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HEARING TO REVIEW THE STATE OF THE 

CROP INSURANCE INDUSTRY

HEARING

BEFORE THE

SUBCOMMITTEE ON 

GENERAL FARM COMMODITIES 

AND RISK MANAGEMENT

OF THE

COMMITTEE ON AGRICULTURE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

TUESDAY, MAY 1, 2007

Serial No. 110–15

(

Printed for the use of the Committee on Agriculture 

agriculture.house.gov 

COMMITTEE ON AGRICULTURE 

COLLIN C. PETERSON, Minnesota, Chairman 

TIM HOLDEN, Pennsylvania, 

Vice Chairman 

MIKE MCINTYRE, North Carolina 

BOB ETHERIDGE, North Carolina 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

DENNIS A. CARDOZA, California 

DAVID SCOTT, Georgia 

JIM MARSHALL, Georgia 

STEPHANIE HERSETH SANDLIN, South 

Dakota 

HENRY CUELLAR, Texas 

JIM COSTA, California 

JOHN T. SALAZAR, Colorado 

BRAD ELLSWORTH, Indiana 

NANCY E. BOYDA, Kansas 

ZACHARY T. SPACE, Ohio 

TIMOTHY J. WALZ, Minnesota 

KIRSTEN E. GILLIBRAND, New York 

STEVE KAGEN, Wisconsin 

EARL POMEROY, North Dakota 

LINCOLN DAVIS, Tennessee 

JOHN BARROW, Georgia 

NICK LAMPSON, Texas 

JOE DONNELLY, Indiana 

TIM MAHONEY, Florida 

BOB GOODLATTE, Virginia, Ranking 

Minority Member 

TERRY EVERETT, Alabama 

FRANK D. LUCAS, Oklahoma 

JERRY MORAN, Kansas 

ROBIN HAYES, North Carolina 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

JO BONNER, Alabama 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

MARILYN N. MUSGRAVE, Colorado 

RANDY NEUGEBAUER, Texas 

CHARLES W. BOUSTANY, JR., Louisiana 

JOHN R. ‘‘RANDY’’ KUHL, JR., New York 

VIRGINIA FOXX, North Carolina 

K. MICHAEL CONAWAY, Texas 

JEFF FORTENBERRY, Nebraska 

JEAN SCHMIDT, Ohio 

ADRIAN SMITH, Nebraska 

KEVIN MCCARTHY, California 

TIM WALBERG, Michigan 

PROFESSIONAL STAFF

ROBERT L. LAREW, Chief of Staff 

ANDREW W. BAKER, Chief Counsel 

APRIL SLAYTON, Communications Director 

WILLIAM E. O’CONNER, JR., Minority Staff Director 

SUBCOMMITTEE ON GENERAL FARM COMMODITIES AND RISK MANAGEMENT

BOB ETHERIDGE, North Carolina, Chairman 

DAVID SCOTT, Georgia 

JIM MARSHALL, Georgia 

JOHN T. SALAZAR, Colorado 

NANCY E. BOYDA, Kansas 

STEPHANIE HERSETH SANDLIN, South 

Dakota 

BRAD ELLSWORTH, Indiana 

ZACHARY T. SPACE, Ohio 

TIMOTHY J. WALZ, Minnesota 

EARL POMEROY, North Dakota 

JERRY MORAN, Kansas, Ranking Minority 

Member 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

CHARLES W. BOUSTANY, JR., Louisiana 

K. MICHAEL CONAWAY, Texas 

FRANK D. LUCAS, Oklahoma 

RANDY NEUGEBAUER, Texas 

KEVIN MCCARTHY, California 

CLARK OGILVIE, Subcommittee Staff Director

(II) 

(III)

C O N T E N T S 

Page 

Etheridge, Hon. Bob, a Representative in Congress from North Carolina, 

opening statement ................................................................................................ 1

Goodlatte, Bob, a Representative in Congress from Virginia, prepared statement ...................................................................................................................... 8

Moran, Hon. Jerry, a Representative in Congress from Kansas, prepared 

statement .............................................................................................................. 7

Neugebauer, Hon. Randy, a Representative in Congress from Texas, opening 

statement .............................................................................................................. 1

Peterson, Collin C., a Representative in Congress from Minnesota, opening 

statement .............................................................................................................. 2

Prepared statement .......................................................................................... 4

WITNESSES

Collins, Ph.D., Keith, Chief Economist, U.S. Department of Agriculture, 

Washington, D.C. ................................................................................................. 10

Prepared statement .......................................................................................... 12

Gould, Eldon, Administrator, Risk Management Agency, U.S. Department 

of Agriculture, Washington, D.C. ........................................................................ 22

Prepared statement .......................................................................................... 24

Parkerson, Robert W., President, National Crop Insurance Services, Overland 

Park, KS ................................................................................................................ 54

Prepared statement .......................................................................................... 57

Harms, Steven C., Chairman, American Association of Crop Insurers; President and Chairman, Board of Directors, Rain and Hail, L.L.C., Johnston, 

IA ........................................................................................................................... 67

Prepared statement .......................................................................................... 69

Fowler, Kathy, President, National Association of Crop Insurance Agents, 

Memphis, TX ........................................................................................................ 77

Prepared statement .......................................................................................... 79

Rutledge, Steven C., Chairman, Crop Insurance Research Bureau, Inc.; President and CEO, Farmers Mutual Hail Insurance Company of Iowa, West 

Des Moines, IA ..................................................................................................... 88

Prepared statement .......................................................................................... 90

SUBMITTED MATERIAL

Answers to submitted questions ............................................................................. 117

(1)

HEARING TO REVIEW THE STATE OF THE 

CROP INSURANCE INDUSTRY 

TUESDAY, MAY 1, 2007

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON GENERAL FARM COMMODITIES AND

RISK MANAGEMENT, COMMITTEE ON AGRICULTURE, Washington, D.C. 

The Subcommittee met, pursuant to call, at 10:02 a.m., in Room 

1300 of the Longworth House Office Building, Hon. Bob Etheridge 

[Chairman of the Subcommittee] presiding. 

Members present: Representatives Etheridge, Scott, Marshall, 

Salazar, Boyda, Herseth Sandlin, Space, Pomeroy, Peterson (ex officio), Moran, Conaway, Neugebauer, and Goodlatte (ex officio). 

OPENING STATEMENT OF HON. BOB ETHERIDGE, A 

REPRESENTATIVE IN CONGRESS FROM NORTH CAROLINA 

Mr. ETHERIDGE. Thank you. The hearing of the Subcommittee on 

General Farm Commodities and Risk Management to review the 

crop insurance industry will come to order. 

Today this Subcommittee continues its proud tradition of 

thoughtful and careful oversight of one of the key components of 

the farm safety net—crop insurance. The last Congress, our previous Chairman, my good friend and colleague, Jerry Moran, was 

diligent and aggressive in this area and I hope to follow his example. Jerry will be here a little later. I understand his flight has not 

arrived yet. I am going to submit my opening statement for the 

record, because I want to move quickly to the witnesses’ testimony 

and to the questions of Members of this Committee. In addition, 

another subcommittee will be holding a hearing at 1 p.m. today 

and I want to give staff ample time to prepare the hearing room 

and hopefully catch a bite of lunch myself, in the meantime, if we 

have an opportunity. 

With that, I will yield to the Ranking Member. I was going to 

yield to my good friend Jerry Moran, who is not here, but I will 

yield to my good friend, Mr. Neugebauer, for opening comments. 

OPENING STATEMENT OF HON. RANDY NEUGEBAUER, A 

REPRESENTATIVE IN CONGRESS FROM TEXAS 

Mr. NEUGEBAUER. Well, thank you, Chairman Etheridge, for calling this hearing. As you know, I have a tremendous amount of interest in crop insurance because I believe it is an equally important 

safety net for producers all across the country, and I know that 

many of us went on some listening sessions around the country. I 

2

have traveled my district, just recently, I had three listening sessions. I heard loud and clear from my constituents that a better 

Crop Insurance Program, one that gives them more coverage, is a 

much needed piece of the safety net as we sit down and write the 

next farm bill. So I look forward to hearing from our witnesses. It 

is good to have Dr. Collins and Administrator Gould here today. I 

appreciate you coming and sharing your thoughts and ideas and 

look forward to having a dialogue here as you present your testimony. 

Mr. ETHERIDGE. Thank you very much. And before we go to our 

witnesses, I will ask the Chairman of the full Committee, Mr. Peterson, if he has comments he would like to make. 

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A 

REPRESENTATIVE IN CONGRESS FROM MINNESOTA 

Mr. PETERSON. Thank you, Mr. Chairman. I will try to be brief 

here, but I want to thank you and the Ranking Member for your 

leadership on this and thank Dr. Collins and Administrator Gould 

for being with us today. 

You know, when we did the crop insurance overhaul we put significant new money into this program and it has accomplished part 

of what we tried to do. The coverage is better and certain aspects 

of it are working better, but we still have not accomplished one of 

the things that we were trying to do back then; and that is to 

eliminate the need for ad hoc disaster programs. And we are, as 

you know, dealing with another one of them right now. And if you 

look at the baseline spending and the different components of the 

farm bill, the crop insurance part of things was a significant increase from what the baseline was in 2002, and yet we still have 

a big hole in this safety net. 

And so you know, I agree with Mr. Neugebauer, that this is 

something that we have got to try to figure out how to do. There 

has been a proposal from the Department to look at some kind of 

risk management or crop insurance policy to cover this. One of the 

things I want to know is, we haven’t, I don’t think, seen the details 

of this or seen the scoring or how it is going to work. The sooner 

you can get that to us the better. I have to tell you that ever since 

I got to Congress, given my experience trying to put something together in this area, I am skeptical about whether this can be done 

with crop insurance. Given the parameters that you guys have to 

work with and I guess I am willing to be convinced otherwise, but 

generally, I have some skepticism. 

And the other issue that I think we are going to have to deal 

with are noninsured crops, which I think cause a problem in terms 

of building pressure for these ad hoc disasters. Somehow or other 

we have got to deal with them, and it just seems like it is very slow 

and very hard to get new crops covered and so forth. We have got 

to figure out some way to streamline that process and try to broaden the coverage so that we get a majority of these crops covered 

somehow or other under the program. 

So I look forward to your testimony and look forward to working 

with you, but we need that information sooner rather than later, 

because we are about to get started here marking things up in SubVerDate 0ct 09 2002 16:25 Mar 26, 2009 Jkt 041481 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 I:\DOCS\110-15\42161.TXT SOLEM PsN: REBEKA
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committee and we need to know what the different options are. So 

thank you, Mr. Chairman. 

[The prepared statement of Mr. Peterson follows:]

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Mr. ETHERIDGE. Thank you, Mr. Chairman. The Chairman requests that other Members submit their opening statements for the 

record so the witnesses may begin their testimony and that we ensure that they have ample time for questions.

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Mr. ETHERIDGE. With that, I would like to welcome to the table 

Dr. Keith Collins, Chief Economist, the U.S. Department of Agriculture, and Administrator Eldon Gould, Risk Management Agency, U.S. Department of Agriculture, as well. Dr. Collins, please 

begin when you are ready and let me remind you there are 5 minutes for opening statements and your full statements will be submitted for the record. Dr. Collins. 

STATEMENT OF KEITH COLLINS, PH.D., CHIEF ECONOMIST, 

U.S. DEPARTMENT OF AGRICULTURE, WASHINGTON, D.C. 

Dr. COLLINS. Chairman Etheridge, Chairman Peterson and other 

Members of the Subcommittee, thank you very much for the invitation to come up here today and join Administrator Gould and talk 

about the Federal Crop Insurance Program. My brief comments 

here are going to reflect the perspective of the Board of Directors 

of the Federal Crop Insurance Corporation. 

I am Chairman of the Board. The Board currently consists of 

nine Members, three from USDA, Under Secretary Keenum, Administrator Gould and myself, as well as six Members from the private sector: four producers, a person experienced in insurance regulation and a person experienced in the insurance industry. We are 

very pleased that crop insurance continues to see strong growth 

and excellent performance. 

To reiterate a few statistics you have probably seen, insured 

acreage increased from 182 million acres in 1998, just before we increased buy-up premium subsidies, to 242 million acres in 2006. Insured liability last year was $50 billion; that was up 80 percent 

from 1998. Total premiums last year were $4.6 billion; that was up 

140 percent from 1998. And with the first sales of the new pasture, 

range and forage products this year, and the increase in major crop 

prices which is raising price elections, insured acreage, liability and 

premiums for 2007 are all going to expand sharply above the 2006 

record levels. Producers also continue to increase coverage levels, 

with catastrophic coverage now down to only 12 percent of insured 

acreage. 

The program continues to have no excessive losses. Indemnities 

averaged only 91 percent of total premiums during 2001 to 2006. 

This low ratio reflects a combination of things, the fact that we 

have more and better data; we have made steady improvements in 

our ability to establish rates and use the data that we have; and 

we have also had no major systemic weather disasters in recent 

years. 

A key Board responsibility is to approve new products for sale. 

Proposed products come to us from the private sector and they 

come from products developed under contracts awarded by RMA. 

The Agricultural Risk Protection Act of 2000, ARPA, introduced the 

so-called 508(h) authority that permits private individuals to submit products for approval and be reimbursed for research, development and maintenance costs if the Board approves the products. 

Under ARPA, 70 such products have been submitted to the Board. 

