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PIA Members Express Concerns About PRPs

Over the past several weeks, PIA National has been involved in the discussions on the future of the Risk Management Agency 's Premium Reduction...
May 1, 2005

Agents Meet With USDA-RMA During PIA Legislative Summit

By Kellie Bray
Senior Director of Political Affairs
PIA National

Over the past several weeks, PIA National has been involved in the discussions on the future of the Risk Management Agency 's Premium Reduction Plans (PRPs) for crop insurance.

Currently, only one company is approved to offer a PRP.  Last November, the Federal Crop Insurance Corporation (FCIC) passed a resolution to suspend all other new PRPs until the current rulemaking process can be completed.

The main concerns regarding PRPs include the potential for PRP providers to "cherry pick" large farmers and leave minority and small farmers behind as well as the potential to be able to offer a lower price to farmers simply by cutting agents' commissions.

PIA National has held face-to-face meetings with PIA members and RMA leadership, submitted official comments to RMA, coordinated grassroots alerts and attended Capitol Hill hearings. In addition, PIA affiliates also submitted comments to RMA and sent out grassroots alerts.

PIA Meeting at RMA

On April 8, a group of 17 PIA members and staff met with RMA Administrator Ross Davidson and RMA officials Craig Witt, Tim Hoffman and Tim Witt in Washington, D.C.  The group included PIA members from North Dakota, Minnesota, Nebraska, and Kentucky.  One of the first items of discussion was our concern over PRPs.  RMA staff said they could not make any specific comments on the program at that time since the official comment period was still open through April 25.

In addition to discussing PRPs, the group also talked about concerns with the Standard Reinsurance Agreement (SRA) "conflict of interest" definitions, the role of agents in the claims process, and issues regarding burley tobacco.

Grassroots Efforts

PIA National submitted official comments to RMA by the April 25 deadline outlining our top concerns.  These concerns include:

  • PIA National realizes that the Risk Management Agency does not have the resources currently available to properly police any unfair discrimination against farmers.  We would like to see an enforcement mechanism put into place to regulate this problem.
  • Insurers participating in the PRP pass on "efficiencies" to farmers in the form of reduced premiums by demonstrating reduced administrative and operating (A&O) expenses.  For this reason there is a great incentive to consolidate agents or use the Internet for sales and servicing. This is not in the best interest of any of America's farmers, large or small.
  • There are few agents who sell crop insurance exclusively.  With the increasing complexities of the program and the potential inability to absorb reductions in commissions, agents may be forced out of servicing crop insurance or worse, be put out of business completely.
  • As more agents leave the marketplace, there is less competition in the marketplace and ultimately, the farmer loses by being forced to accept less service. It also creates a situation in which premium increases - rather than decreases - are more likely, because there is less competition.

House Hearing

On Wednesday, May 4, the Subcommittee on General Farm Commodities and Risk Management held a hearing to review the federal crop insurance system.  Two panels of witnesses addressed specific concerns regarding the Premium Reduction Program.

Witnesses included RMA Administrator Ross Davidson and Chief Economist Keith Collins on the first panel and representatives of crop insurance associations, agent groups and the Chief Executive Officer of Crop 1 Insurance - the only current PRP provider -comprising the second panel.

During the question and answer period following the testimony of the second panel, it was requested by the subcommittee that an impartial third party evaluate the PRP process to ensure that the program is operating as intended, and that no adverse selection is taking place.

For generations, America's farmers have relied on the expertise of their crop insurance agents to help them insure their agricultural operations and manage their complex risks. As professional agents, our members are best equipped to provide the highest quality sales and service to farmers.

When America's farmers need crop insurance, they turn to their PIA agents.

Kellie Bray is Senior Director of Political Affairs for PIA National.

PIA Connection

This article originally appeared in the May 2005 PIA Connection.

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