# Presentation: 124159

## Federal Crop Insurance Program

- Financial Management Training
- U. S. Department of Agriculture
- June 10, 2008

- Margo E. Erny
- Chief Financial Officer
- USDA Risk Management Agency
- Federal Crop Insurance Corporation

## Federal Crop Insurance 

- Program Overview
- Program Growth
- Participation, Loss Ratio, Premium
- Crop Insurance Delivery
- Government Reinsurance
- Priorities and Recent Activities
- New Farm Bill

## Program Overview

## How U.S. Crop Insurance Works 

- Annual enrollment prior to planting
- Coverage based on
- Recent yield history
- Price forecasts
- Futures contracts
- Multiple-peril insurance, revenue and index based plans
- Premium rates based on coverage and risk
- Indemnity paid if index is triggered or the yield and/or revenue at end of season is below guarantee

## The Birth of  Federal Crop Insurance

**The Birth of  Federal Crop Insurance**

- The Agricultural Adjustment Act of 1938
- "It is the purpose of this title to promote the national welfare by improving the economic stability of agriculture through a sound system of crop insurance and providing the means for research and experience helpful in devising and establishing such insurance."

## Federal Crop Insurance Corporation (FCIC)

- FCIC is USDA’s crop insurance company
- The management of the FCIC is vested in a Board of Directors (Board)
-  _The Board consists of_:
- Undersecretary of Farm and Foreign Agriculture Service (FFAS) - _[Dr. Mark Keenum](http://www.usda.gov/bios_mark_keenum.xml)_
- USDA Chief Economist - _[Joseph Glauber](http://www.usda.gov/2007/11/0351.xml)_
- FCIC Manager (non-voting) - _[Eldon Gould](http://www.usda.gov/2005/11/0494.xml)__ _
- FCIC Associate Manager (non-voting) – _James Callan_
- Four farmers, one of whom grows specialty crops
- _[Frank Bedford Jones, Jr.](http://www.rma.usda.gov/fcic/jones.pdf)_
- _[Timothy M. Kelleher](http://www.rma.usda.gov/fcic/kelleher.pdf)_
- _Luis Monterde_
- _[Curt Sindergard](http://www.rma.usda.gov/fcic/sindergard.pdf)_
- An individual involved in insurance (often an agent), _[Willard Dean (Bill) Classen](http://www.rma.usda.gov/fcic/classen.pdf)__ _
- An individual knowledgeable about reinsurance or regulation, _[Mike Pickens](http://www.rma.usda.gov/fcic/pickens.pdf)__ _

## Risk Management Agency

- RMA is the USDA agency
-     that supervises and administers
-     the day to day activities of FCIC
- RMA’s key functions
- Underwriting – policy design and maintenance
- Program rules and regulations
- Premium rates and crop price elections
- Data collection, auditing, and management
- Payment of reinsured companies’ reinsured losses and Administrative and Operating (A&O) expenses
- Auditing and oversight of finances and market-behavior

**Notes:**
Note there are 17 companies if you count Puerto Rico—they have a separate agreement with RMA. 

## Program GrowthParticipation, Loss Ratio, Premium

## Program GrowthParticipation By Crop

| 2007 Crop Ranking by Liability |  |  |
| --- | --- | --- |
| Crop | Liability ($ Mil.) | % of Total |
| Corn | $31,256 | 46.8% |
| Soybeans | $11,440 | 17.1% |
| Wheat | $5,364 | 8.0% |
| Nursery (FG&C) | $4,019 | 6.0% |
| Cotton | $1,990 | 3.0% |
| FL Fruit Trees | $1,175 | 1.8% |
| Potatoes | $842 | 1.3% |
| Grain Sorghum | $760 | 1.1% |
| All Others | $9,983 | 14.9% |
| Total | $66,830 | 100.0% |

## Program GrowthFCIC Loss Experience, 1981-2007

## Program GrowthTotal Premium by Crop, 2007

**Total premium = $6.56 billion**.

**Corn**
**(Maize)**

**Soybeans**

**Cotton**

**Wheat**

**Others**

**Program Growth****Total Premium by Crop, 2007**

## Crop Insurance Delivery 

## How Crop Insurance Is Delivered 

- Policies sold and serviced by private insurance companies
- Insurance agents paid sales commissions by company
- Loss adjusters employed by company
- Administrative and operating subsidy paid to companies
- Because premium reflects risk only, no overhead costs
- Based on total premium sold by company
- Rate varies by type of insurance
- Government provides first level of reinsurance

## Subsidy Paid to Companies for Crop Insurance Delivery 

**Subsidy Paid to Companies for Crop Insurance Delivery**** **

## Government Reinsurance 

## Standard Reinsurance Agreement 

- Annual agreement specifying risk sharing between companies and government
- Also specifies administrative and operating subsidy rates
- Last negotiated - 2005
- Companies designate crop insurance policies to reinsurance funds
- Different level of risk in each fund

## Priorities and Recent Activities

## FCIC Board and RMA Priorities

- Prioritize and monitor product development initiatives
- Balance program initiatives with agency IT capacity
- Simplify and streamline where practical & appropriate
- Combat and prevent fraud, waste and abuse through technology and strategic compliance initiatives

## Recent Activities

- New Products
- Apiculture (Vegetative and Rainfall)
- Biotech Yield Endorsement
- LGM Dairy
- Processing Pumpkins
- GRP Sugarcane Declining Yield  Proposal Status
- LRP Lamb

## New Farm Bill

## Crop Insurance Provisions in the Farm Bill

- A&O reduced by 2.3 percentage points with 50% snap back in states with a loss ratio over 1.2
- CAT fees raised to $300
- Target loss ratio reduced from 1.075 to 1.0
- Renegotiation of SRA by 2011 reinsurance year
- Authorizes funding for IT and data mining

## Summary

- Variety of insurance plans and coverage levels
- Premium subsidies--insurance participation
- Private sector delivery of crop insurance
- Administrative and operating subsidies
- Reinsurance
- Approval of new products and technologies
- Program expansion

## For More Information

**Margo E. Erny**
**(202) 720-4877**
**margo.erny@rma.usda.gov**
**RMA website:**
**www.rma.usda.gov**

**For More Information**