FAQ: Does the 2012 drought mean farmers will have to pay sky-high crop insurance premiums for 2013?
Answer: William Murphy, administrator of USDA's Risk Management Agency, says "No, absolutely not." In fact, crop insurance premiums for farmers in many states will actually decline for 2013, assuming similar levels of coverage to what the farmers had in 2012, he says.
RMA announced on November 27 that it will update the methods it uses to set crop insurance premiums, leading to lower premium rates for many corn and soybean producers in the 2013 crop year. The rate adjustment is based on findings of an independent study and peer review process.
"We are improving the formulation of our rate-making methodology, and are moving to establish the most fair and appropriate premium rates for today's producers," says Murphy. "On average, these new rates should reduce corn farmers' rates by 7% and soybean farmers' by 9%."
Why is USDA lowering crop insurance premiums for corn and soybeans?
RMA contracted for a study by Sumaria Systems Inc., which examined premium rates, and the rating process, starting with the United States' two major commodities -- corn and soybeans. RMA then requested an independent expert peer review to provide feedback on the Sumaria study results. RMA will conduct further review and analysis of the study's recommendations along with comments and issues raised by peer reviewers. RMA will make additional adjustments as warranted and appropriate, says Murphy.
RMA is taking action to put into place adjustments to premium rates in a "phased in" approach that allows for any further adjustment pending additional analysis of peer review comments.
He says RMA periodically reviews premium rates and makes necessary adjustments for actuarial soundness, aiming to establish the most appropriate premium rates for today's farmers. The current approach will make an effort to adjust premium rates in a way that recognizes the latest technology, weather and program performance information. Updated data pertaining to prevented planting, replant payment and quality adjustment loss experience, was also used in determining rate changes.
What are the 2013 crop insurance rates announced by RMA?
RMA's website has a map of the U.S. showing the premium declines for 2013 by state. For example, for corn RMA's premium decline in Iowa and Nebraska is 6%; 5% in Wisconsin, 4% in Illinois and Michigan; 3% in Minnesota and Indiana. Corn rates will increase in some other states. In South Dakota it jumps 15% and is up 11% in North Dakota, up 4% in Kansas and is 1% higher premiums in Missouri and Ohio.
Note, however, these are state averages and rates and premiums play out differently at the county level. Texas, for instance will see no change in corn crop insurance premiums overall, but in some counties in that state the premiums will be 10% to 12% lower. And they'll be 10% to 12% higher in other counties, based on loss history. That's happening in other states, too.
Why are corn premiums going up so much in the Dakotas?
Why the big jump in corn premiums in South Dakota and North Dakota? Because of prevented planting payments over the last five to seven years, say RMA officials. Nationally, 70% of prevented planting payments have been made in these two states.
Soybean premiums will decline in most states, except for North and South Dakota. In those two states premiums are up 2%. Five states have double-digit decreases: Texas is down 14%, Nebraska is down 13%, Colorado and Pennsylvania are down 11%, Arkansas is down 10% for 2013. A number of states will see premium decreases of 8% to 9%. Iowa, Kansas, Illinois, North Carolina and Georgia are all down 9%. Indiana, Wisconsin, Ohio, South Carolina and Virginia are down 8%. Other states have more modest decreases, based on their history of losses.
NCGA commends USDA's progress on crop insurance rate reforms
The National Corn Growers Association voiced support for USDA's announcement that rate adjustments will be made to crop insurance premiums over the next two crop years. "Crop insurance rating reforms have been a priority for our members for many years," said NCGA president Pam Johnson, a northeast Iowa farmer. "NCGA feels the Risk Management Agency's announcement represents real reform in decreasing the widening gap between the loss ratio for corn and the premiums charged to growers for policy coverage."
USDA's Risk Management Agency stated in its announcement that an independent and peer reviewed study recommended more weight be given to recent years, rather than the current approach of giving equal weight to all years back to 1975. This will help provide greater predictability for farmers and for crop insurance providers, says Johnson. The agency has said it will continue reviews to provide the best rates that most accurately reflect the risk of growing a crop in an area, and provide the most affordable crop insurance possible for farmers. "The rate adjustments made for the 2012 crop year were a great first step and we are pleased to see the RMA following through with additional modifications," Johnson says. "Corn farmers have historically paid more than their fair share of crop insurance premiums and we are pleased to see USDA moving forward with the proper changes."