Crop Insurance Update Barbara M. Leach Associate Administrator

Transcription

1 United States Department of Agriculture Risk Management Agency Crop Insurance Update Barbara M. Leach Associate Administrator 2010 Conferencia International La gestion de riesgos y crisis en el seguro agrario 2010/03/15

2 The Birth of U.S. Federal Crop Insurance The Agricultural Adjustment Act of 1938 It is the purpose of this title to promote the national welfare by improving the economic stability of agriculture through a sound system of crop insurance and providing the means for research and experience helpful in devising and establishing such insurance. Federal Crop Insurance Act Amendments 1980, 1994 and Farm Bill Reduce program costs Offer more products 2

3 Scope of U.S. Insurance Program Crops -- available for 128 crops Major Commodities and Specialty Crops Livestock Range of coverage levels (average coverage 65%) Coverage -- Combinations of crops and coverage available Yield Revenue Area or individual farm Asset, e.g., fruit trees, nursery Whole farm 3

4 Coverage Levels (First Coverage Offered in U.S.) Catastrophic (CAT) 50/55 55% of yield 50% of price Buy Up All coverage levels greater than CAT Coverage levels range from 50% of yield and 60% of price to 85% yield and 100% up price 65 percent yield or revenue guarantee most popular Up to 85 percent coverage available for some crops 4

5 Program Growth Participation By Crop 5

6 Program Growth Participation by Insurance Plan 6

7 Business Summary Federal Crop Insurance Program Crop Year 2009 Summary of Business Liability Acres insured Total premium Indemnity* $79.5 Billion 265 Million $8.9 Billion $4.5 Billion Loss ratio* 0.50 *As of February 8,

8 How U.S. Crop Insurance Works Farmers Annual Enrollment Choices Crop Yield Multi-peril Revenue Asset, e.g., fruit trees or nursery Area or Individual Whole Farm Livestock 8

9 How U.S. Crop Insurance Works Premium Level of coverage Actual Production History (APH) Price forecasts Futures contracts to sell crops Indemnity Based on percent of loss Yield and/or revenue at end of season is below guarantee Index is triggered 9

10 Multi-peril Coverage for Crops Multi-peril policies causes of loss Adverse weather conditions including hail Fire Insects and plant disease but not damage allowed because of insufficient or improper application of pest control measure or improper application of disease control measures Wildlife Earthquake Volcanic eruption Failure of irrigated water supply I 10

11 Revenue Products Smoothing markets Four general categories Individual yield/futures market prices Individual historical revenue Indexed yield/futures market prices Tax entity gross revenue Protect when the price goes down (within the annual crop year) 11

12 How U.S. Crop Insurance Works Key Functions Underwriting policy design and maintenance Program rules and regulations Premium rates and crop price elections Data collection, auditing, and management Product Development Payments for portion of Approved Insurance Providers(AIP) losses and Administrative and Operating (A&O) expenses Compliance Auditing and oversight for finances and market behavior 12

13 How Crop Insurance Is Delivered Private Sector Insurance companies: Sell and service RMA/FCIC approved policies Private Competition most effective way to reach farmers Insurance Agents compensated on a sales commission schedule decided by companies Loss Adjustors trained and paid by private sector RMA: Reimburses companies for Administration & Operating (A& O) costs based on Standard Reinsurance Agreement (SRA) RMA & Companies: Currently renegotiating SRA RMA Goals for Renegotiation: Lower Cost and Higher Efficiency 13

14 A Look Toward The Future Simplification COMBO Common Crop Insurance Policy Goal: to combine price and yield protection Most impacted crops Coarse grains Small grains Cotton Rice Canola/rapeseed Sunflowers 14

15 Preview -- Future Developments Innovation GIS GPS Remote Sensing Combine Yield Monitors Permanent land descriptors with a permanent production history attached to the land 15

16 Preview Concepts For the Future Replace transitional yields with APH Goal: To individualize transitional yields to improve Actuarial soundness Program integrity Producer equity Tie yield increases to technological advances to production practices Goal: To address yield drag 16

17 Continuing Toward The Future Continuing Goals Program Simplification Efficiency Integrity 17

18 Summary Why Does the United States Support Crop Insurance? Lessons learned from the Dust Bowl of the 1930s Stable Food Supply Benefits everyone Farmers do not have the resources Alleviates poverty in rural America Rural America is the poorest area of the country Now program becomes more accurate Loss ratio equals ½ of 1% 18

19 Thank You Barbara M. Leach, Associate Administrator Federal Crop Insurance Corporation 1400 Independence Ave., SW USDA South Building, Room 6098-S Washington, DC United States of America (202)