Forty-two have been approved. The rest were disapproved, withdrawn, returned as incomplete or illegal or remain under review. 

Many of these submissions became pilot programs or improved or 

expanded existing pilots. RMA currently administers 28 pilot proVerDate 0ct 09 2002 16:25 Mar 26, 2009 Jkt 041481 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 I:\DOCS\110-15\42161.TXT SOLEM PsN: REBEKA
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grams. After a pilot program is complete, normally 3 years, there 

is a year of evaluation. After evaluation it comes to the Board and 

the Board has to determine whether the pilot should be modified 

and extended, made a permanent policy or terminated. Of the pilots initiated in the late 1990s and under ARPA, the Board has 

acted on 26 of them. We have terminated seven, we have extended 

six and we have made 13 permanent. 

During the past year, to give you a few examples, after a completed evaluation, the Board approved continuation of the livestock 

price and margin plans of insurance, with a number of changes to 

improve them. A new lamb price insurance pilot was also approved. 

An evaluation report was completed on the adjusted gross revenue 

pilot plan of insurance, and we are making changes in that product, plus AGR-Lite, a derivative product. The Board is also very 

pleased to work with RMA and its contractors to develop the pasture range and forage products, which are for sale for the first time 

this year. One product that the Board disapproved during the past 

year was a so-called good experience discount. Board Members believed the product was inequitable and not in the best interests of 

producers. 

An issue that has been of great interest to this Subcommittee 

has been to find a way to help producers who experience successive 

years of low yields. When that happens, producers’ coverage declines and their premiums increase. Last week, the Board met to 

consider two contracted products that were developed to address 

the issue of declining yields. Unfortunately, most of the expert reviews, as well as RMA and the Board itself, found many concerns. 

The main problems were actuarial, concerns with over-insurance 

and adverse selection. Both products were tabled, but the Board 

asked RMA to assess an alternative idea for an indexed yield plug 

that would replace a producer’s yield in a year when it falls below 

a certain level. 

To conclude, on behalf of all Board Members, I want to say that 

we consider it an honor to work with RMA and within our statutory parameters to help improve the Federal Crop Insurance Program and to work with the crop insurance companies and their 

agents, who do a tremendous job every day in delivering this critical part of the farm safety net to America’s farmers and ranchers. 

Thank you. 

[The prepared statement of Dr. Collins follows:]

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Mr. ETHERIDGE. Thank you, sir. Administrator Gould? 

STATEMENT OF ELDON GOULD, ADMINISTRATOR, RISK

MANAGEMENT AGENCY, U.S. DEPARTMENT OF

AGRICULTURE, WASHINGTON, D.C. 

Mr. GOULD. Mr. Chairman, Congressman Peterson and Members 

of the Subcommittee, I am Eldon Gould, Administrator of the Risk 

Management Agency. I am a life-long farmer from northern Illinois, with a 1,500 acre corn, soybean and wheat farm and a 700 

sow farrow-to-wean hog operation. I am here today to report on the 

progress and the challenges of the Federal Crop Insurance Program. 

Under the auspices of the Federal Crop Insurance Corporation 

Board of Directors and its Chairman, Dr. Keith Collins, the Federal 

Crop Insurance Program has experienced extraordinary growth in 

the last quarter century. In 2006, RMA provided $49.9 billion of 

protection to farmers, covering nearly 80 percent of the major 

crops. This coverage was offered through 1.1 million policies, insuring about 242 million acres. For 2007, we estimate we will reach 

$65 billion in protection for American agriculture. 

To continue to offer this important protection, we must modernize the tools we use to administer the program. For example, 

RMA must update its information technology systems. Our current 

outdated IT business systems are at the end of their expected 

lifecycle. We now use 120 databases to gather and store information. 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 a re-proposal of 

last year’s request, we have asked for help from insurance providers for the development and maintenance of a new IT system. 

The companies would be assessed a fee based on 1⁄2¢ per dollar of 

premium. 

We also propose to expand the use of mandatory ARPA research 

and development funding for data mining and data warehousing 

activities required by ARPA, and to continue the testing and development of a comprehensive information management system 

known as CIMS. CIMS allows RMA and the Farm Service Agency 

to standardize our common business elements, reporting requirements, producer identification and acreage reporting, as required 

by the 2002 Farm Bill. The first stage of CIMS is operating internally as a proof-of-concept project. When fully operational, it will 

provide RMA, FSA and reinsurance companies secure electronic access to information and identify discrepancies between RMA and 

FSA data. 

RMA’s program compliance function workload has increased substantially over the years since the implementation of ARPA and 

the subsequent expansion of the program. RMA is now emphasizing preemption through better quality control and assurance. Efforts such as data mining, remote sensing, geospatial information 

technologies and other computer-based resources are heavily reliant on information technology and they emphasize our urgent need 

to update our IT systems. We have preempted millions of dollars 

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ing, which allows us to search out unusual patterns and with the 

assistance of FSA offices, conduct growing season spot checks. We 

are 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. 

In his 2007 Farm Bill proposals, Secretary Johanns offered several ideas to strengthen the Federal Crop Insurance Program. One 

proposal that has generated a great deal of interest is the idea of 

a supplemental deductible coverage. We are proposing literal gap 

coverage that a producer can buy to cover 100 percent of their deductible losses under the Crop Insurance Program. This approach 

would help to address the gap and safety net to cover crop losses 

that are less than the size of the deductible. The growth and effectiveness of the Crop Insurance Program is dependent upon a reliable delivery system, insurance products that meet the needs of 

producers, and an adequate IT investment strategy. 

Again, I think you for the opportunity to participate in this important hearing and I look forward to responding to your questions. 

[The prepared statement of Mr. Gould follows:]

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Mr. ETHERIDGE. Thank you, Mr. Gould. The chair would like to 

remind Members that they will be recognized for questions in order 

of seniority for Members who were present at the time the gavel 

fell when we started the hearing. After that, Members will be recognized in order of arrival and I appreciate the Members understanding of this. I now recognize myself for 5 minutes. 

Dr. Collins, first, I have two questions regarding organic crops. 

Today, when it insures organic-grown crops, the FCIC charges a 5 

percent premium surcharge. Many organic growers, however, feel 

that this surcharge is unfounded, because the risks of loss for organic crops are no different from conventional-grown crops in the 

same place, the same time, and that premiums really should be the 

same. Additionally, they would like to be able to purchase Federal 

crop insurance to cover their crops at a higher price. I understand 

that, over the past year, FCIC has been working with the Agricultural Marketing Service on a system to collect higher sales prices 

for organic crops, both retail and wholesale, at various points along 

the marketing chain. So my question to you is, as Chairman of the 

FCIC, what kind of data would you need to convince you to eliminate the 5 percent surcharge, and if presented with that information, could the FCIC take the initiative to eliminate the surcharge? 

And finally, will the data collected with AMS provide FCIC with 

the information it needs to insure organic crops at their actual 

market price? 

Dr. COLLINS. Okay, Mr. Chairman, I will offer a couple of 

thoughts on this issue. We get a lot of questions about organic agriculture and of course, for all of our products that we have, organic 

producers can buy crop insurance. They do pay, as you indicated, 

a 5 percent premium load for the risks of organic production, that 

is, the variability of yields on organic production relative to conventional production. I would point out that the 5 percent load does 

not apply to GRP or GRIP policies. It only applies to individual 

yield policies. The question does come up frequently about whether 

that load is merited. 

First of all, let me say that organic production is small relative 

to the size of our program and we don’t have a long history of data. 

In 2006, we had 355,000 acres of organic crops insured, compared 

with 242 million acres in our program. So you are talking about 1⁄10

or 2⁄10 of a percent of our total book of business. It was not until 

2004, when organic agriculture really began to take off in our program, that we started collecting data on organic production as a 

practice now have the acres that are identified in our data system 

as organic. The first 2 years we have that data are 2005 and 2006. 

We have looked at the loss ratio for organic production compared 

with conventional production for both of those years and the loss 

ratio was higher for organic production than it was for conventional 

production. So that tells us that we are probably justified, at this 

point, with the 5 percent load on the premium for organic agriculture. Our goal in the long term would be to have a unique price 

for organic products and a unique rating for organic products. 

Mr. ETHERIDGE. So the answer is probably not now? 

Dr. COLLINS. The answer is probably not now. We have just 

started collecting———

42

Mr. ETHERIDGE. All right. Can you keep us informed of that as 

it moves along, because I think that is of considerable interest. 

Dr. COLLINS. Absolutely. 

Mr. ETHERIDGE. All right. Next, let me talk about the recent 

GAO report on climate change and its potential impact regarding 

Federal crop insurance. The report recommended that the administration of RMA conduct an analysis of potential long-term implications of climate change on the FCIC and its mission use and the 

assessment from the Interagency Climate Change Science Program 

and the Intergovernmental Panel on Climate Change. In response 

to GAO’s report sent by the Under Secretary, who is a Member of 

the FCIC Board, USDA agreed with the recommendations, generally, then proceeded to explain that RMA does assess the longterm implication future weather events can have on crop insurance, 

all without directly responding to the recommendations. Given the 

inherent difficulty of forecasting weather events, how does RMA 

evaluate future risk? What specific action items are RMA and 

FCIC taking to respond to the GAO recommendations, and will 

RMA be utilizing the findings of the Climate Change Science Programs and Intergovernmental Panel on Climate Change as it evaluates future weather conditions and the future crop insurance system, because that is certainly going to have an impact. 

Mr. GOULD. Mr. Chairman, all of USDA is very much involved 

with looking at climate change. We, as the Risk Management 

Agency, are alert to opportunities to improve our rating data on an 

ongoing basis. Presently, the agency works, as we look back at producers’ average production histories, so if there were changes in climate, it would reflect over time with a producer’s average production history and it will affect our rating accordingly. But as we look 

forward, if there were new opportunities and somebody somehow 

can predict the weather, whether it is dramatic or less dramatic, 

I am sure we would be more than interested and willing to take 

a look at that information. 

Mr. ETHERIDGE. I may want to come back to this, because I am 

not really sure we got an answer on that one and my time has expired and I will yield to Mr. Neugebauer for 5 minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. I had several people from the crop insurance industry in my offices last week and 

by the way, I had Administrator Gould in there as well, and I 

think many of them are concerned about some of the new proposals, particularly the reduction of the A&O by two percentage 

points, and the other, increasing the USDA’s net book quota share 

of premiums retained by the companies. Some of them are concerned about what kind of implications that has long term in the 

industry. Can you alleviate some of their concerns about that? 

Mr. GOULD. I can try. I would say that, as we look at the crop 

insurance in its entirety, not only from the Risk Management 

Agency’s standpoint, but from the companies’ standpoint as well, if 

we stand back and look and see how the marketplace is changing, 

the amount of dollars that we are spending for the delivery of the 

Crop Insurance Program and because of that, we are suggesting 

that, as the value of each individual premium has nearly doubled 

in recent years, that it seems like there would be a need for less 

compensation for the A&O expenses, so our proposal to reduce that 

43

by 2 percent is proposed for that reason. As far as the reinsurance, 

we have looked at that and simply have suggested that the government, through the FCIC, retain some of that reinsurance that is 

now going either to the companies—to reinsurance companies. 

Mr. NEUGEBAUER. What happens if the loss ratios, though, move 

up, isn’t that going to—what kind of impact, then, does that have 

on the agency? 

Mr. GOULD. Well, that would impact everybody that is involved 

with the insurance business, whether it is the companies, the reinsurance companies or of course the agency. As we monitor the financial health of the companies, we expect them to be able to withstand a loss ratio of 5.0 for any 1 year, so we think that is a viable 

threshold for the companies. And if you look back over recent 

years, the loss ratio has been less than one, so it has been profitable, not only for the companies and reinsurance companies, but 

the taxpayer as well. 

Mr. NEUGEBAUER. One of the things that the industry says is 

that underwriting gains are not necessarily profits, that in fact allows them to build up reserves for future years. In some years 

when the losses are lower, the underwriting gains are higher, but 

in those years where we have a pattern of heavy losses, that allows 

them to sustain that. They are concerned about the Federal Government dipping into their ability to be able to build up those reserves. Is that good policy? 

Mr. GOULD. Well, I guess it depends. First of all, let me say that 

we agree with that concept. The question is, what period of years 

do we want to go back and look and see what the loss ratio is? Ultimately, the question comes down to what those profits should be, 

and I am not an owner/operator of an insurance company, so I am 

not going to go there. I guess the only thing I would add was that 

we have no new insurance companies coming into the program and 

we have none leaving, so that might be a long way of saying maybe 

it is about right. 

Mr. NEUGEBAUER. It is about right the way it is now? 

Mr. GOULD. Again, I would rather not go that far. I am just saying we have no new insurance companies coming into the program 

nor do we have any leaving for lack of profits. 

Mr. NEUGEBAUER. But we don’t know what might happen if we 

began to move in this direction? 

Mr. GOULD. That is probably accurate. 

Mr. NEUGEBAUER. I want to move quickly, and I hope we will 

have a chance for some other questions, because there is a particular bill that I have introduced that I want to discuss with you, 

but we talked a little bit last week and for the record, can you kind 

of tell me where we are on doing something about these declining 

yields? I know that two different proposals were submitted to you. 

I understand you didn’t like either one of them. But where are we 

going to move in that direction? 

