. Most
companies have requested authorization to increase the amount of premium
they write and the number of states they intend to serve.

For the 2006 insurance year, A&O reimbursements are estimated at \$958
million, up from \$552 million in 2000. Despite the decline in the A&O
reimbursement percentage, the total dollar reimbursement is up because
of the increase in premium per policy, primarily due to higher average
coverage levels, greater purchase of revenue insurance, and RMA rate
adjustments. Underwriting gains for the companies are up as well, rising
from \$282 million in 2000 to \$890 million estimated for 2006. The
combined increases in A&O and underwriting gains have helped improve the
financial performance of the companies and encouraged new entrants into
the program.

The Federal crop insurance program has experienced extraordinary growth
in the last quarter century. Through the private sector delivery system
in crop year 2006, RMA provided \$49.9 billion of protection to farmers
on approximately 360 commodities, covering nearly 80 percent of major
crops for which we can determine total eligible acres within the United
States. This coverage was offered through 21 plans of insurance and
approximately 1.1 million policies insuring about 242 million acres. In
2005, crop insurance provided approximately \$2.4 billion in indemnity
payments to farmers and ranchers. For 2006, indemnity payments totaled
approximately \$3.4 billion. We estimate that in 2007, we will reach
\$65 billion in protection for American agriculture.

Attached to my testimony are several charts that provide further
background and highlight the growth of the Federal crop insurance
program under ARPA.

Since the enactment of ARPA, RMA has aggressively expanded availability
of existing crop insurance programs to producers. Sixty-two proposals
have been submitted to the Board under Section 508(h) of the Federal
Crop Insurance Act (Act) since mid 2000 when ARPA was enacted. Of that
total, the Board has approved 34 and disapproved eight. The submitter
withdrew thirteen, four were returned or deemed incomplete, and one was
tabled pending further action. RMA has 24 active pilot programs in
various stages of development.

Having reviewed priorities and schedules for product development RMA has
determined that, barring any significant unforeseen hurdles, within the
next five years a risk management product will be available to
potentially cover approximately 98 percent of the commercial value of
U.S. crops. That is not to say that the task of having effective and
useful products will be complete. We continue to look for ways to make
traditional APH products more effective and useful for producers, and
this year we have added a livestock product, LRP Lamb, as well as
Pasture, Rangeland, Forage insurance to address other needs identified
by ARPA. We will manage these products to maturity and continue to
search for new ways to improve the ability of farmers and ranchers to
manage risk.

Now I would like to provide an update to the Subcommittee on the
following key issues.

**RMA Program Issues**

-   **Information Technology**

-   **Program Integrity**

-   **Conflict of Interest**

-   **Pasture, Rangeland, Forage and Hay Initiatives**

-   **Cooperative Discount Issue**

-   **Premium Reduction Plans**

-   **Combination Policy**

-   **Growth of Corn Price due to Ethanol Production**

**[Information Technology (IT)]{.underline}**

In order for RMA to successfully operate the multi-billion dollar
Federal crop insurance program, while controlling fraud, waste, and
abuse, it is prudent and necessary to have a current and reliable
operating system to deliver the crop insurance program. The system's
last major overhaul occurred about 12 years ago.

The current IT business systems are based on outdated system
architectures and are at the end of their expected life cycle. This
includes the use of data structures that do not provide the ability to
readily obtain consistent information and analysis from the 120
databases in use at RMA. As a result, comparisons across multiple crop
years that are useful in detecting unusual patterns of activity cannot
be made without expensive and separate data manipulation that exceeds
the technical and funding capacity of the Agency. In addition, the data
warehouse which consolidates the information from all of these databases
and is used to support the data mining efforts is at the end of its
useful life and must be replaced.

The 2008 Budget includes two proposals that will facilitate funding of
our IT needs.

The first is a reproposal of last year's request, which required
insurance providers to share in the cost to develop and maintain a new
IT system. Insurance providers would be assessed a fee based on one-half
cent per dollar of premium sold. The fee is estimated to generate an
amount not to exceed \$15 million annually. After the new IT system has
been developed, the assessment would be shifted to maintenance and would
be expected to reduce the annual appropriation of the salaries and
expenses account of RMA.

