Call it a "safe driver" discount for farmers. Growers who seldom make claims on their crop insurance could qualify for up to $25,000 in annual refunds under a program proposed by USDA's Risk Management Agency or RMA.
Farmers in Iowa and surrounding states that have low claim rates are likely to get much of the $75 million in annual Good Performance Refunds the department expects to make. William Murphy, administrator of the USDA's RMA, says that the prospect of receiving refunds should discourage growers from making small claims. Farmers could use the refund to buy higher levels of insurance coverage on crops, he says.
Amounts of these "refund payments" would vary by producer
To qualify for the proposed program, farmers cannot have had a claim in the last four to six years or no more than one claim in seven to 10 years. New farmers also could qualify for refunds if they have paid more in premiums than they have received in claims.
About 67,000 of the 1.1 million policyholders nationwide are expected to qualify for refunds. The average refund is likely to be about $1,000 per farm this year. However, numerous refunds in Iowa and neighboring states, where the policies are popular and crop losses are relatively small, could reach the maximum of $25,000 per farmer, says Murphy.
Iowa farmers paid about $250 million in insurance premiums last year, or about $12 an acre, says Chad Hart, an Iowa State University Extension economist. Farmers in Iowa and a few other corn growing states consistently pay more in premiums than they get back in claims. "This program will address some of that shortfall," he says.
Will benefit farmers, companies and federal crop insurance program
The program also would benefit the insurance companies that sell the federally subsidized policies if farmers use the savings to buy higher levels coverage, says Keith Collins, a former USDA chief economist who has been advising the insurance industry. "It's good for the federal crop insurance program," says Collins. "It's good for the companies. It's good for the producers."
Four of the 16 companies that sell crop insurance in the U.S. are headquartered in Iowa—Rain and Hail LLC of Johnston, Farmers Mutual Hail Insurance Company in West Des Moines, John Deere Insurance Company in Johnston, and Agro National Inc. in Council Bluffs.
It is estimated the proposed program would benefit farmers and ranchers in over two-thirds of the counties nationwide. In addition to Iowa and corn growing states in the Midwest, other areas that are expected to get a significant number of refunds include Florida, California's Central Valley, the Pacific Northwest and the Red River Valley of North Dakota and Minnesota, says Murphy.
Public comment period on this proposal ends Jan. 21
Money for the refunds initially will come from savings realized as a result of USDA's recent renegotiation of the Standard Reinsurance Agreement between USDA's Federal Crop Insurance Corporation and the private insurance industry. However, while USDA's operating agreement with the insurance companies will provide for the refunds made in 2011, Murphy says additional funding must be found when Congress writes the next farm bill, the 2012 Farm Bill.
USDA is taking public comments on the proposed refund program until Jan. 21, 2011 and then the program is expected to be put into effect. Refunds could go out before the regular March 15 deadline to buy 2011 crop insurance policies.
The Federal Register notice describing the proposed program is accessible at http://origin.www.gpo.gov/fdsys/pkg/FR-2011-01-06/pdf/2011-14.pdf. That notice has instructions on how to submit public comments. Murphy says RMA encourages you to make any comments or submit an opinion on this matter. There is also a Question & Answer fact sheet on the RMA website www.rma.usda.gov explaining this proposed new rebate plan.