Mr. GOULD. Well, as Dr. Collins said in his testimony, we are 

taking a look at that. The two proposals that came before the 

Board, they had problems with those. They didn’t seem to fit real 

well, were not in the best interest of producers, had some statutory 

question marks attached to them, and so currently, hopefully we 

can take the best of both of those proposals and put those together 

44

and make something, probably an indexed yield approach that 

would be beneficial to producers. 

Mr. NEUGEBAUER. Would that require any kind of a statutory 

change or do you think you can do that internally? 

Mr. GOULD. With the proposal that we are currently looking at, 

it would not require a statutory change, but we are limited to a degree of what we can do under the current statute. 

Mr. ETHERIDGE. The gentleman’s time has expired and I recognize the Chairman of the Committee, Mr. Peterson. 

Mr. PETERSON. Thank you, Mr. Chairman. Dr. Collins or Administrator Gould, we now have 16 insurance companies, right? 

Dr. COLLINS. Yes, sir. 

Mr. PETERSON. How many did we have before ARPA and how 

many new companies have joined since ARPA? I mean completely 

new, not mergers or acquired or so forth. Do you have those numbers? 

Dr. COLLINS. I can’t tell you exactly. I think, when I first became 

Chairman of this Board, which was right after ARPA was enacted, 

my recollection is that we had about 17 companies. We had American Growers become insolvent. We had another, The Hartford 

leave. We had another merge. So we got down as low as 14 and 

we are at 16 today. And this is rough. I am just giving you———

Mr. PETERSON. So are there any new companies? 

Dr. COLLINS. Yes, we have had new companies over the last couple of years. 

Mr. PETERSON. Completely new? 

Dr. COLLINS. Completely new, yes. 

Mr. PETERSON. Two new companies? 

Dr. COLLINS. As many as five. That is my recollection. I can 

check that for you, but I think that is my recollection. 

Mr. PETERSON. Apparently, you are proposing to lower the loss 

ratio. I guess that was the discussion we were having here. From 

1.075 to 1.0, what impact is that going to have on the premiums 

that farmers pay, and would the impact be felt nationally or is it 

going to affect some states more than others? 

Dr. COLLINS. Yes, that is a little bit of a difficult question. The 

statutory loss ratio that we have to shoot for is 1.075. In our President’s budget baseline, we use 1.04, so we project indemnities 

based on a loss ratio of 1.04. Our historical experience over the last 

half dozen years or so has been .9, so we are well below that. We 

have done what analysts call backcasting. We have looked at our 

current rates and asked what the loss ratios would look like if we 

had the experience of the past and we get a loss ratio of about one. 

So we think that going to a 1.0 statutory rate implies very little 

change in premiums. Nevertheless, it gets a budget savings because our long-term baseline assumes 1.04. 

Mr. PETERSON. How much are the savings? 

Dr. COLLINS. We scored it at a little over a billion dollars over 

10 years. The Congressional Budget Office, who also uses 1.04 as 

the long-term loss ratio, somehow came up with a much lower 

number. Theirs was $200 million to $300 million over 10 years. 

Mr. PETERSON. That is normal, I think. 

Dr. COLLINS. My experience as well. 

45

Mr. PETERSON. Under, I guess, what we know of your supplemental deductible coverage, apparently the way you are going to do 

this you are going to dictate how much of a producer’s deductible 

for crop insurance will be covered depending on how low a county’s 

yield will fall below 90 percent of the county’s average yield for the 

crop. Why wouldn’t you allow the producer to decide for himself 

how much of the deductible acreage he wants to cover with the 

supplemental insurance? Why have you set it up like———

Dr. COLLINS. Yes. Well, in our book, the 183 page book that has 

the Administration’s proposals in it, we had one example in there 

and in that example, if someone buys an individual policy with 75 

percent coverage and the county yield goes below 75 percent of the 

average county yield, then the whole deductible would get covered 

100 percent. So in that sense, we have fixed it and we haven’t 

given the producer a choice. However, in the proposal, as we have 

further developed it, we believe that the producer should have a 

choice and we would propose that the producer does have a choice. 

We think that the producer could select the trigger level at which 

the producer would get 100 percent of the deductible covered. For 

the 75 percent example I just gave you, a producer might say okay, 

I am going to select the 75 percent as the trigger level. If the county yield falls below 75 percent of its average, then I am going to 

get 100 percent of my deductible covered. Or the producer could 

say I am going to select 50 percent as the trigger level. If the county yield falls below 50 percent of the average, then I will get 100 

percent of my deductible covered. And of course the lower the producer selects that trigger level, the lower the producer’s premium 

is going to be, because the less likely that the indemnity is going 

to trigger and cover the deductible. So as we envision it now, we 

would like to give the producers some flexibility to figure out just 

how fast that deductible would be covered and thereby have more 

flexibility over the premium rate that they would have to pay. 

Mr. PETERSON. You can submit this to me, but you haven’t got 

any actual numbers on what this would cost to buy a certain kind 

of coverage? Do you have that information? 

Dr. COLLINS. We have done some examples. I don’t know that we 

have made these public yet, but we certainly could. 

Mr. PETERSON. Well, if you could get that to———

Dr. COLLINS. We certainly could. 

Mr. PETERSON.—me as soon as———

Dr. COLLINS. Sure. 

Mr. PETERSON.—you can. We need that. 

Dr. COLLINS. I think, if we want to promote this idea, we ought 

to give you what you want. 

Mr. PETERSON. Right. 

Dr. COLLINS. So we will do that. 

Mr. PETERSON. All right. Thank you. Thank you, Mr. Chairman. 

Mr. ETHERIDGE. Thank you. And I would ask that you make that 

available to the Subcommittee as well. Thank you. 

Dr. COLLINS. Yes, sir. 

Mr. ETHERIDGE. Thank you, Mr. Chairman. I now would yield to 

the gentleman, Mr. Conaway, from Texas. Five minutes. 

Mr. CONAWAY. Thank you, Mr. Chairman. I am familiar with 

work that is being done at Tarleton State on data mining and the 

46

opportunity to try to find folks who either, by accident or intent, 

are trying to game the system and Mr. Gould, you mentioned briefly something about that. If you wouldn’t mind expanding on that 

and talking to us about the conflicts between RMA and FSA, in 

terms of sharing data and taking full advantage of the FSA’s local 

committees, in terms of moving some of these cases forward. As 

well as expanding your general attitude toward auditors and prosecutors and other folks who would take the information that is 

gleaned through the data mining and push it to conclusion, as to 

folks who may or may not be gaming the system. Do you have 

enough assets? Do you have enough people to exploit the information that you are getting, as it relates to the work done at Tarleton 

and I think some other places as well? 

Mr. GOULD. Well, it seems like you have a number of questions 

there. 

Mr. CONAWAY. Well, I assumed you would filibuster the last 4 

minutes. 

Mr. GOULD. Thank you. First of all, let me talk a little bit about 

the relationship between RMA and FSA. The common thread there 

is a common information management system, the CIMS project 

that was actually mandated in the 2002 Farm Bill. We have gone 

to great lengths to get that off the ground, get it implemented and 

make it useful for both agencies. It probably comes as no surprise, 

as we move in that direction, we have encountered more hurdles 

and more obstacles than we thought could possibly be there, but 

nevertheless, we are moving forward. We have a good working relationship between the two agencies and I can assure you that both 

the Administrator of FSA and myself are committed to moving the 

project forward. So as that project does move forward, then we will 

be able to share information between the two agencies and also 

with the companies, as it relates to the Crop Insurance Program. 

To talk more specifically about data mining, that is actually a 

very fascinating, interesting and rewarding effort that we do. As 

we look for anomalies in the program, not only amongst producers, 

but agents and claims adjusters, and as we look at those and go 

forth and pursue some of those and in the case of producers, if they 

are anomalous, for whatever reason, they show up on a county FSA 

spot checklist. Then the FSA personnel within the county, at the 

local level, then are charged with the responsibility of keeping an 

eye on those producers to provide a little ground truth. At the same 

time, the producers are provided a letter so they know that they 

are on the spot checklist and it is amazing how fast those producers respond to the fact that they are being watched and their 

behavior carries forth for many years. 

And so to make a long story short, data mining has been very 

rewarding and we just wish that we had the dollars and the manpower to do more. It just seems to be a very worthwhile and an 

efficient way of providing integrity to the crop insurance business. 

Mr. CONAWAY. Well, given the positive cash flow that results 

generally from it; you mentioned that you pursue some of the 

anomalies. It would be helpful to the Committee to understand exactly what the level of commitment that RMA has to this and if 

there are unfunded wish lists that you would say if we had X dollars to provide additional resources to the investigatory piece of 

47

this, it would be positive to the overall position of the system. I 

don’t want you to look flatfooted on this, but it seems to me that 

if you think this does work, that we would want you to at least let 

us know what you think the proper level of commitment to this 

ought to be with respect to resources and funding. 

Mr. GOULD. We are suggesting that if we had 15 more FTEs, provide two in each of the regional offices, plus three more people in 

Washington to oversee the program, and if we could more adequately fund our IT system to provide that portion of the effort, 

then we could go a long ways towards doing a better job there. 

Mr. CONAWAY. Was that in your 2008 budget request? 

Mr. GOULD. Yes, it is. 

Mr. CONAWAY. Okay. Thank you, Mr. Chairman. 

Mr. ETHERIDGE. The gentleman yields back. The gentle lady from 

Kansas, Mrs. Boyda, is now recognized for 5 minutes. 

Mrs. BOYDA. Thank you, Chairman Etheridge. And thank you for 

your testimony here today. I come from Kansas, so certainly crop 

insurance is a topic of a great deal of discussion. FSA closures and 

the lack of technology or some of the technology problems that we 

are experiencing in Kansas as well. So you have my full support 

on making sure that we keep technology relevant and operable. 

Please move forward with that. 

I would like to go back to the issue of climate change, if we could. 

One of you mentioned a littler earlier that there didn’t seem to be 

systemic weather problems. Coming from Kansas, we are in either 

the seventh, eighth or ninth, depending on how you are going to 

count it, year of severe drought, especially in western Kansas. So 

my question to you is, when we are looking at climate change, how 

does the agency plan for that? Or maybe I should ask, is the agency planning for that or are we marching ahead as if weather or climate change really isn’t an issue? 

Mr. GOULD. Well, that is a difficult question. I guess the question 

ultimately comes down to if we have a weather pattern, if it is in 

Kansas or someplace else, that has been, in your case, dry now for 

a number of years, is that really climate change? And we might 

look at other parts of the country where we have had—it has been 

dry for a number of years and then the rainfall pattern changes 

and so then it doesn’t look so much like climate change. I can assure you that up until the time I came to Washington, I planted 

44 crops and over that period of time, you would go through years 

when it was either too wet or too dry and then there were some 

years in there it was just right, but being a typical producer, I 

don’t ever remember those. 

Mrs. BOYDA. Yes. 

Mr. GOULD. So I think the real issue then is how do we define 

climate change and what do we do about it? I think that the bigger 

issue that we can respond to more near term is what we can do 

about our declining yields for the producers that are going through 

those periods of ongoing yield losses; and whether we want to attribute them to climate change or an anomaly in weather pattern. 

Dr. COLLINS. Could I comment on this as well? 

Mrs. BOYDA. Sure. 

Dr. COLLINS. Well with respect to climate change and crop insurance, it is a very complicated issue, obviously, because most climate 

48

change projections are for the year 2100 and they are long-term, 

slowly evolving changes and as that change occurs, there are mitigations that occur. Ecosystems adjust. There are also 

counterbalancing effects like more carbon dioxide in the atmosphere. This creates the fertilization effect, which actually increases 

plant production, not reduce it. So you have offsetting effects and 

so it is very hard to know how this is going to play out over time. 

I think, for crop insurance purposes, what is most important is if 

climate change leads to abrupt short-term changes in climate. And 

then the question for us is, is our rating appropriate? Are we going 

to charge producers the right amount of money given the losses 

that they face? And probably the single most important variable for 

us in doing that is what we call our county reference yields. That 

is the yield that we use to determine the base rating for crop insurance. And so the important thing for us over time as the climate 

changes, is to make sure we have the best, the most timely, the 

most scientific methods in place to determine reference yields so we 

have the most appropriate rating. So I think there are things we 

can do to defend ourselves against climate change, not even knowing how it is going to come out in the longer term. 

Mrs. BOYDA. Could you explain to me again, just for declining 

yields, in the three sentences that all go back home and say what 

we are planning to do with declining yields? Could one of you summarize that real distinctly? 

Dr. COLLINS. I will try. 

Mrs. BOYDA. Thank you. 

Dr. COLLINS. At the moment, we are not proposing to do anything. We have just tabled two contracted products that would 

have dealt with declining yields, because they suffered from some, 

what we believe, some inequity and serious actuarial problems and 

they would have caused us to have to increase premium rates quite 

a bit. So what we want to do is focus on one of the methods we 

use right now. We have something called a 60 percent t-yield plug 

and that is used when a producer experiences a year when the producer’s yield is below 60 percent of the county average. We allow 

the producer to take 60 percent of the county average and put that 

into their long-term average that determines their premium rate 

and their coverage level. What we have found is, for producers 

whose yields are poor, generally, relative to the county, like if they 

are typically 70 or 80 percent of the county, that 60 percent yield 

plug works very, very well. It boosts their actual production history. But for producers whose yields are at or above the county average and they have a bad year, it doesn’t work very well at all. 

So what we are proposing to do is to go back and look at the current yield plug and index it, that is, take account of a producer’s 

yield relative to the county to determine a new yield plug for those 

producers whose average yield is better than the county over time. 