The second would expand the uses of mandatory ARPA research and
development funding for datamining and data warehousing activities
required by ARPA, and the testing and development of the Comprehensive
Information Management System (CIMS).

ARPA provided RMA with mandatory funding to implement data mining and
data warehousing to improve compliance and program integrity for years
2001-2005. At the close of FY 2005, these mandatory funds were depleted
and Congress appropriated discretionary funding for this purpose for FY
2006. These activities allow RMA to effectively detect fraud, waste, and
abuse in the crop insurance program.

Similarly CIMS was fully funded through 2007 by the 2002 Farm Bill.
Specifically, CIMS is a requirement of section 10706 of the Farm
Security and Rural Investment Act of 2002. The first stage of CIMS, a
proof of concept project, is operating and provides a centralized source
of RMA and Farm Service Agency (FSA) information. Developed applications
provide RMA, FSA, and reinsured companies' electronic access to approved
CIMS information. The CIMS project is completing recommendations to
standardize RMA and FSA common business elements, reporting requirements
and program dates to the extent practical for producer identification
and acreage reporting. CIMS identifies potential discrepancies between
RMA and FSA data. This early detection will reduce fraud, waste, and
abuse within the various USDA programs. Under section 10706, all current
information of RMA and FSA is to be combined, reconciled, redefined, and
reformatted in such a manner so that the agencies can use the
information management system. It was the sense of Congress that CIMS
would lay valuable groundwork for further modernization of information
technology systems of USDA agencies in the future. This will lead to the
one stop reporting of common producer and acreage information, which
will reduce the reporting burdens on farmers, ranchers, and producers,
RMA, FSA, and approved insurance providers with the delivery of USDA
programs.

.

**[Program Integrity]{.underline}**

RMA's Compliance function workload increased substantially due to the
expansion of the Federal crop insurance program and the implementation
of ARPA. In order to address the increases, RMA is emphasizing
preemption through better quality control and assurance, while still
aggressively pursuing program abuse by assisting USDA's Office of
Inspector General and the Department of Justice. Improvements in quality
controls and investigations continue to be assisted by new and better
technology, specifically the use of data mining, remote sensing,
geospatial information technologies and other computer-based resources.

The most recent renegotiation of the SRA resulted in changes in the way
RMA ensures program compliance. The SRA directs insurance providers to
expend more resources on quality assurance and internal controls than
ever before. The SRA also recognizes that insurance providers have
improved internal control processes in response to new Federal financial
reporting requirements. The SRA permits the insurance providers to
document and receive credit for their efforts rather than complying with
a separate set of assurance mandates.

In conjunction with the new insurance provider quality control
requirements, RMA Compliance has revised its work plans to reflect a
more balanced approach between quality assurance and investigating
program abuses. In a time of declining resources and increased
responsibilities, effective internal controls provide a significant
cost-benefit compared to identifying and prosecuting program abuse
alone. RMA is currently reviewing company operations and internal
controls to determine if their efforts actually address crop insurance
program vulnerability concerns.

RMA Compliance personnel completed the second year of structured random
policy reviews in 2006, and will soon begin the third round in the
three-year cycle of reviewing participating insurance providers.
Compliance completes the random reviews, in conjunction with an
assessment of each insurance provider's operational compliance, and uses
the information to establish a program error rate under the Improper
Payments Information Act of 2002.

RMA is making significant progress in preempting fraud, waste and abuse
through the expanded use of data mining. We have preempted millions of
dollars' worth of expected payments and RMA continues to identify ways
to reduce program abuse. RMA continues to use data mining to identify
anomalous producer, adjuster, and agent program results and, with the
assistance of FSA offices, conducts growing season spot checks to ensure
that new claims for losses are legitimate. These spot checks based on
data mining have resulted in a significant reduction in anomalous claims
for certain situations. Specifically, reduced indemnities on
spot-checked policies were approximately \$112 million in 2002, \$82
million for 2003, \$71 million in 2004, \$138 million in 2005, and \$35
million in 2006.

RMA is also using data mining to verify compliance with established
rules and regulations. For example, data mining identified policies
where a comparison of past claims and production data indicated that
insurance providers may have failed to use claim production data to
establish future approved yields, as required by regulation. RMA is
providing this information to the insurance providers to assist them in
correcting producer data for subsequent crop years. Insurance providers
are only required to make changes when an error is found.

