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Crop Insurance Agents React To FSA Employees Proposal
Agency personnel that they could take over one or more of the functions now carried out by the private crop insur- ance sector and reduce government costs by as much as $2.5 billion a year – we summarized this proposal in the previous column. In a position paper posted on their website, AACI argues that, with regard to Federal crop insur- ance, the division of labor between the private and public sectors should re- main
T as it currently is (
http://www.cropinsurers.com/AACI%
he American Association of Crop In- surers (AACI) was quick to respond to the proposal by Farm Service
202012%20Farm%20Bill%20Position.p df). Quotations in the following para- graphs come from that document. Their first argument is that they have
already taken on $12 billion in cuts over the ten year period, beginning with the 2011 crop year. They point out that “Congress…made about $6 billion in cuts for program delivery as part of the 2008 Farm Bill.” Then last year as part of the every five-year renegotia- tion of the Standard Reinsurance Agreement (SRA), they were cut an additional $6 billion, with $4 billion going to deficit reduction and the bal- ance funding other activities. AACI contends that “any further
budget cuts
before the pri- vate sector de- livery industry has a chance to absorb these $12 billion in reductions will risk undermin- ing the stability and viability of the crop insurance program.” In addition, they assert “in five years, the neces- sary data may be available to com- plete a thorough analysis of the impact of the 2008 Farm Bill and the 2011 SRA.” “Secondly, AACI urges Congress to
Research Assistant Professor at APAC, University of Tennessee
DR. HARWOOD D. SCHAFFER
reject all proposals for expanding the role of government and reducing pri- vate sector jobs by returning any part of the Federal crop insurance pro- gram’s delivery to any government agency and, thereby, continue the current public/private partnership, which is functioning well.” ACCI’s big argument is that “private companies and agencies have the built-in incen- tive and ingenuity to provide the serv- ice farmers, ranchers and growers need and depend on in making risk management decisions in using the Federal crop insurance program.” They point to a Risk Management
Agency (RMA) study that shows that the error rate in insurance payments over the last seven years has been “around 5 percent” compared to a rate of 15 to 20 percent for the private Property and Casualty Insurance In- dustry. ACCI also asserts that historically
“the government’s experience in sell- ing and servicing crop insurance poli- cies has not compared very well at all to that of the private sector.” When given a choice they argue that farm- ers have preferred the services pro- vided by private industry over those provided by government employees. To back up their argument they point to a “1989 Arthur Andersen study [that the] reported government cost was more than twice that of the private sector.” The issue of training FSA employees to
take over the selling and servicing activ- ities would cost millions of dollars in ad- dition to the costs required to set up the “necessary information handling and processing systems” that are needed to make the system work to the benefit of farmers and ranchers. In justifying their rejection of the idea
of a government takeover of the Federal crop insurance program, ACCI points out the importance of crop insurance to the ability of farmers to obtain bank fi- nancing.
CONTINUED ON PAGE 7
∆ Contact Dr. Daryll E. Ray or Dr. Harwood D. Schaffer at the UTʼs Agricultural Policy Analysis Center by calling (865) 974-7407,faxing (865) 974-7298, or emailing
dray@utk.edu or
hdschaffer@utk.edu For more info, visit:
www.agpolicy.org
DR. DARYLL E. RAY Agricultural Economist University of Tennessee
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