So that is not a sentence or two. I apologize for that. But the idea 

is to take———

Mrs. BOYDA. Obviously, you have never run for office. 

Dr. COLLINS. I can guarantee you that. The current yield is very 

simple. The current plug is very simple. It is just 60 percent of the 

county t-yield that applies to everybody. What we want to do is adVerDate 0ct 09 2002 16:25 Mar 26, 2009 Jkt 041481 PO 00000 Frm 00052 Fmt 6633 Sfmt 6633 I:\DOCS\110-15\42161.TXT SOLEM PsN: REBEKA
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just the plug based on the producer’s productivity relative to the 

county. 

Mrs. BOYDA. Thank you. 

Dr. COLLINS. That is one sentence. 

Mrs. BOYDA. My time is up. Thank you. 

Mr. ETHERIDGE. I thank the gentle lady. Mr. Scott from Georgia, 

for 5 minutes. 

Mr. SCOTT. Thank you very much, Mr. Chairman. Two points 

that I would like to discuss and get your opinions on. One is your 

assessment of the seriousness of global warming. I mean, I have 

listened to your comments. There are two schools of thought. One 

is that we are in a natural time of global warming. But give me 

your honest opinion of the greenhouse effect, the greenhouse gas effect, the emissions or carbon dioxide in the air, the impact that this 

would have. Are we really, in your opinion, in a serious, serious 

time of global warming? We get mixed signals from this Administration and until recently, it has not been clear how serious this 

Administration is taking global warming. And as the Chief Economist of the Agriculture Department, it seems to me that you would 

probably be the best person that could give an adequate explanation of where this Administration is on its seriousness it is taking of global warming and again, as it impacts crop insurance. 

Dr. COLLINS. In response to that question, it is my personal experience that the Administration takes global climate change very seriously. The Federal Government spends between $4 billion and $5 

billion a year on its climate change programs. We have two primary programs, the Climate Change Science Program, CCSP, and 

the Climate Change Technology Program, CCTP. Both of these programs focus on measurement of climate and technology to adapt to 

climate change. Every year, the Administration puts out a report. 

The title of it is called Our Changing Planet. This year’s version 

is about to come out soon. I would encourage that you look at it, 

because it lays out what the Administration thinks about the 

science of climate change, and it is my opinion that the Administration accepts the findings of the Intergovernmental Panel on Climate Change, which is more than 2,000 climate scientists who 

have concluded that the Earth is warming and that it is likely due 

to human activity. 

I think the Administration does take it seriously and the question is, what are they doing about it? And that is where people are 

open to debate about what the proper prescription is, and the focus 

of the Administration has been on voluntary action and technology. 

I can’t tell you, government-wide, all the programs that are underway, but I can speak to USDA’s programs. We spend about $70 

million a year on climate change. Our focus is on understanding 

how a changing climate affects ecosystems and how you can mitigate the effects of climate change. 

I also think that we have taken a focused effort to try and adapt 

our programs at USDA to reduce greenhouse gas emissions. We 

have, in fact, looked at all our conservation programs and amended 

them to try and encourage greenhouse gas offsets where we can. 

One simple example is, in the Conservation Reserve Program, we 

give bonus points to someone who wants to enroll land in the Conservation Reserve Program for the amount of greenhouse gas reVerDate 0ct 09 2002 16:25 Mar 26, 2009 Jkt 041481 PO 00000 Frm 00053 Fmt 6633 Sfmt 6633 I:\DOCS\110-15\42161.TXT SOLEM PsN: REBEKA
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ductions that their enrollment will result in, and we have done 

things like that across all of our programs. So, I guess the short 

answer to this is that I personally think that we are taking it seriously. You might not agree with the path of response, but I think 

we have one. 

Mr. SCOTT. Let me ask you just the same way to my other point. 

Do you think that global warming has an impact on the declining 

yields? Particularly, in the past successive years, we have a pattern 

of declining yields, which results in the producers coverage declining, their premium rates rising, and given the fact that we are 

coming up with the 2007 Farm Bill, do you see us making or would 

you make any recommendations that we address that in the upcoming farm bill, the declining yields? 

Dr. COLLINS. First of all, I would say that I know of no scientific 

evidence that suggests that declining yields patterns in certain 

areas of the country in recent years are due to climate change. I 

do not know of a climate scientist who has said that and those who 

I have asked have said it is uncertain at this point. Therefore, I 

would not make a recommendation for the farm bill to do something specifically to address this. 

Mr. SCOTT. My time is past. 

Mr. ETHERIDGE. Thank you. The gentleman’s time has expired. 

The other gentleman from Georgia, Mr. Marshall, for 5 minutes. 

Mr. MARSHALL. Thank you, Mr. Chairman. I have had a number 

of pecan farmers in Georgia tell me that they think our crop insurance programs don’t really fit their crop very well and it has to do 

with yield-based policies and problems with poor years. And just a 

minute ago, Dr. Collins, in talking about this, you said that the 

way it is structured is there is a county plug of 60 percent available to somebody who has a year that drops below and that 60 percent plug is one that is being used in order to avoid having their 

overall base go down too far. You are thinking about adjusting that 

by some scaled approach, having in mind the different production 

levels that farmers within that county enjoy. Suppose you have got 

counties that have had, as typically happens where pecans are concerned and we are going to have a problem with pecans this year 

in Georgia because of the freeze, but suppose you have an entire 

county experience several years of lower yields. What my guys tell 

me is that is a problem for them as far as their yield-based insurance is concerned. Can you help describe what that problem is and 

what the possible solution might be? 

Dr. COLLINS. Yes. The problem when yields go down is two-fold. 

You mentioned one of them and that is that the effective coverage 

goes down for the producer. If they are buying a 65 percent policy 

and their so-called actual production history is declining, then you 

multiple the 65———

Mr. MARSHALL. Right. 

Dr. COLLINS.—times their yield history and that is declining. 

Mr. MARSHALL. Right. They described this problem. 

Dr. COLLINS. And second, we risk classify producers based on 

their yield relative to the county reference yield and therefore, as 

their yield goes down relative to the county yield, their premiums 

go up. So not only does their coverage go down, but they are paying 

more for less coverage. 

51

Mr. MARSHALL. I would like you to assume that there is a countywide problem, though, so everybody is suffering from the same 

difficulty. Their base is going down and let us assume that goes on 

for several years. Is there any fix for the countywide problem? 

Dr. COLLINS. Not that I can think of, other than the adjustments 

that we put in over time to deal with this kind of thing. The one 

adjustment is the yield plug that I already mentioned. We have a 

second adjustment. The yield plug is the most used adjustment. 

There are others. Another one is a floor. 

Mr. MARSHALL. Well, the yield plug doesn’t help as much if it is 

a countywide problem. It is a repeated countywide problem year to 

year. 

Dr. COLLINS. Well, if the county t-yield is going down—now, the 

county yield is a 10 year average, so the yield plug is 60 percent 

of a 10 year average. So a couple of countywide yield declines are 

not going to pull that t-yield down very much. I am sorry. Go 

ahead. 

Mr. MARSHALL. I have only got 5 minutes here, so if I could jump 

in. It is related. Another thing that they say is that pecans, particularly, and there would be other crops that fit this mold, pecans 

in particular have a problem with damage being done, say, by a 

tornado, by heavy winds. The damage to yield plays out over a 

number of years. Maybe the first year there is no crop, but then 

in the second year there is going to be pretty marginal crop and 

gradually the tree is going to recover. But how does crop insurance 

work? Let us assume that what I just described is correct and I 

know there are differences of opinions about that. 

Dr. COLLINS. Right. 

Mr. MARSHALL. But assuming it is correct and Georgia pecan 

growers believe that it is, how does crop insurance cover folks who 

have that kind of long-term problem associated with a current disaster? They are going to experience lower yields year after year 

after year. 

Dr. COLLINS. You know, I am not sure. I am going to ask Mr. 

Gould. I am familiar with some of our tree policies where the entire 

tree is lost and we have provisions for what we call R&R, recovery 

and rehabilitation, where we actually cover the cost of replanting 

the tree and the foregone income until the tree is back into full production. Our Florida Fruit Tree Program works that way. I am not 

sure about pecans. I will ask Mr. Gould if he knows. 

Mr. GOULD. Maybe. I am not sure I know anything much more 

except I would add that some of our tree policies are actually 2 

year policies to compensate for some of those concerns that you 

raised. I cannot tell you today if the pecan policy is one of them 

and will have to get back to you on that. 

Mr. MARSHALL. That would be great and I don’t know, there may 

be other crops that are in a similar situation. 

Dr. COLLINS. Right, right. 

Mr. MARSHALL. Thank you. 

Mr. ETHERIDGE. I thank the gentleman. The gentleman yields 

back. Excuse me. While you are doing that, if you would, please include two others on that because in North Carolina we got hit pretty hard this time, up in the mountains and other areas with our 

peach trees, with our vineyards and other stuff. If you will include 

52

us as a part of that and make sure I get a copy of that, I would 

appreciate it. Thank you, sir. Now I yield 5 minutes to the gentle 

lady from South Dakota, Ms. Herseth Sandlin. 

Ms. HERSETH SANDLIN. Thank you, Mr. Chairman, and thanks to 

both of you for your testimony today. Dr. Collins, in the Administration’s farm bill proposal, it proposes to reduce the Federal cost 

of the Crop Insurance Program by increasing the farmer-paid premiums. I am somewhat concerned that this may discourage participation in the program after years of increasing participation. Has 

the Department done any analysis on what the proposed premium 

increases might do to farmer participation in the program? 

Dr. COLLINS. We have done some, Ms. Herseth Sandlin. I would 

say that our overall analysis is to take all of these proposals as a 

package, and it is true that the reduction in the premium subsidy, 

which is five percentage points for policies that are 70 percent coverage or less, two percentage points for policies that are 75 percent 

or higher, could discourage some purchases. We think the main effect might be that producers would drop down a notch on coverage, 

so it might reduce coverage level more so than participation. Offsetting that would be the proposal for linkage, that if you are going 

to get price and income support, then you would have to buy crop 

insurance and we think that could add 17, 18 million acres to participation. So we have sort of looked at these together. 

Ms. HERSETH SANDLIN. Sorry. Could either of you update me on 

the status of the pilot programs or products coming out of RMA 

that have been approved, as it relates to producers, livestock producers and the coverage of their grass or pastureland, in terms of 

participation or those who are buying that new product? I think, 

for counties in South Dakota west of the Missouri River, they can 

participate in the pilot that deals with vegetation and the vegetative cover. 

Dr. COLLINS. Do you want to do that? 

Mr. GOULD. Yes. We refer to that as our pasture, rangeland and 

forage product that just came out last fall. It is an interesting concept, in that we are actually using new and updated technology. 

Actually, it is a two policy program, and national in scope. We 

measure the vegetative index and that is done within grids. And 

also, then, we have a rainfall policy that is also measured in grids. 

And then all of that information is indexed and the producer buys 

policies that are in a timeframe that is important to him and at 

a level that is important to him for either the vegetative index or 

the rainfall index. The rainfall index has been the most popular, 

so far. And while the vegetative index has a lot of interest, it has 

less interest than the rainfall policy. We anticipated, being a pilot 

program, that we might expect 10 percent of the eligible acres to 

be enrolled and in fact, we had 17 percent of the eligible acres enrolled. So the response, as a first-year pilot project, was overwhelming and we are encouraged by the sign up we have had. A 

year from now, we will all know how it all worked out, but we will 

continue the pilot. In fact, we have had producers in areas outside 

of the pilot area express interest and wondered how soon we are 

going to expand the pilot area. 

Ms. HERSETH SANDLIN. Yes, I have heard the same inquiries and 

I think there was some disappointment among producers I repVerDate 0ct 09 2002 16:25 Mar 26, 2009 Jkt 041481 PO 00000 Frm 00056 Fmt 6633 Sfmt 6633 I:\DOCS\110-15\42161.TXT SOLEM PsN: REBEKA
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resent, that they are not eligible for the rainfall pilot. I think that, 

like you said, there is some interest and I discussed with some of 

the producers in central South Dakota how the vegetative pilot 

would work. Are you in partnership with USGS and ARS’s data 

center at all on this, in terms of Landsat 7 images and either for 

this pilot or have there been any discussions with the Department 

as it relates to the resources and assets of USGS as it relates to 

climate change, given the records that they have going back a number of decades and the ongoing analysis that could be done going 

forward? 

Mr. GOULD. I honestly don’t know the answer to that. I do know 

that, in developing a policy, we went back and looked at, I think 

I heard, some 30 years of data to develop the policy and index as 

to how the policy would work, but I don’t know whose data we 

looked at or where it came from. 

Ms. HERSETH SANDLIN. Thank you both. Thank you, Mr. Chairman. If perhaps we could get maybe more regular updates to the 

Subcommittee about how these pilots are working and the considerations that the Department is reviewing to expand eligibility for 

others to participate, I would appreciate it. Thank you. 

Mr. ETHERIDGE. I thank the gentle lady. Her time has expired. 

And if you would keep us on a regular update on that, that would 

be great. I would appreciate that. Now I yield 5 minutes to Mr. 

Conaway to ask questions for the Ranking Member, Mr. Goodlatte. 