The Government Accountability Office (GAO) audited RMA compliance
activities in 2005, and recommended areas for improving our compliance
efforts. The GAO made several recommendations that RMA accepted and is
working to implement.

Compliance managers continue to concentrate on the mission-critical
tasks of evaluating and improving new processes to prevent and deter
fraud, waste and abuse in the crop insurance program. We have dedicated
significant resources to building and adapting a reporting and tracking
system to complement and integrate the oversight mandates established by
ARPA and other statutory requirements.

While RMA, FSA and the insurance providers have preempted tens of
millions of dollars of improper payments through these and other
measures, RMA is constantly identifying ways to balance competing needs
to make our products fraud-proof while seeking to provide responsive,
useful risk protection to farmers.  We still have work to do and
improvements to make, but we are making good progress in our fight
against program abuse.

[**Conflict of Interest Supplementary Guidance**]{.underline}

RMA is finalizing a Manager's Bulletin that contains further guidance to
assist insurance providers in implementing changes to the SRA regarding
conflict of interest disclosure. The Bulletin will establish standards
for reporting conflicts of interests by insurance provider employees,
agents, and loss adjusters. It will thereby promote program integrity
and ensure adequate internal controls based on the identification of
certain conflict of interest problems in past audits and investigations
of fraud, waste and abuse in the program. 

**[Pasture, Rangeland, Forage and Hay Initiatives]{.underline}**

In August 2006, RMA announced the availability of the Pasture,
Rangeland, Forage insurance products for pasture and rangeland, in
response to ARPA requirements. There are over 400 million acres of
rangeland, 120 million acres of pasture, and 62 million acres of hay in
the United States, and we clearly saw a need. The new insurance products
are area-based products that trigger indemnities based on indexes. One
index is based on accumulated rainfall and the other is based on a
temperature-adjusted measure of vegetation obtained from the National
Oceanographic and Atmospheric Administration. Both products will use new
technology to help solve the problem of the inability to directly
measure forage production across the diverse range and pasture settings
on U.S. farms and ranches. Each pilot program is offered in six states.
As of April 9, 2007, the sales of the new Pasture, Rangeland and Forage
Rainfall and Vegetation Index pilot programs have exceeded expectations.
There have been a robust 8,023 Rainfall Index policies sold covering
24,535,220 acres with \$328,234,326 in total liability. Each state in
the pilot has a policy sold. The pilot area in Texas had the greatest
number of polices sold with 5,928 policies and over 20.8 million acres
covered. In the pilot, Texas has the largest area and South Carolina has
the smallest number of potential acres. South Carolina had the lowest
number of polices sold at 9 and just over 2,000 acres insured with
\$159,995 in liability. The total liability to date exceeds the
estimated participation of ten percent and \$205 million for the life of
the pilot.

Vegetation Index pilot program sales are at 1,687 policies sold covering
3,962,930 acres and \$61,786,236 in total liability. All states in the
pilot sold policies with the exception of Pennsylvania. The South Dakota
pilot area contained the largest potential acres and has the highest
number of policies with 885 polices sold. These policies insure
3,029,871 acres and a liability of \$41,982,206. The state with the
lowest number of sales is South Carolina with two policies covering 318
acres and \$20,289 in liability.

The participation in the pilot program areas are at approximately 16
percent, while the target goal was 10 percent at the end of the pilot.

**[Combination Policy]{.underline}**

RMA is continuing to develop a "Combination" policy, which merges
similar features from the existing Actual Production History, Crop
Revenue Coverage, Income Protection, Indexed Income Protection and
Revenue Assurance plans of insurance into one consolidated plan. We have
been working on this for some time now, and the draft final rule is
being completed. The final rule is targeted to be effective for the 2009
reinsurance year.

We believe this change will continue to give producers a broad array of
insurance options, but in a more straightforward manner resulting in
more streamlined and improved product delivery and operations.

The regulation proposes to reduce duplication and to simplify revenue
and yield protection into: (1) One set of policy materials, special
provisions, and actuarial documents; (2) One rating and pricing
methodology; (3) One premium calculator; and, (4) One database. This
combination of APH, CRC, RA, IP, and IIP provides simplification, fewer
documents to read and process, and less chance of errors for producers,
crop insurance companies, sales agents, and RMA.

