An often disastrous early growing season means crop insurance is paramount for many U.S. producers. With many of their farming constituents facing ruinous growing conditions, members of the House Subcommittee on General Farm Commodities and Risk Management put crop insurance center-stage during a Friday morning hearing.

Testifying before the subcommittee, William J. Murphy, Administrator of USDA’s Risk Management Agency (RMA),was peppered with questions regarding ongoing floods, drought, coverage levels and program intricacies. A 30-year veteran of crop insurance programs, Murphy told the subcommittee he’d never “seen anything like” the widespread 2011 disasters.

He also pointed out how crop insurance has spread through U.S. agriculture. “Fewer than 100 million acres of farmland were insured under the program in 1994. Today, over 250 million acres of farm and ranch lands are covered by federal crop insurance, for an overall participation rate exceeding 80 percent for the major crops.

“As the amount of insured acreage has increased, so too has the liability, or value of the insurance in force. In 1994, program liability was less than $14 billion. Industry estimates suggest 2011 program liability could exceed $100 billion.”

Other highlights of Murphy’s testimony (see here for his unabridged testimony) included:

  • RMA “partners.”

“There is a unique and successful relationship between RMA and our private partners, the 15 approved insurance companies, and the agents who deal directly with farmers and ranchers. Producers purchase federal crop or livestock insurance from insurance agents operating in their communities, who sell the insurance on behalf of the 15 insurance companies.

“This relationship leverages the respective strengths of the public and private sectors. The insurance companies provide federal crop insurance under reinsurance agreements with the Federal Crop Insurance Corporation (FCIC), administered by RMA.”

  • 2011 losses.

“My staff and I are closely watching all developments to insure that producers get the protection provided by their policies. The Prevented Planting coverage available in most policies has been of extreme importance this year in areas where standing water or waterlogged soil prevented producers from getting into their fields until past the time for planting.

“In drought-stricken areas, the compensation provided for reduced yields will be extremely important in helping producers to survive. In years like this one, the value of this critical safety net is made clear.”

  • Standard Reinsurance Agreement.

“On June 10, 2010, USDA released the new reinsurance agreement and announced that $6 billion in savings were created through this action. Two-thirds of this savings went toward paying down the Federal deficit, and the remaining third was used to support high priority risk management and conservation programs. By containing program costs, these changes also ensure the sustainability of the crop insurance program for America's farmers and ranchers for years to come.”

In late-hearing testimony, responding to a query by Ohio Rep. Jean Schmidt, Murphy expanded on the risk-sharing balance between the government and insurance companies. “The lower the loss ratio, the lower the claims, the more the companies assume the risk. The higher it gets, the more the government assumes risk. That’s why the government is involved in the program – if there wasn’t a need, we wouldn’t be here.”

The insurance companies “are concerned such a systemic loss could occur in the Midwest and High Plains that they wouldn’t be able to address it. That’s why (the government) is here and where we put the majority of our protection: the higher levels … above a $1.20 loss ratio.”  

  • Identifying “questionable behavior.”

“The 2002 farm bill required the Secretary of Agriculture to develop a Comprehensive Information Management System (CIMS) to be used by the Farm Service Agency (FSA) and RMA in the farm programs they administer.”

This has led to “a spot-check list of producers engaging in questionable behaviors which is provided to FSA for further investigation. With the assistance of FSA offices, RMA and the insurance companies conduct growing season spot checks to ensure that claims for losses are legitimate.

“These efforts have been highly successful as the cumulative cost avoidance from data mining and related activities from 2001 through 2010 is estimated to be almost $840 million, based on our analysis of the changes in loss experience for those people placed on the spot-check list. … We believe the targeted company reviews enabled by data mining will be more effective and efficient than the random review process of previous years.”