Mr. CONAWAY. Thank you, Mr. Chairman. I appreciate your indulgence. Mr. Goodlatte has a constituent who grows Asian pears 

and he recently suffered a loss as a result of freezing. Apparently, 

there is no crop insurance available for this particular crop and the 

deadline for signing up for NAP, the Noninsured Assistance Program, coverage came during the middle of his pear harvest. Is 

there flexibility in setting the NAP sign-up deadline or what can 

be done to help in this particular situation? 

Dr. COLLINS. Well, we don’t run the NAP program. That is a 

Farm Service Agency program. I can’t answer for sure on what 

they might say on that, but generally when we have a deadline for 

sign ups, it is for actuarial reasons; it is so that you commit to paying a fee or you commit to paying a premium before you know how 

much loss you have so that we are not buying a loss. That may be 

the basis for establishing the deadlines for that program. I don’t 

know. We could check with the Farm Service Agency and see what 

flexibility is there, unless Mr. Gould has———

Mr. GOULD. No, I am not aware of their program, the details of 

it, so we will have to get the information from FSA and get back 

to you on that. 

Mr. CONAWAY. Okay, this is Mr. Goodlatte’s question. I have precious few pears grown in the desert of west Texas, but yes, if you 

wouldn’t mind getting back to Mr. Goodlatte on this issue. 

Mr. MARSHALL. Will the gentleman yield? 

Mr. CONAWAY. Yes. 

Mr. MARSHALL. Mr. Conaway? I don’t know whether disaster 

benefits apply to a crop like this, but assuming that they do, as I 

understand it, the way the supplemental is written, the crops that 

are planted before the end of February would be eligible for disaster benefits. 

54

Mr. CONAWAY. Yes, this doesn’t relate to the supplemental kind 

of disaster. This was just a regular ongoing problem. From the tone 

of the question, apparently the deadline is generally, for sign up 

each year, is generally in the middle of the harvest time. But anyway, if you could get back to Mr. Goodlatte on that, I am sure he 

would appreciate it. I yield back. 

Mr. ETHERIDGE. I thank the gentleman. Let me thank both of 

you for your testimony today and if you would, I would like to now 

invite the second panel to the table. Thank you for coming and if 

you will, please get back to us with the material you had committed to get to us in writing. I appreciate it. 

Mr. GOULD. We will do that. 

Dr. COLLINS. Thank you very much. 

Mr. ETHERIDGE. And as the second panel comes, we are not going 

to really take a break. We are going to go straight into the second 

panel in an attempt to not lose any more time than we absolutely 

have to. Okay, let me thank you for being here and we will start 

with Mr. Robert Parkerson, President of the National Crop Insurance Services in Overland Park, Kansas. Next will be Mr. Steve 

Harms, Chairman of the American Association of Crop Insurers, 

from Johnston, Iowa; Ms. Kathy Fowler, President of the National 

Association of Crop Insurance Agents, Memphis, Texas; Mr. Steve 

Rutledge, President of the Farmers Mutual Hail Insurance Company, on behalf of the Crop Insurance Research Bureau in West 

Des Moines, Iowa. Let me ask you to summarize your statement 

in 5 minutes. Your full statement will be entered into the record. 

Mr. Parkerson, please begin when you are ready and if you will, 

each one of you follow accordingly and I won’t interrupt you again. 

Mr. Parkerson. 

STATEMENT OF ROBERT W. PARKERSON, PRESIDENT, 

NATIONAL CROP INSURANCE SERVICES, OVERLAND PARK, KS 

Mr. PARKERSON. Thank you, Mr. Chairman. My name is Robert 

Parkerson. I serve as the President of the National Crop Insurance 

Services, NCIS, on whose behalf my testimony is presented today. 

I would like to thank the Subcommittee for the opportunity to 

present this testimony. 

Today, I would like to emphasize three topics of concern of the 

private sector, the first, maintaining an economically sound program, second, enhancing program integrity, and third, funding 

RMA adequately. We will also touch upon a few topics proposed by 

the Administration for the 2007 Farm Bill. 

First, maintaining an economically viable Crop Insurance Program requires two objectives. First, when weather conditions are 

favorable, resulting in lower-than-expected loss ratios, the private 

sector must be permitted to earn the profits that sustain its ability 

to make long-term commitments to the program, and there must 

be adequate and reasonably priced commercial reinsurance available in addition to the reinsurance provided through the SRA. Program profitability enables companies to build reserves to face the 

inevitable catastrophe losses that accompany agriculture. We need 

to remember, for example, the widespread droughts of 1988 and 

even 2002; flooding in 1993. The industry must have the resources 

to cope with these events. Although it is too early to predict what 

55

the losses may be in 2007, it is not starting out well; early freeze 

damage in California, the Mid-Atlantic and the parts of the Great 

Plains. If this adverse weather continues, all of us would be grateful for the reserves that were built. 

I now want to turn the importance of commercial reinsurance of 

the Federal Crop Insurance Program. Depending on the resources 

of each individual company, the availability of commercial reinsurance at adequate levels is essential to all companies. For these 

companies to survive in this program, they must be able to transfer 

a portion of their risk to commercial reinsurers. Commercial reinsurers will not accept risk if profit margins are too thin. Quite simply, they have other alternatives to invest their capital. We should 

not and cannot drive the commercial reinsurers out of this program. Therefore, I must now offer some concerns that the Administration’s proposed farm bill has brought up. 

The proposal would drastically reduce reinsurer participation in 

the program. For example, there is now a 5 percent premium paid 

to FCIC under the SRA for quota share of reinsurance. The Administration proposes to increase this to 22 percent. That type of profit 

erosion is draconian and will result in driving commercial reinsurers out of the crop insurance market. The Administration also 

proposes a two percentage point reduction in administration and 

operating subsidy, the A&O subsidy that has been steadily declining over the last decade. Reducing the subsidy, while stimulating 

increased quota share costs by over 440 percent, which the 22 percent represents, invites serious and adverse consequences. 

Program integrity: Let me talk about that a moment on behalf 

of the industry. We believe that the Federal Crop Insurance Program operates with a high degree of integrity. Yet, with taxpayer 

dollars and the private sector resources at risk, vigilance is a must. 

To this end, NCIS last year held a program integrity conference. 

This conference centered on the crop insurance industry’s ability to 

reduce fraud, waste and abuse and how best to handle these issues 

in a growing and complex program. Once again, a program integrity conference will be held this year, May 21 and 22 in Overland 

Park, Kansas. 

Our third concern, Congress needs to provide RMA with ample 

funding to participate as an equal partner in the risk management 

training and education programs that the private sector sponsors. 

NCIS annually sponsors various national conferences on program 

issues, and we also sponsor schools to train loss adjusters. Our national conferences are well attended by both company representatives and RMA personnel, who often make major presentations at 

these schools. Loss adjustment schools are well attended by the 

company employees and are taught by our industry’s most experienced personnel. An adequate operating budget for RMA to send its 

experts to our conferences and schools is a necessity. When actively 

participating in industry-sponsored programs, RMA offers valuable 

contributions. 

In closing, crop insurance is an effective risk management tool 

for growers to protect themselves. As an industry, we take seriously our responsibility to deliver the Federal Crop Insurance Program. Maintaining an economically sound program, enhancing program integrity and funding RMA adequately are paramount to 

56

making the Crop Insurance Program work for the farmers and 

ranchers who rely on it to protect their livelihood and to protect the 

country’s food supply. Thank you, Mr. Chairman. 

[The prepared statement of Mr. Parkerson follows:]

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STATEMENT OF STEVEN C. HARMS, CHAIRMAN, AMERICAN

ASSOCIATION OF CROP INSURERS; PRESIDENT AND

CHAIRMAN, BOARD OF DIRECTORS, RAIN AND HAIL, L.L.C., 

JOHNSTON, IA 

Mr. HARMS. Good morning, Mr. Chairman, Ranking Member 

Moran, and Members of the Subcommittee. I am Steve Harms, 

President of Rain and Hail, L.L.C., headquartered in Johnston, 

Iowa, and market the Crop Insurance Program in all 50 of the 

United States. My testimony today is presented in my capacity as 

Chairman of the American Association of Crop Insurers. Thank you 

for allowing me to testify today and I request that my written 

statement be submitted for the record. 

Before I summarize my testimony, I would like to point out that, 

historically, the Crop Insurance Program is not part of the farm 

bill. The last two significant reforms of the program took place in 

1994 and 2000, not in the farm bill. The Federal Crop Insurance 

Act is a separate statute that need not be reauthorized in the bill. 

I respectfully request that the Committee not pursue changes to 

the Crop Insurance Program as it considers the 2007 Farm Bill. 

My testimony will make the following three points about the 

Federal Crop Insurance Program: Number one, it is working; Number two, it can be improved; and Number three, the program can 

be harmed. The program is working and the modern Federal Crop 

Insurance Program is a huge success. Providing protection from 

risks that are beyond a farmer’s control has been the basic and 

fundamental goal of the Federal Crop Insurance Program from its 

very inception. For the 2006 year, the program provided about $50 

billion of protection, a record level of coverage at that time, which 

is up from only $11 billion in 1993. For the 2007 year, projections 

indicate that farm risk protection will likely exceed $60 billion. The 

modern Federal Crop Insurance Program is an indispensable risk 

management tool. The program has grown more complex, including 

more policy choices and more stringent regulations, on its way to 

becoming an efficient and effective risk management tool. Since we 

are in a new era of production agriculture, where every available 

acre will need to satisfy our food and energy demands, more farmers will need the Crop Insurance Program than ever before. 

The modern Federal Crop Insurance Program is an indispensable 

financing tool. Without crop insurance, many farmers would be unable to obtain financing. Crop insurance makes the process of farmers obtaining annual operating loans much easier, simpler and efficient. In the case of farmers who have purchased crop insurance, 

banks usually require less collateral because they consider these 

farmers to be better protected. Many younger farmers with less collateral will be unable to obtain the financing without crop insurance. The modern Crop Insurance Program is an indispensable 

marketing tool. Crop insurance allows producers to market in advance of production, as well as disaster assistance when the crop 

county loss ratio exceeds a trigger level to farmers who have received an indemnity payment. 

Another opportunity to improve the program is in updating the 

provisions of existing legislation which are no longer relevant given 

the economic realities. In this regard, AACI believes Section 

508(e)(3), known as the Premium Reduction Plan, or PRP, should 

68

be deleted. The program can be harmed. Proposals that would take 

the Crop Insurance Program in the wrong direction should be rejected. In this regard, the following USDA proposals especially 

should be rejected, which are increasing net book quota share from 

the current 5 percent to 22 percent and providing only 2 percent 

of premium back to the companies; cuts to the farmer subsidy to 

deliver the program, such as reducing the administrative and operating expenses by two percentage points for all policies other than 

CAT policies; a mandatory purchase requirement for farmers who 

participate in commodity programs; and last but not least, cuts to 

the premium subsidies that reduce participation. 

The press often makes the mistake of reporting underwriting 

gains as profits, thus conveying the false impression that the industry is making huge profits. Both A&O reimbursements and underwriting gains are gross revenue earned by approved crop insurance providers under the terms and conditions of the USDA developed and approved Standard Reinsurance Agreement that each 

company must agree to and sign in order to be eligible for the program. They are not profits. 

In closing, I would like to thank you for this opportunity to 

present AACI’s views about the Crop Insurance Program and I look 

forward to further discussion with the Members today. 

[The prepared statement of Mr. Harms follows:]

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STATEMENT OF KATHY FOWLER, PRESIDENT, NATIONAL 

ASSOCIATION OF CROP INSURANCE AGENTS, MEMPHIS, TX 

Ms. FOWLER. Chairman Etheridge, good morning. Good morning, 

Ranking Member Moran. I am Kathy Fowler. I am here on behalf 

of NACIA, National Association of Crop Insurance Agents. I would 

like to take this opportunity to thank you and consider it a real 

privilege to be here. 

Actually, I am an agent, myself, located in a small community in 

the lower Texas panhandle, population 2,500. I come here today 

with a whole different perspective from the other members on the 

panel. I represent an organization that is solely supported and represents the interests of crop insurance agents across the Nation. 

Actually, we are small business folks operating in the ag community where the crops are grown. We have a lot of involvement with 

community projects, little league games, support FFA projects/4–H 

projects. We become very involved in support with the local kids by 

purchasing these projects, like stock shows. So therefore we have 

a lot of communication and a lot of interaction with producers. We 

start with the children at a very young age, along various avenues 

for the communication. 

Agents are very dedicated in their work. Actually, at my agency, 

we put about 75,000 miles a year on vehicles. My husband seems 

to think that I have a love affair with a laptop, watching the 

Weather Channel or the radar screen. Agents are on the frontline. 

We are out there, we are the first phone call, so it is imperative 

that we respond and unfortunately, mother nature does not always 

react to business hours Monday through Friday or 8 a.m. to 5 p.m. 

So when that producer calls, and I live in west Texas and we have 

a sandstorm, that has wiped out your entire crop, the phone rings 

the first thing the next morning. ‘‘Hey, what are my options in 

order to stay within the policy guidelines? I think I have lost my 

crop. Can I replant? Do I have to replant? Is there a late plant provision? Is there a replant payment? Just exactly where am I at?’’ 

And lo and behold, I have several real life experiences, but one of 

them is the pastor calls and says, ‘‘Hey when can we stop the sand 

from blowing? You know, it is filling up the church?’’ So we have 

to be really reactive and really responsive. 