**[Cooperative Discount and Rebating Issue]{.underline}**

The SRA prohibits insurance providers from providing rebates to
producers, except for two specific instances provided in the Act. One of
these exceptions is the Premium Reduction Plan, which is provided in
section 508(e)(3) of the Act, which I will address later in my
testimony. The other rebating exception is provided in section
508(b)(5)(B) of the Act and involves the participation of farmer-owned
cooperatives in providing crop insurance to their members. Section
508(b)(5)(B) of the Act is very clear that all payments from cooperative
or trade associations to members must comply with and be subject to
State law governing insurance rebating in the States in which payments
are to be made. To qualify to pay a dividend or other such payment to
its members under 508(b)(5)(B), an entity must be recognized by RMA as a
cooperative or trade association and RMA must receive certification from
the respective State department of insurance that the payment program
complies with State rebating law.

Interest by insurance providers and their agents in providing premium
discounts through cooperatives was intensified by the moratorium on the
Premium Reduction Plan for the 2007 reinsurance year, enacted in 2006
appropriations legislation. RMA soon began receiving reports that
individuals were exploring creative schemes to rebate insurance
premiums, including the formation of cooperative-like entities that
might qualify under section 508(b)(5)(B). Evidence also emerged that
many State insurance departments were unaware that the rebating programs
of cooperative and trade associations were clearly subject to State
rebating law.

As a result of these developments, RMA became increasingly concerned
that these recent developments might disrupt the marketplace for Federal
crop insurance. And, it determined that its existing procedures for
operating cooperative and trade association programs under section
508(b)(5)(B) were inadequate. Consequently, RMA has taken the following
actions:

-   RMA halted approval of cooperative dividend programs for the 2007
    reinsurance year, until adequate procedures could be developed and
    established through a Managers Bulletin.

-   RMA has enlisted the active support of the National Association of
    Insurance Commissioners (NAIC). NAIC is assisting RMA in raising
    awareness of the States anti-rebating responsibilities under this
    particular section of the Act. NAIC has circulated a draft "Model
    Letter" which will guide States in their evaluation of cooperative
    and trade association rebating proposals under State rebating law
    and respond effectively and decisively to RMA.

-   RMA drafted a Managers Bulletin that incorporates procedures that
    approved insurance providers must follow to sponsor cooperative and
    trade associations. It includes the items the entity and the
    insurance provider must submit for RMA to be able to determine that
    an entity is a cooperative or trade association and its dividend
    program complies with State rebating law. RMA circulated the draft
    Managers Bulletin to the industry and, based on their input, is
    finalizing the Bulletin for publication.

Through these actions, RMA is confident that the intent of Congress will
be preserved by encouraging participation by legitimate farmer-owned
cooperatives under section 508(b)(5)(B). RMA is further confident that,
as a result, the stability of the marketplace for crop insurance will
not be threatened by schemes to establish cooperative-like entities for
the sole purpose of crop insurance rebating.

[]{.mark}

**[Premium Reduction Plans (PRP)]{.underline}**

The PRP is not available during the 2007 reinsurance year (RY) due to
language in the 2006 FY (Fiscal Year) Appropriations Bill as extended by
the current Continuing Resolution. However, RMA is evaluating requests
from 2006 RY PRP-eligible AIPs after the 2006 RY annual settlement in
February 2007. We are finalizing a Managers Bulletin that will provide
clarification and guidance regarding PRP payment authorization requests
for 2006. This will allow us to be prepared to offer PRP for the 2008
RY.

**[Premium Costs for Corn]{.underline}**

The rise in projected demand for plant-based fuel has caused a projected
increase in the price of corn and an increase in premiums for revenue
based insurance products for corn. For example, in Page County, Iowa,
the price election per bushel of corn is up 57% and the producer portion
of the premium is up 62 percent. Additional acres in corn mean fewer
acres in other crops and fewer bushels of soybeans, for example, means
higher prices as well. The soybean price election in Iroquois County,
Illinois, is up 31 percent and the producer portion of the premium is up
29 percent. We cannot tell this early in the crop year the extent to
which the number of acres insured will be affected by the higher
premiums.

