THE U.S. Department of Agriculture's Risk Management Agency (RMA) took steps to make crop insurance premiums more closely reflect the risk associated with the crop -- a move welcomed by crop producers.
RMA announced Nov. 27 that it will continue to update crop insurance premiums for corn, soybeans, grain sorghum, spring wheat, rice and cotton. Revised rates for corn and soybeans were offered in most counties in 2012. Revised rates for grain sorghum, spring wheat, rice and cotton will be available in 2013.
In a statement, the Illinois Corn Growers Assn. (ICGA) called RMA's move a "reasonable step in what has been a farmer-driven effort to enhance the program to function in a more equitable fashion."
USDA pays 62 cents of every $1 in premiums, which totaled $11 billion this year. Premiums paid by farmers are expected to drop, on average, by 1%, while the impact on crop insurers is expected to be minimal.
Last year, RMA said it would update its crop insurance premiums based on findings of an independent study and peer-review process. In general, the study recommended that RMA give more weight to recent years rather than the current approach of giving equal weight to all years dating back to 1975. This should help provide greater predictability for producers and providers.
The agency's rating system reforms, announced one year ago, kicked off incremental changes to rectify the imbalanced system. Rerating allows for moving the crop-to-loss ratio toward the level intended by Congress, ICGA said.
"This effort assures that appropriate and fair costs are charged for crop insurance," RMA administrator William J. Murphy said.
The revised premium rates for 2012 and 2013 incorporate a number of improvements as a normal course of business. Examples include:
* Integrating weather data into the premium rating process so that losses from rare weather events receive an appropriate weight in the overall experience used to set rates.
* Refining premium loads for prevented planting and replanting payments. Previously, these loads were determined at a state or regional level. Loads are now to be determined based on weather districts within each state, reducing the degree to which excess losses in one part of the state unduly influence premium rates in another part of the state.
* Placing more weight on loss experience from recent years, which better reflects today's agronomics and crop insurance program.
The Corn Belt seems to fare the best in the rerates. Corn, cotton, soybean, rice, spring wheat and grain sorghum premiums will decrease in core growing states but will increase in outlying states.
Overall, nationwide premiums for soybeans will fall by 6%. Rates will drop by 9% in Illinois and Iowa, the top growing states.
Corn premiums will rise by more than 10% in the northern Plains but will drop as much as 6% in the heart of the Corn Belt, USDA reported.
Consistent with updates announced in 2011, RMA will continue to phase in the new rates so as to limit year-to-year premium changes and potential increases due to losses experienced in 2012 as a result of drought, ensuring greater stability of premiums and more predictable rates, the agency said.
"This rerate demonstrates that farmers and the government can work together to tackle issues, make a plan and implement change. It shows the kind of budgetary awareness and responsibility that many are hoping to see from Washington (D.C.)," noted Jeff Scates, a family farmer from Shawneetown, Ill., and immediate past-president of ICGA.
USDA's crop insurance program currently insures 264 million acres, 1.14 million policies and $110 billion worth of liability on about 500,000 farms.