And this program is huge. It is very complex. There are a lot of 

different things out there. We have come a long ways to really pattern this program for the individual needs of the producer. It is exceptionally difficult to deliver and very different from traditional 

insurance. If you go out and you purchase a homeowners policy or 

an auto policy, you set the parameters of the policy, pay the premium and you are good to go. You come around for an annual renewal. Unless you have made a trade on an auto or purchased a 

new home, a lot of times there is very, very little interaction or 

communication with your agent. You pay the bill and you continue 

your insurance policy. What we are looking at today with farmers, 

it is imperative that you review that process every year. There are 

program changes; there are policy changes. We recalculate a farmer’s yield every year. We were looking at virtually very little 

dryland production in my area last year, so those yields have gone 

down. Price selections change. If you see the price selections on the 

grain crops, they have gone up substantially. So therefore, if your 

78

yield has gone down, price selection is up, you may be okay. If you 

are planting a different crop, you may need to take a look at some 

different coverage, move up a level. And we spend a lot of time educating the lender, that way the lender, as he understands what the 

program is there to provide and we meet his expectations. 

In my testimony, I stated that there are 21 different plans of insurance. Throughout an individual crop year, there are 23 sales 

closing dates or deadlines, so that means if that producer wants to 

take out coverage, he has to be within that deadline period. As proposals move forward, the permanent disaster, the supplemental 

coverage, I truly encourage you to utilize the expertise of the crop 

insurance agent. The infrastructure is already set. We have quite 

an investment in the technology. We have a proven track record to 

deliver this product in a timely manner to meet the requirements 

of the producer and the lender. And many agents started in this 

business when it went private in 1980. That is 26 years of expertise and knowledge. To the producer, this is a people business. We 

are here to have communication with that producer so that we can 

help him make a decision on what risk management products meet 

his needs the best, and that starts all the way from my staff to the 

equipment dealer, the fertilizer salesman, the lender, and actually 

the producer, your constituent. 

I am very proud to be a part of this delivery system that offers 

a safety net for farmers and I truly believe in what I do. I want 

to thank you for your continued support. 

[The prepared statement of Ms. Fowler follows:]

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STATEMENT OF STEVEN C. RUTLEDGE, CHAIRMAN, CROP

INSURANCE RESEARCH BUREAU, INC.,; PRESIDENT AND 

CEO, FARMERS MUTUAL HAIL INSURANCE COMPANY OF 

IOWA, WEST DES MOINES, IA 

Mr. RUTLEDGE. Mr. Chairman and Members of the Committee, 

my name is Steve Rutledge. I am President and CEO of Farmers 

Mutual Hail Insurance Company of Iowa. I also currently serve as 

Chairman of the Crop Insurance Research Bureau, or CIRB. CIRB 

is a national trade association composed of insurance companies, 

reinsurance companies and brokers involved in the crop insurance 

business. I appear before you today on behalf of CIRB and thank 

you for the opportunity. Since I am the last witness, there may be 

a little bit of repetition, so I would ask you to bear with me in that 

regard. 

The Crop Insurance Program that exists today is the centerpiece 

of our agricultural safety net. Approximately 80 percent of our Nation’s farmers recognize the value of the program and invest premium dollars to participate. The benefits to the producers are created by shifting the risk to the government and in no small part, 

to private insurers and reinsurers. As we enter the 2007 crop season, the possibility of paying a very large price for assuming that 

risk has never been greater. Many crop prices are near historic 

highs and these increases track through to the Crop Insurance Program. The liability assumed by the public-private partnership in 

2007 will be immense. Although the past 3 years have been a profitable period for SRA holders, all of these profits, and then some, 

could be erased in the blink of an eye, given the level of risk that 

exists for this year. 

Two weeks ago, CIRB members visited Capitol Hill and the most 

common theme expressed during those meetings was that—excuse 

me—although some needs have yet to be met, overall, the program 

is providing great value to our Nation’s farmers. There was, however, a desire to better understand the impact of specific proposals 

and a concern about the perception that SRA holders are making 

excessive profits. Any discussion of profits must begin with the understanding that what RMA and others commonly refer to as underwriting gains, it does not translate directly to profit for SRA 

holders. Underwriting gains are based on the assumption that a 

company’s expenses to deliver the program are equal to the expense reimbursement provided by the SRA. Currently, the expense 

reimbursement averages about 201⁄2 percent. Most companies’ actual expenses are considerably higher and the gap between the two 

must be filled from underwriting gains before any true profit can 

be produced. Possibly because of the perception I just described, 

USDA has proposed that RMA assume 22 percent of the industry’s 

underwriting gain or loss. 

The reinsurance provisions of the SRA provide a very good first 

line of defense against a catastrophic loss, but it is just the beginning of an adequate reinsurance program. Virtually all SRA holders buy a significant amount of commercial reinsurance to protect 

our financial stability. The proposed quota share would make crop 

insurance less attractive to reinsurers and some would redeploy 

their capital. The result is that an absolutely essential piece of the 

risk management process would be damaged. In addition to the 

89

havoc less reinsurance capacity would create for the SRA holders, 

we too would suffer financially. RMA would assume 22 percent of 

the company’s net premium and losses, but little will be done to 

make up the gap between the expense reimbursement and the actual expenses that I described previously. And since the opportunity to make up that difference from underwriting gains has 

been eliminated, companies are guaranteed a loss on every dollar 

taken by that quota share. 

Another proposal calls for a further reduction in the expense reimbursement paid to SRA holders. As you know, the SRA was renegotiated in 2005 and cuts to the expense reimbursement were 

implemented that year, with additional cuts implemented last year. 

At some point, efficiency must give way to poorer service to producers. I think we are at that point and any further cuts will only 

increase the potential that one or more, probably of the smaller 

SRA holders, will choose to exit the program. 

Few, if any, insurance products are as complex as the Crop Insurance Program. Crop Insurance Program cost is driven partly by 

this complexity, but to a larger degree by the level of success of the 

program. Certainly the cost of the program has grown over the 

years, but so has the amount of crop value that is being protected. 

Suggestions that money from the Crop Insurance Program should 

be diverted to help fund other projects is possibly shortsighted. The 

Crop Insurance Program needs stability above all else. By assuring 

adequate funding of the program, its future and that of American 

agriculture will be secured. Thank you for your time and attention. 

[The prepared statement of Mr. Rutledge follows:]

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Mr. ETHERIDGE. Thank you. The chair will now recognize the 

Members for 5 minutes and recognize myself first for 5 minutes. 

The GAO recently issued a report and in that report they talked 

about climate change and its potential impact with regard to Federal insurance programs and it highlights its findings that many 

of the major private insurers are incorporating some elements of 

climate change in their risk management practices. Is this occurring in the crop insurance industry, and are companies trying to 

anticipate problems resulting from climate change? And I would 

ask each one of you to comment on that as it relates to your segment, as you know it. 

Mr. PARKERSON. Mr. Chairman, I think we have a little experience in that report because we had been called by them a couple 

of times to participate in some of the programs, and we would basically mirror what Dr. Collins has told you and that is that this is 

based on a 10 year experience. They also have a catastrophe portion in the rating that they make and at this point in time, we 

think that, in the discussions we have had, part of this is being 

mixed with the property casualty business. There is a lot of damage, as you well know, in areas with the hurricanes. This has all 

been brought out and it is extremely true. When you build around 

the Gulf or on the beaches of Florida or California and those 

houses get blown down, they cost———

Mr. ETHERIDGE. So you are saying hurricanes and things like 

that don’t affect crops? 

Mr. PARKERSON. No, what I am saying is that I think that what 

we are doing now is being able to adequately adjust to it at this 

point. 

Mr. ETHERIDGE. So you are saying the answer is no? 

Mr. PARKERSON. That is right. 

Mr. HARMS. I would agree with Mr. Parkerson, that currently we 

are not. There is nothing that we can really do to anticipate looking 

ahead, for what may happen. The information I have read, it does 

not bode well for agriculture in many areas. 

Mr. ETHERIDGE. Okay. 

Mr. HARMS. Which puts even more necessity to our quota share, 

to hold as much of that premium as we can and bill the bank for 

those years that we know are going to be coming, that losses, considerable losses———

Mr. ETHERIDGE. So your answer is no, too? 

Mr. HARMS. Correct. 

Ms. FOWLER. Yes. 

Mr. ETHERIDGE. Is the same true all the way down, no? 

Mr. RUTLEDGE. Pretty much. The reinsurance industry employs 

a lot of modeling agencies to try to model these types of effects, but 

the duration of the time that we have had to look at them hasn’t 

been adequate to reach any conclusions. 

Mr. ETHERIDGE. Okay. Mr. Parkerson supports the Administration’s proposal to lower the loss ratio, according to his testimony, 

to 1.0. But the others of you, what are your thoughts on that? 

Mr. HARMS. We would agree with that and we think the program 

has been operating less than that for the past number of years and 

we think that is a move in the right direction. 

Mr. ETHERIDGE. Okay. 

106

Ms. FOWLER. Go ahead. 

Mr. RUTLEDGE. Yes, I would agree. 

Mr. ETHERIDGE. Okay. To Mr. Harms and Ms. Fowler, you all 

mentioned premium reduction plans as a problem. Can you elaborate on how these plans impact the industry and particularly your 

segment of it? Could you expand on that, please? 

Mr. HARMS. Yes. The premium reduction plan is one that we 

have got a lot of concerns about. Number one, it is based on potential efficiency from the companies’ accounting report that is sent in 

to RMA from 2005 to 2006. A lot of variables occur within that, 

such as loss adjustment expense, what kind of agents’ commissions 

the companies have to pay to see if, in fact, there is any efficiency 

between those 2 years. Our feeling is, with the Federal program, 

that it should not matter to the insured which company they write 

with as far as any type of a reduction in their premium. Out of the 

16 companies, I think there were nine of us that did apply to be 

eligible for a PRP in 2007. 

Mr. ETHERIDGE. Okay. 

Ms. FOWLER. From the agent’s standpoint, delivery standpoint, 

not against a premium reduction for producers, but it should be an 

equal opportunity for all producers within that crop. We don’t want 

to see reduced service to the smaller farmers and currently, the 

way it is set up it would encourage cherry picking. The other thing 

too, is that it needs to be irrespective of carriers. 

Mr. ETHERIDGE. Okay. If the panel will indulge me on one more 

final piece here. I would like to just have your comment on this. 

Let us imagine a farmer had bought a policy for 65 percent of coverage, multi-peril, and he had 500 acres of corn and the price of 

it was $3. And this year the same farmer buys the same policy, has 

no change in his APH, but has a price selection of $4, because we 

are now looking that this might happen. He is going to pay a higher premium for his policy and consequently the crop insurance company that sells him the policy would get a higher administrative 

and operating cost on that policy, and that would be a reimbursement, of course. It would be a higher reimbursement piece for the 

government. What additional costs would that company bear in administering the second higher cost policy? 

Mr. HARMS. That is correct. I think if somebody could guarantee 

farmers that they will continue to have $4 corn and $8 soybeans, 

I think the industry would be very willing to work with the Subcommittee and RMA in looking at ways that we could reduce the 

cost of the program. But when you look back when we had corn 

that was $2.50 and soybeans at $5, the actual A&O was probably 

less than what the companies had as far as expenses. 

Mr. ETHERIDGE. But wouldn’t you say that farmer is paying the 

high premium and not getting anything out of it. That is my question. 

Ms. FOWLER. Actually, that producer has a higher level of coverage at this point, because he is looking at his acres times the 

yield times the price selection. So therefore, even though his yield 

did not change, his coverage has initially gone up. In case he was 

to have a loss, then he would be paid at the higher price. And 

agents typically are on an annual renewal basis and by that those 

107

premiums and those compensations move up and down with that 

price selection, so we have to plan for the long term. 

Mr. RUTLEDGE. In your example, $4 corn, higher premium, higher A&O reimbursement, a lot of that reimbursement goes right out 

our door on a percentage basis. The extra dollars, we don’t see. The 

farmer has increased coverage, as Kathy was saying. Actually, our 

biggest fear is that we could have significant underwriting losses 

simply from a price decline rather than yield loss: $4 corn in February you don’t see very often. That would be the worry. 

Mr. ETHERIDGE. We may need to follow that one up. My time has 

expired and I will recognize the Ranking Member for 5 minutes. 

Mr. MORAN. Mr. Chairman, thank you very much. Just a followup to Mr. Etheridge’s question about increasing commodity prices 

means increasing premiums. That has been, until recently, one of 

the more common complaints that farmers are letting their Congressmen know, is my premiums are much more expensive this 

year. Is there anyone in the crop insurance industry that is receiving an advantage from higher prices, or is that increased premium 

all required because of the increased risk, the higher indemnity 

payments that would be paid if there is a loss? Does the increased 

premium accurately reflect the increased risk due to higher commodity prices? 

Mr. HARMS. Well, as you know, the rates are not set by the companies. They are set by RMA. So we have to assume that those 

rates hopefully will be adequate to cover that additional risk that 

comes with $4 corn and $8 soybeans. There is more volatility there. 

The farmers are paying additional premiums. They can reduce 

their coverage to bring back the premiums to their 2006 level. That 

is an option that they can pursue and they could have pursued if 

they felt their 2007 premium was more than they wanted to pay. 

Mr. MORAN. Is that a one-time election, the farmer makes that 

choice? 

Mr. HARMS. Correct. It has to be done by that sales closing date 

for spring crops; that was March 15. 

Ms. FOWLER. That is the very point that I made, that you should 

go back and renew that farmer’s coverage every year and make 

sure he understands in case he needs to make changes. 