**[Farm Bill Proposals]{.underline}**

In putting the farm bill proposals together, USDA aimed to make farm
policy more equitable, predictable and better able to withstand
challenge. The Farm Security and Rural Investment Act of 2002 (FSRIA)
was the right policy for the times. It was the first-ever farm bill with
an energy title, and it increased conservation spending by about 80
percent. When it was developed, commodity prices were low, exports had
declined for several years in a row, and the debt-to-asset ratio was at
about 15 percent.

But times have changed and farm policy must reflect the new realities.
Today, commodity prices are strong for most program crops, and we are
seeing record and near-record production and yields. The debt-to-asset
ratio has now fallen to 11.8 percent; the lowest number USDA has ever
recorded. Exports, meanwhile, have increased every year since 2002 and
last year hit a record \$68.7 billion. They are expected to grow to \$78
billion this year.

USDA put a great deal of time and energy into developing a comprehensive
set of proposals for the 2007 Farm Bill that will help move the farm
economy to a new level of prosperity and growth. Secretary Johanns began
this process by holding 52 forums across the country to gather input
directly from those most affected by farm policy -- America's farmers
and ranchers. In all, USDA received more than four thousand comments
from producers and other stakeholders across the country. The collective
common sense drawn from those comments has really formed the heart of
the farm bill proposals.

The Department certainly heard a great deal of support for the structure
of FSRIA, but also heard many suggestions on how to improve current
policies and many of them were surprising. Secretary Johanns and the
USDA team took all of what was heard into account as these proposals
were crafted. And they sought to combine the best features of our farm
policies of past years---including preserving a strong safety net for
producers---with a more market-oriented approach to meeting the
challenges and seizing the opportunities that we know future years will
bring.

The Farm Bill proposals will put American agriculture on a strong
competitive footing for years to come while also making responsible use
of taxpayer dollars. With that, let me go into more detail on several of
the crop insurance-related proposals.

The first proposal would allow farmers to purchase supplemental
insurance that would cover all or part of their individual policy
deductible in the event of a county or area wide loss. We are proposing
literal \"gap coverage\" that a producer can buy to cover 100 percent of
their deductible loss under the crop insurance program.

The threshold at which the supplemental insurance would be activated is
a county-wide loss of 10 percent or more. When the loss under the group
policy is sufficiently large, the grower's deductible would be
completely covered, resulting in 100 percent of losses being covered.

The supplemental policy would cover the 'hole' in crop insurance, as
well as provide compensation for disaster situations.

Ultimately, this approach would help to address the gap in the safety
net that exists due to the fact that current crop insurance products
fail to cover crop losses that are less than the size of the deductible.
This proposal would increase the Administration\'s commitment to crop
insurance by \$350 million over 10 years.

Secondly, we are proposing again that if you receive program payments
you should have crop insurance. Crop insurance is already widely used by
producers. Some states have 90 percent- participation or more, but we
want to get that last 10 percent enrolled. If a producer gets subsidies,
we feel strongly that crop insurance should be used to help manage their
risk. Higher participation and higher coverage will help obviate the
need for costly supplemental assistance that undermines the crop
insurance program.

The conditions under which program linkage will take place under the
Administration's Farm Bill proposal are substantially different from
that which existed in 1994 when linkage was previously attempted.
Voluntary participation in the crop insurance program for major U.S.
commodities is already around 80 percent, and almost 90 percent of those
participants are already buying higher levels of coverage that satisfy
the minimum linkage requirement. In the mid-1990's, voluntary
participation was significantly lower, particularly at buy-up levels of
coverage, and so mandatory coverage affected a much larger percentage of
producers.

A third Farm Bill proposal would provide the authority for RMA to
renegotiate the financial terms of the Standard Reinsurance Agreement
(SRA) once every 3 years.

RMA needs the opportunity to make changes in the SRA to address MPCI
primary business changes. Revisions may be needed to strengthen program
integrity efforts, or to bring the company underwriting gain potential
back to a reasonable level. Without this opportunity, current terms and
provisions would continue despite the fact they may be no longer in the
best interest of the program.

As we all know, participation in the crop insurance program has grown
significantly since the implementation of ARPA. Given this fact and the
large number of changes taking place within agriculture today, it is in
the best interest of all parties to have an SRA that is reflective of
market conditions and dynamics.

