Taxpayers Are Funding Crop Insurance ‘Bonanza’ for Private Companies, Report Says

The Land Stewardship Project says farmers are working with “a torn safety net,”while private insurance companies get guaranteed fees and off-load risk to the government.

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A Minnesota farm group says that the federal crop insurance, the nation’s largest “safety net” program for farmers, is a profit bonanza for private insurance companies. Farmers, taxpayers and rural environmental quality are paying the price.

“I appreciate crop insurance. It does make a risky business less risky,” said Randy Krzmarzick, a crop farmer from Sleepy Eye, Minnesota. “But crop insurance is not subject to any limits. The largest recipients have received over a million dollars in subsidies. This comes at a time when a lot of good programs are being slashed in Washington.”

Krzmarzick, along with other farmer members of the Land Stewardship Project (LSP), rallied outside the NAU Country Insurance office complex earlier this week. The farmers announced the release of their report, “Crop Insurance: A Torn Safety Net.” It says the program is rife with taxpayer-funded support for private insurance corporations, benefits that favor the wealthiest farmers and support for farming practices that pollute the land and water in rural communities.

Their research, based on public data from the Government Accounting Office, documents that crop insurance company profits have risen to a 35 percent return-on-investment in the past few years. “Comparing those profits with the returns for farmers, which has been negative for a number of years now, that’s a big concern,” said Tom Nussmeier, a farmer from La Sueur, Minnesota.

*2017 & 2018 forecasts. Source: USDA, Economic Research Service and National AgriculturalStatistics Service, 2013-16 Agricultural Resource Management Survey. Data as of Feb. 7, 2018.

The report documents how the 15 USDA-approved private crop insurance companies, some of them owned by foreign entities, capitalize on the public-private partnership agreements with the agency to limit their risk while earning growing profits. Crop insurers can shift riskier policies to the USDA, earn guaranteed fees for their administrative costs and are guaranteed a minimum return on investment for issuing the policies. Crop insurance rules are dictated by the federal farm bill, which is currently being re-negotiated in Congress.

NAU Country was the site of the action and report release because of the company’s role in successfully fending off calls for reforming the industry. NAU, the nation’s 3rd leading crop insurance company, was so profitable because of the rigged system that it was acquired by Australia’s largest insurance firm, QBE, in 2010 for $565 million.

The report explains that, “In 2012, when then President Barack Obama proposed reforms to crop insurance that would have saved the federal government billions, QBE worked to defend the program that had generated so much of its profit. James Deal, the founder of NAU, was paid $260,210 by QBE for lobbying services in 2012 and is credited with successfully preventing QBE’s interests from being impacted by insurance reform proposals.”

In addition to rising profits for the private crop insurance industry, the farm group documents how the current structure of crop insurance impacts rural soil and water quality, as well as wildlife habitat. That’s because marginal land, more sensitive to soil erosion and fertilizer runoff, is brought into row crop production with the backing of insurance as a risk management tool.

At the same time, many conservation practices that build soil health, such as using cover crops and crop rotations, are not allowed by current crop insurance policies.

LSP, along with other allied farm and conservation organizations, is hoping for significant reforms to the crop insurance system as an outcome of the current farm bill reauthorization process. They are working closely with Representative Rick Nolan (D-MN) to pass the proposed “Crop Insurance Modernization Act of 2018.” The bill would:

  • Expand access to insurance premium discounts for beginning farmers.
  • Revise cover crop termination guidelines, which will allow more farmers to utilize cover crops to build soil health.
  • Create a pilot program to study the effects of providing premium subsidy enhancements to farmers engaged in advanced conservation activities.
  • Strengthen conservation compliance spot checks conducted by the USDA.
  • Fix a loophole that currently allows farmers to transfer historical yield data to lower quality land.

In addition to the conservation impacts of changing the crop insurance system, “we’d like to see an insurance subsidy premium limit, just like the limits we see to other commodity payments. My farm is limited to $40,000 per year in conservation payments (the Conservation Stewardship Program). The reforms we’d like to see are consistent with other farm support programs,” Nussmeier said.

 

Topics: Ag and Trade
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