Mr. RUTLEDGE. Assuming it is revenue coverage, the biggest advantage for the producer would be that he could go ahead and sell 

his grain at that high price, knowing that he is protected at the 

end of the year if he does lose his crop, so it is a significant value 

to the producer. Even though he pays a little bit more, he has got 

a much higher price he can sell his crop at. 

Mr. MORAN. Well, I assume every banker is going to require that 

to be the case as well. 

Mr. RUTLEDGE. Right. 

Mr. MORAN. Mr. Rutledge, you indicated a phrase, level of risk 

this year. It caught my attention. Is there something unique about 

this point in time, or is the risk of 2007 no different than the risk 

of 2001 or 2012? 

Mr. RUTLEDGE. No, it is different. In fact, we are even looking 

for different mechanisms to try and protect some of the risk. I don’t 

think, in the history of the program, the base price set in the 

spring for corn and beans, for example, has ever been $4 or above. 

108

This year it is. For soybeans it is over $8. Typically, if you look at 

a seasonal chart of grain prices, February, when we determine the 

spring base price, and October, when we determine the harvest 

price, are the low points of the year. Now we have got February 

as a very high price and $2.80 corn is probably average over a period of years. If we end up $2.80 corn this year, with no yield loss, 

the companies will have an underwriting loss just from that price 

decrease. 

Mr. MORAN. And let me make sure I understand, because I assume a central point of the industry would be that you can’t take 

away our retained earnings, the risks are great, and what you are 

reminding me is that those increased risks due to higher commodity prices are not covered solely by increased premiums. You 

have got to carry forward retained earnings in order to cover those 

losses should they occur. 

Mr. RUTLEDGE. Correct. If we would have another 1988 or 1993, 

when 1988 was the drought and 1993 was the flood, and some 

other years, I don’t know what the losses would be, because we 

didn’t have revenue products in those years and now we do and 

they are going to greatly increase the extent of the losses when we 

have another year like that. And with these types of prices, it is 

a dangerous year. 

Mr. MORAN. Have the number of companies, crop insurance companies, increased or decreased in the market? 

Mr. RUTLEDGE. When I first got in the business, there were probably between 50 and 60 companies involved in the Federal Crop Insurance Program. Now there are 16—is the number that has been 

quoted. 

Mr. MORAN. We had a couple of entrants, new entrants into the 

market last year or the year before. Is there a trend there, one way 

or the other? 

Mr. RUTLEDGE. We had a couple of mergers and acquisitions at 

the same time. You know, one may come out, one may go. It has 

been steady for the last 3 or 4 years, I would say. Is that correct? 

Mr. PARKERSON. That is correct, yes. 

Mr. MORAN. My time has almost expired. I have 12 seconds to 

tell you that I spent my time yesterday in five Kansas counties, 

eight different wheat fields, and there are significant losses already 

evidenced by 3 days, as a consequence of 3 days in April of temperatures in the teens and lots of crop insurance issues about what 

do we do now? It is easy to see the damage. I had the agronomists 

with me. I had the regional RMA personnel with me. All of us were 

asked the question by the farmer, what now? And there are some 

crop insurance issues, but there is some real issues about what a 

farmer should now plant, plow up, and I would just echo the concerns that if the freeze damage I saw yesterday is any indication 

of what is to come, there are significant risks in your business this 

year. Thank you very much, Mr. Chairman. 

Mr. ETHERIDGE. I thank the gentleman. I yield 5 minutes to the 

gentle lady from Kansas, Mrs. Boyda. 

Mrs. BOYDA. I will yield. 

Mr. ETHERIDGE. The gentleman from Virginia, the Ranking 

Member of the Committee. 

109

Mr. GOODLATTE. Well, thank you, Mr. Chairman, and I thank 

you for holding this hearing. I have an opening statement that I 

will just submit for the record and would like to thank all of these 

witnesses as they help us find our way through a very important 

tool for farmers, but also one that is exceedingly complex. When we 

try to find solutions to make it work better for farmers and work 

for more farmers, it gets even more complex. 

Let me ask you about something that the gentleman from Kansas started asking you about and didn’t follow up. We will start 

with Mr. Harms but I will ask the others to join in. How comfortable are your companies with the premiums established by 

RMA? Do they sufficiently cover the risk you are taking? 

Mr. HARMS. Yes, we are very comfortable with them. I think the 

results speak for themselves. The last number of years, we have 

been able to generate a loss ratio that has been considerably below 

the target loss ratio. So at this stage of the game, we are comfortable that they are probably as good as rates as we can be using. 

Mr. GOODLATTE. Do you analyze the premiums of these policies 

yourself? 

Mr. HARMS. Absolutely. Yes. 

Mr. GOODLATTE. Mr. Parkerson? 

Mr. PARKERSON. Yes, yes, we do. On behalf of the industry, we 

take a look at them. 

Mr. GOODLATTE. And what is your attitude about the rates that 

they set? 

Mr. PARKERSON. Our belief is that RMA is working hard and as 

indicated, they have taken on in the last couple of years a strong 

knowledge and have got their data pretty well together and I think 

those rating systems that they have seem to be working well. 

Mr. GOODLATTE. Ms. Fowler? 

Ms. FOWLER. Yes, we tend to look at the ratio between the coverage and the premium and actually, the coverage has increased 

and the premium has gone down according to the ratio procedure 

there. 

Mr. GOODLATTE. So you analyze the policies yourself? 

Ms. FOWLER. Yes. 

Mr. GOODLATTE. Okay. And do you tell the USDA when you believe the premiums do not accurately reflect the risk? 

Ms. FOWLER. Sure. 

Mr. PARKERSON. Yes, we do. 

Mr. GOODLATTE. What kind of response to do you get? 

Mr. PARKERSON. Do you want me? We have definitely had meetings and on behalf of the industry, we have an actuarial department at NCIS and we take a good, hard look at the data and information. We go over and have meetings with them. On behalf of the 

industry, we meet with our Board of Directors and we have an actuarial statistical committee that reviews these policies and the 

forms that are there, and we don’t hesitate. If we feel that there 

is something wrong, we go there. 

Mr. GOODLATTE. But do you get a good response back? 

Mr. PARKERSON. We do in overall purposes. I will be very candid. 

I think their hands are somewhat tied. Sometimes when we pointed out a shortfall in a policy or a rate, it takes them some time 

to turn, if you will, the train around because of the regulatory 

110

issues that are involved. But yes, they do take it to heart and yes, 

they do talk. 

Mr. GOODLATTE. Well, let me ask you about that. When it takes 

them time to turn the train around———

Mr. PARKERSON. Yes? 

Mr. GOODLATTE.—does it get turned around in that growing season, in that cycle? 

Mr. PARKERSON. No, it cannot. 

Mr. GOODLATTE. So you are stuck. 

Mr. PARKERSON. We are basically stuck if we find a problem or 

an issue, somewhat stuck with that shortfall through the year, but 

then work on trying to get it corrected and changed. 

Mr. GOODLATTE. Mr. Rutledge, does your organization review 

these issues? 

Mr. RUTLEDGE. To the same extent most every other company 

does and in general the rates are as adequate as RMA knows how 

to make them. There may be some options. There are coverage options that are available, but there is just not enough data to know 

for sure. But yes, in general they are as good as they can make 

them, I think. 

Mr. GOODLATTE. Ms. Fowler, let me ask you. In your testimony, 

you say that if a permanent disaster program is created, it should 

be designed in a way that includes crop insurance to be delivered 

through the currently established infrastructure. I wonder if you 

have any specific comments on how a crop insurance disaster program would work. 

Ms. FOWLER. I guess what my reference really was to the fact 

that we have the infrastructure to deliver that. We have the data. 

We have the yields compiled, which are true, actual yields of that 

producer. And what I was referring to is our ability for the infrastructure, our technology, our computer systems, the interface that 

we have with GPS and all of those different types of things. We 

have the ability to turn it around and get it delivered on whatever 

regulations or compliance issues that you give us. 

Mr. GOODLATTE. But you don’t have any vision on how to implement something, like what has been proposed, that we would have 

a permanent disaster program that would require crop insurance 

and how those two things would work together or if they would indeed work together? 

Ms. FOWLER. I guess, very well, they could work together. I have 

not seen any real details of either one, a permanent disaster. I 

think you could tweak this along with the program that we already 

have, since we do have a proven track record that it does work. 

Mr. GOODLATTE. Great. Thank you. Thank you, Mr. Chairman. 

Mr. ETHERIDGE. Thank you. The gentleman yields back. The gentleman from Georgia, Mr. Scott, for 5 minutes. 

Mr. SCOTT. Thank you very much, Mr. Chairman. First, Ms. 

Fowler, I found your testimony to be very enlightening and intriguing. I would like to ask you to respond to some of the things you 

said in your testimony, in your stated testimony, that kind of concerned me and I found intriguing. You expressed great concern 

about the Crop Insurance Program vis-a`-vis the farm bill. You 

made statements like crippling a program that is serving its intended purpose would not be wise and would be extremely detriVerDate 0ct 09 2002 16:25 Mar 26, 2009 Jkt 041481 PO 00000 Frm 00114 Fmt 6633 Sfmt 6633 I:\DOCS\110-15\42161.TXT SOLEM PsN: REBEKA
111

mental to our Nation’s agricultural producers. You went on to say 

now is not the time to damage the system that has worked so well 

and that the Crop Insurance Program has not been a part of the 

overall farm bill reauthorization process, and then do not view crop 

insurance as simply a minor piece of the farm bill puzzle. That 

seems to me that you are registering some anxieties here about the 

future of the Crop Insurance Program vis-a`-vis the farm bill. I wonder if you might expound on that a bit, to make your position clear. 

Do you feel some threats out there as we tinker with the farm bill, 

for the Crop Insurance Program? 

Ms. FOWLER. Yes, very much so. The crop insurance piece has always been a separate piece from the farm bill, other than tweaking 

in different areas. If you are talking about reducing premium subsidies, farmers are going to roll back. I mean, they are going to reduce their coverage. Then that is going to offset as far as we are 

looking at supplemental coverage or permanent disaster or something of that nature. I think we need to offer farmers the stability 

that we currently have. They have made long-term projections, 

whether it be in land purchases or equipment purchases. So I think 

we need to make sure that any time you start making a tweak, 

that it is awfully hard to get your arms around this huge, complex 

program, and it may sound good on paper, but all of a sudden, 

when you apply its reality, it makes quite a significant difference 

for the producer himself. 

Mr. SCOTT. So you don’t want to see anything done on the 2007 

Farm Bill and the Crop Insurance Program, as it is? No changes, 

no nothing. 

Ms. FOWLER. There is always room to better this program and 

to make changes, but typically, we are not a part of the farm bill 

process. 

Mr. SCOTT. Yes. Okay. Now, Mr. Parkerson, your concern about 

adequate funding for RMA and I think you mentioned that there 

were two areas. Could you explain to us why and how the current 

data processing system is inadequate? And I think the other area 

you mentioned where we need additional funding would be in the 

training area. Could you elaborate on that? 

Mr. PARKERSON. Certainly. 

Mr. SCOTT. And there is a level of funding that we are currently 

doing. You are asking for something beyond that? 

Mr. PARKERSON. What we are asking for in our testimony, what 

we meant and are trying to get across here is that, for example, 

I mentioned that we sponsor training programs and we have meetings across the country if we run into problems and we have asked 

RMA to participate in. According to my staff and myself, I have 

been asking them to participate in a particular training phase or 

understanding a loss procedure and ask for these people to meet 

us at meetings in the locales and have been told that they don’t 

have the wherewithal to join us in those meetings. And if that is 

the case, then we are asking that you take a look at that, because 

their input is key to what we all do. If we don’t understand a regulation or we don’t understand a handbook and the procedure on 

how to address a particular crop, then we need that help and that 

does come up, because we are reading this thing maybe one way 

and somebody else reading it in a different manner. 

112

Mr. SCOTT. And the data processing? 

Mr. PARKERSON. The data processing, I will tell you this, that 

they are going through some major changes in the computer business and we are very interested and want to know what is going 

on. It is key. These companies spend millions of dollars on their 

computers to be able to report and talk to each other back and 

forth every day. If we don’t understand what they are doing and 

how they are doing it or if they fall short, then that makes us fall 

short, which could in turn reflect on whether a farmer is going to 

get paid his indemnity. 

Mr. SCOTT. How much money are we talking about? When you 

say adequate funding, how much? 

Mr. PARKERSON. I can’t give you that figure at this point. We 

have talked about it at different times and I would be happy to 

give you an idea, if you would like for me to. 

Mr. SCOTT. That would be helpful. 

Mr. PARKERSON. Okay. 

Mr. ETHERIDGE. The gentleman’s time has expired. The gentleman from Texas, Mr. Neugebauer, for 5 minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. I think you heard 

Chairman Peterson talk a little bit about something he and I have 

been having some discussions about and that is the fact that we 

need to somehow get crop insurance to the level that it is necessary 

that we don’t have to be going through this political process that 

we are going through right now for ad hoc disaster programs. 

While I wasn’t here when the 2002 Farm Bill was put in place, 

many folks thought that some of the changes that had been made 

over the years to the Crop Insurance Program was going to eliminate that and obviously that proved not to be true. 