Another key proposal would be to allocate up to \$10 million in annual
funding to strengthen crop insurance compliance efforts. This proposal
would allow RMA's Compliance office to fill critical staffing needs in
addition to providing funding for compliance related strategies
including support for data mining, satellite imaging, and Geographic
Information Systems.

RMA bases the need for enhancing the current Compliance staffing levels
on the continuous program growth coupled with fewer on-board Compliance
staff now than in the 1990's. Compliance has been seeking additional
staff to address this critical shortage for the past few years.

Initially, RMA would look to use the money as indicated in past
requests. We would spend approximately \$1.5 million to support 15 staff
years for Compliance. Twelve staff years would be distributed to the six
Compliance field offices to fill Compliance reviewer positions. The
three remaining positions would be allocated to Washington to provide
for a Compliance Assistant Deputy, a Management Control Officer, and a
dedicated OIG Hotline Complaint coordinator. This will enhance the
oversight and support efforts to deter fraud, waste, and abuse in the
program.

Another Administration proposal would be to increase the net book quota
share (USDA FCIC\'s share of risk on premiums currently retained by the
companies) from the current 5 percent to 22 percent and provide a ceding
commission to the reinsured companies of 2 percent of premium.

The Net Book Quota Share (NBQS) is a means for RMA to participate in the
crop insurance program at the same level as a commercial reinsurer. RMA
assumes a percent of the companies retained premium, loss, and resulting
underwriting gain or loss, similar to a commercial quota share
reinsurer. The loss ratio and rate of return is the same for both the
company and RMA, thus it does not impact the risk sharing of the other
SRA reinsurance terms. A commercial quota share MPCI reinsurer will pay
a ceding commission to the reinsured to aid in offsetting the costs of
generating business. While the current NBQS provisions do not include a
ceding commission, the proposal does include a 2 percent ceding
commission. The impact to the companies retained business is limited by
the significant increase in premium over the last several years. The
total company retained premium for the 2006 reinsurance year is \$3.68
billion. If this proposal had been in effect for the 2006 reinsurance
year the company retained premium would be approximately \$2.87 billion,
which is greater than the 2003 retained premium amount of \$2.61
billion.

The Administration has proposed reducing the administrative and
operating expense reimbursement to the reinsured companies by 2
percentage points for all policies other than CAT policies.

Payments to companies for delivery of the crop insurance program have
steadily increased, both in absolute terms and on a per-policy basis,
over the past decade. In 1990, companies were paid about \$280 million
as compensation for program delivery, or about \$350 per policy. By
2006, payments to companies were about \$940 million, for a per policy
payment of about \$820. For 2007, payments to companies are expected to
exceed \$1.1 billion because of higher commodity prices, or over \$950
per policy. With a two percentage point reduction in A&O, payments to
companies would still be about \$1 billion, more than has been paid in
any other year. Further, higher commodity prices are expected to be
sustained for at least the next few years, with the result that future
A&O payments (inclusive of the two percentage point reduction) will
still be far larger than those of recent years. Hence, this proposal
will not create a disincentive to provide proper service to farmers.

Finally, the Administration proposes to allow private crop insurance
companies to have direct access to data mining information currently
held by RMA. Companies could use this information to reveal potential
fraud and abuse. Companies would be allowed to query information related
only to their respective clientele. To fund such activities, RMA would
be required to charge a user fee for this service.

**[Conclusion]{.underline}**

RMA continues to evaluate and provide new products and to promote the
adoption of crop insurance as a risk management tool so that the
government can further reduce the need for ad hoc disaster payments to
the agriculture community.

The growth and effectiveness of the crop insurance program is dependent
on a reliable delivery system; insurance products that meet the needs of
producers; investment in information technology to ensure the delivery
system is timely, accurate and dependable; and adequate funding to
support compliance and program integrity, maintenance and
administration, product evaluation and new product development, and a
dependable and equitable delivery system.

USDA Farm Bill proposals will further strengthen the Federal crop
insurance program and insure that this critical safety net continues to
serve America's farmers and ranchers.

Again, thank you for the opportunity to participate in this important
hearing. I look forward to responding to questions on these issues.