Both Senators and their staffs have been working hard over the past several months, with input from all interested parties, to put together a solid proposal to improve the crop insurance program. We believe that they have addressed all of the major areas of the program that require change. The large number of Senators cosponsoring their bill reflects the comprehensive nature in which they have addressed this issue. We would hope that this Committee will consider their bill and send it to the full Senate for consideration. Mr. Chairman, let me now provide you our answers to several of the questions that you have asked.
Crop losses tend to be correlated.
When drought strikes it will generally impact a large geographic area. Car accidents or health problems, on the other hand, generally are independent, random events. If person A dies of a heart attack, this does not necessarily mean that his or her neighbor will suffer the same fate. The correlation of crop losses increases premiums for farmers and has prevented the commercial development of multi-peril policies as the policy must account for this systemic risk. For companies, the correlation of losses means that capital requirements are higher in order to maintain adequate reserves to cover wide-spread losses.