And I heard you say, Mr. Harms, that you don’t think that we 

ought to be talking about crop insurance at the same time we talk 

about the farm bill. While I am not supporting taking any money 

out of the farm program, I do think it is an appropriate time to be 

having some discussion about improving crop insurance and with 

that, as many of you know and I think I have had some discussions 

with you, I have introduced a bill that gives the flexibility to basically do somewhat what the current disaster programs do. When 

the actual yield is below the county yield, that triggers a GRP or 

GRIP policy that the producer is able to put on top of their multiperil policy, thereby giving the producers one additional coverage. 

And I think, in some ways, that kind of helps address some of the 

problems with declining yields, because we are able to provide an 

opportunity to put additional coverage on top. I think that also provides our producers some flexibility on how to manage their risks 

and I think that is something desperately needed in the marketplace today, because as we all know, agriculture is big business 

now and the clients that you insure now aren’t those small farmers, they are large operations. 

With that, I would just like to hear from the panel. Is this a viable product and is this something that is needed in the marketplace today? 

Mr. HARMS. Yes, we think if a disaster component is going to 

make it into the farm bill, then crop insurance wants to be involved 

in the process. The American Association of Crop Insurers has put 

113

together a task force. We are actively working to put together a 

proposal to begin sharing with the Subcommittee here very shortly. 

So we think there is a place for whatever you want to call it, a gap 

type of coverage to take care of that deductible on there and we 

think crop insurance can make a real difference in supplying that 

type of coverage. So we are working on it and we look forward to 

getting it to the Subcommittee very soon. 

Mr. NEUGEBAUER. Ms. Fowler? 

Ms. FOWLER. As agents, we are very eager and very interested 

to deliver this type of a product, the policy or policies, to that producer and be the one stop shop, which would be much less inconvenient for that producer. 

Mr. NEUGEBAUER. Mr. Rutledge? 

Mr. RUTLEDGE. RMA’s supplemental deductible program is pretty 

similar to your bill. That may be able to be maneuvered into a type 

of disaster program and I don’t know enough of the details about 

it, but I think if there is a permanent disaster program, we would 

like to be involved. 

Mr. NEUGEBAUER. Mr. Parkerson? 

Mr. PARKERSON. I would echo the same thing. We would like to 

be involved. I do think that it is going to take a lot of hard work 

and some real thought to putting this type of program together. 

But if it is available, I think the companies and these organizations 

are very capable of helping you deliver that type of product, but it 

is going to take some real work. 

Mr. NEUGEBAUER. Well when you look back and we are having 

my bill re-scored as we speak, but even when we had it scored 

when we introduced it last year, it cost a lot less money for crop 

insurance than it has on what we spend on disaster programs over 

the last few years, and we can get it to the producer in a timely 

manner. The problem we have today is we have producers out 

there that have actually had consecutive losses and they are still 

waiting to see how the political process is going to unfold here and 

whether if and when we are going to have that. 

And so I think it is good public policy and I think American taxpayers understand insurance. I think what makes disaster difficult 

is a lot of people don’t quite understand the disaster philosophy 

and why we do disaster for some weather instances and why we 

don’t do it for others, and so I would encourage you. I think, as we 

move into the environment we are in, in agriculture right now, I 

think if we do not improve the Crop Insurance Program, it won’t 

do us any good to have a safety net necessarily for commodities, 

because if you don’t have any commodities, it is very difficult to 

participate—for the commodity programs to provide you that safety 

net. 

And so I really believe that we really need to be looking at these 

simultaneously. I do not want to take any money out of farm programs, but I think it makes good economic sense and fiscal sense 

to look at improving this with the addition of this. These are two 

products that you already sell, so we don’t have to have a test demonstration period. This is something that we could get on the 

ground, really, in the next crop year if we will hurry. So with that, 

I yield back. 

114

Mr. ETHERIDGE. I thank the gentleman. His time has expired. 

The Ranking Member now for closing questions and comments. 

Mr. MORAN. Mr. Chairman, thank you. I will forego a closing 

statement, but I have a couple of questions I would like to ask. 

First, I would like to recognize Mr. Neugebauer and indicate that 

I believe his persistence will be rewarded on this topic, that it will 

happen at some point, as the Chairman said. And I am sorry I was 

not here for the testimony of Dr. Keith Collins and the Administrator. I continue to, for really the last 5 and 6 years, push RMA 

to develop a crop insurance product that would meet the needs of 

farmers in declining yield circumstances, multi-year disasters, and 

my impression is that once again FCIC, although they reviewed a 

couple of proposals, have taken no action, tabled the effort and I 

intend to pursue that further, Mr. Chairman, with the appropriate 

folks. 

I simply wanted to ask a follow-up question to the issue of, really, a permanent disaster program. Mr. Harms, you in particular indicated, please don’t deal with crop insurance in the farm bill. My 

guess is we are headed in that direction, in part because of the interest in a permanent disaster program. The proposals by the corn 

growers and the Administration all lend themselves to a discussion. 

My kind of initial question is, why not in the farm bill? What do 

you see as the disadvantage to dealing with these issues and in 

particular, any advice any of you have as we look at the issue of 

permanent disaster? 

Mr. HARMS. I think, prior to the disaster component being expressed and worked on out here, we think having crop insurance 

outside the farm bill probably makes sense. That is how it has been 

in the past. But if there is going to be a supplemental coverage on 

top of the MPCI Program, then, yes, we need to be involved in the 

farm bill and we need to be involved in working with that, working 

with the program, that crop insurance can be an integral part of 

that type of coverage. So with the additional disaster, yes, crop insurance should be added. 

Mr. MORAN. Anyone have any final thoughts in directing me in 

regard to permanent disaster? Good, we will do it our way, then. 

Mr. HARMS. Again, that is what scares me, I think. The American Association of Crop Insurers———

Mr. ETHERIDGE. Speak now or forever hold your peace. 

Mr. MORAN. And Mr. Parkerson, you are more politically astute 

than to say that. I appreciate your comments and appreciate your 

time today and I am glad to join you. Incidentally, in various locations yesterday in Kansas, farmers, if given the opportunity for disaster, ad hoc disaster assistance payments and the choice between 

2005, 2006 and 2007, some of my farmers in some locations will be 

choosing 2007, which is a real surprise to me, after year after year 

of drought, that the freeze damage is greater than the losses due 

to lack of moisture. 

Thank you, Mr. Chairman, for holding this hearing and I appreciate the chance to participate today. 

Mr. ETHERIDGE. I thank the gentleman and let me just add to 

what he has just said. I think, when we find out how expensive the 

damage is going to be, really, across the country, especially in those 

areas along the Southern Belt, the Southeast and others that had 

115

not anticipated the really bad weather we have had this year, we 

normally think of droughts and floods and all of a sudden, the late 

season freezes may do more damage than any of us had ever anticipated at this point. 

Let me thank each of you for coming, for your testimony, for your 

time. We appreciate that. And under the rules of the Committee, 

the record of today’s hearing will remain open for 10 days to receive additional material and supplementary written responses 

from witnesses to any questions posed by a Member of the panel. 

This hearing on the Subcommittee on General Farm Commodities and Risk Management is adjourned. 

[Whereupon, at 12:06 p.m., the Subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:]

116

117

STEVE HARMS, Chairman,

American Association of Crop Insurers, 

Johnston, IA. 

Questions Submitted By Hon. Bob Etheridge, a Representative in Congress 

From North Carolina 

Question 1. The Administration, the National Corn Growers and the American 

Farm Bureau Federation have all proposed changing the current price-based 

counter cyclical program with a revenue-based counter cyclical program. As offerors 

of very similar crop revenue insurance, what are your thoughts about the concept 

of moving to a revenue counter-cyclical program? 

Answer. Revenue-based versus price-based is more complex, as it adds the required element of current year yield. Crop insurance is designed to address this, as 

it offers individual farm based revenue coverage. The revenue coverage proposals offered by the Administration, corn growers and AFBF are proposed on a national, 

state or regional approach, all of which will involve basis risk. Thus, they will only 

work to the extent that an individual farmer’s revenue correlates with national, 

state or regional revenue. Corn growers in Iowa, Illinois and Indiana would likely 

correlate well with national revenue, but corn growers in Kansas, South Dakota or 

Texas likely would not.

Question 2. How interested are your companies in obtaining access to the data 

mining efforts? Willing enough to help with the cost? 

Answer. We are very supportive and interested in the RMA data mining effort. 

We’d prefer to get the data sooner in the crop insurance cycle so that we have the 

benefit of the information while conducting our quality control processes and reviews and so we can adequately and more timely respond with appropriate action. 

We believe this is a Federal effort and should be funded by RMA via its normal appropriations. 

Questions Submitted By Hon. Bob Goodlatte, a Representative in Congress 

From Virginia 

Question 1. Why do you reject the notion of a ‘‘mandatory purchase requirement 

for farmers who participate in commodity programs’’? 

Answer. We do not support mandatory purchase requirements because the stated 

purpose is to alleviate the need for ad hoc disaster payments. We strongly disagree 

that a mandatory purchase requirement will alleviate the need for ad hoc disaster 

payments. Moreover, the mandatory purchase requirement put in place by the 1994 

crop insurance reform legislation remained for only 1 year before Congress removed 

it in the 1996 Farm Bill. The mandatory purchase requirement would require additional cross compliance between RMA and FSA. We don’t think their systems can 

adequately handle this. Finally, we believe most of the acres not participating are 

small land owners who would prefer to self insure.

Question 2. How comfortable are your companies with the premiums established 

by RMA? Do they sufficiently cover the risk you are taking? Do you analyze the premiums of these policies yourself? Do you tell USDA when you believe the premiums 

do not accurately reflect the risk of the policy? In circumstances where you have 

voiced concern about premiums, what has been RMA’s response? 

Answer. We review the premiums annually set by RMA. By and large they are 

adequate. When we find problems, we inform RMA. Sometimes, they respond with 

changes, other times they do not. For example, as RMA rolled out GRIP, we found 

problems with the yields they set in some counties and felt they yields would lead 

to adverse selection. We informed RMA of these concerns and some of the yields 

were corrected the following year. 

STEVEN C. RUTLEDGE, 

Chairman, 

Crop Insurance Research Bureau, Inc., 

West Des Moines, IA. 

Questions Submitted By Hon. Bob Etheridge, a Representative in Congress 

From North Carolina 

Question 1. The Administration, the National Corn Growers and the American 

Farm Bureau Federation have all proposed changing the current price-based 

counter cyclical program with a revenue-based counter cyclical program. As offerors 

of very similar crop revenue insurance, what are your thoughts about the concept 

of moving to a revenue counter-cyclical program? 

118

Answer. I have read these proposals and although I do not have all the specifics, 

they do not seem to be that attractive nor do they seem to have much support. I 

can’t tell how they would fit within the crop insurance program and may end up 

being a duplication of some parts of the crop insurance program. 

I’m afraid I just do not have adequate knowledge of the specifics of these proposals to give a very good answer on this one.

Question 2. How interested are your companies in obtaining access to the data 

mining efforts? Willing enough to help with the cost? 

Answer. My company, and I believe the majority of the other companies, are very 

interested in obtaining the data mining information. RMA has proposed the SRA 

holders pay a fee of 1⁄2 of 1 percent of premium to help them update and maintain 

their systems. If this fee will help keep data mining available and the industry is 

not subject to various other cuts, then I don’t think there would be an objection to 

this item. Data mining can be a very valuable tool if we are allowed access to all 

appropriate data. 

Questions Submitted By Hon. Bob Goodlatte, a Representative in Congress 

From Virginia 

Question 1. In your testimony, you note correctly that crop insurance liabilities 

will be large this year—in excess of $65 billion. Much of this increase liability is 

due to the fact that the price election on corn was in excess of $4 per bushel. Even 

though liability is up, so are premiums. In your view, does the increase in premium 

sufficiently cover the risk at these price levels? 

Answer. The premium increase due to price increases should be proportional to 

the increase in liability and if the premium rates set by RMA are correct then theoretically, the companies should be receiving adequate premium for the risk. The 

problem is that we have never had such high base prices before. 

Typically, prices are low during Feb. when the base price is calculated, rise during 

the middle of the growing season due to various weather concerns that spook the 

markets and then fall and are on the low side again when the harvest price is calculated during October. 

This year that pattern has been broken with the base prices for corn and soybeans 

the highest in the history of the program. This anomaly adds a new risk component 

not previously contemplated simply due to the magnitude of potential price movement. I don’t believe this uncertainty is included in the rating of the revenue products.

Question 2. If a price decline of 30% occurs in corn and there is no loss of yield, 

do sufficient reserves exist in the industry to cover these underwriting losses? Is 

there any risk in your view that there are not sufficient reserves to cover large 

losses given the high price election for corn? 

Answer. A price decline, assuming no yield losses, of 30% in the corn and bean 

prices would cause most SRA holders to suffer underwriting losses but adequate reserves exist to cover these losses since they would not be of great magnitude. The 

worst case scenario would be poor yields causing prices to rise above the base price. 

In that instance SRA holders would pay losses of great magnitude. Reserves probably exist (including payments we would receive from our reinsurers to help cover 

the losses) to cover the losses. However, I believe in this type of scenario, there 

would be one or more companies which would suffer financial losses of such degree 

that they might not be able to continue or would at least have to reduce their 

writings going forward. It could easily be the largest loss ever suffered by the program. 

I do think there would be sufficient strength among the remaining companies to 

maintain adequate capacity to handle the needs of the program. However, we would 

all have to pay higher reinsurance costs and our margins would be reduced for some 

period of time.

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