CROP INSURANCE TODAY · 2012-07-05 · played a significant role in the growth of the program....

TODAYCROPINSURANCE

PUBLICATION OF

NATIONAL CROP

INSURANCE

SERVICES®

VOL. 41, NO. 1

FEBRUARY 2008

ENSURINGAdjuster Proficiency

PROPOSED CUTS Threaten Reinsurance

OF 2007DROUGHT

Impacts

TODAYPRESIDENT’S MESSAGE

NCIS® EXECUTIVE COMMITTEERandy Tronnes, Chairman

Steve Harms, Vice ChairmanSteve Rutledge, Second Vice Chairman

NCIS® MANAGEMENTRobert W. Parkerson, President

Thomas P. Zacharias, Executive Vice PresidentP. John Owen, General Counsel

James M. Crist, ControllerLaurence M. Crane, Vice President

Dave Hall, Vice PresidentFrank F. Schnapp, Vice President

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Laurie Langstraat, Editor

TODAY IS PROVIDED AS A SERVICE OF NATIONAL CROP INSURANCE SERVICES®

TO EDUCATE READERS ABOUT THE RISK MANAGEMENT TOOLS PRODUCERS USE

TO PROTECT THEMSELVES FROM THE RISKS ASSOCIATED WITH PRODUCTION AGRICULTURE.

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Continued on page 30

CROP INSURANCE TODAY 1

2007/2008

By Bob Parkerson, President, NCIS and Randy Tronnes,Chairman of the Board, NCIS,

Rural Community Insurance Services

Pessimistic/Optimistic

Normally this space is reserved for bringing everyone up-to-date with NCIS andIndustry accomplishments for the past year. But as we sit here today, it seems as if 2007has blended into 2008 with a continuous fluid motion. There is a Farm Bill that seems togo on and on without an ending, and there are endless discussions on the effects of cropinsurance and the need to protect production agriculture. While the House and Senatepassed their different versions of a 2007 Farm Bill, we have yet to have a conferencecommittee to work out the differences of the two congressional versions. And we havethe Administrative requesting more policy reform than either version passed by eitherchamber. Both the White House and the Secretary of Agriculture have been adamant intheir request for stronger reform.

While this story of the continuing Farm Bill goes on and on, Chairman of the NCISBoard of Directors, Randy Tronnes, and I would like to inform you on the past and cur-rent issues for 2007 and 2008.

MPCIStaff and many of the NCIS standing committees spent countless hours working with

RMA on the eWA and Combo Policy projects. Unfortunately, late in the year, RMA wasforced to suspend the development and implementation of the new business processingsystem (eWA), and thus postponing the release of the Combo Policy indefinitely. The President’s 2008 fiscal year budget request included a participation fee to fund thisproject, but RMA was unable to obtain the necessary legislation or appropriations fromCongress. RMA will retain the documentation on work to date in the event that fundingcan be obtained for the projects in the future.

Once again the policy and procedure side of the MPCI world proved to be extremelyactive in 2007. Numerous events brought to light opportunities for NCIS and its membercompanies to work together with RMA in issue resolution with the goal of ensuring

ON THE COVER

TODAYCROPINSURANCE

Table of Contents

An ice storm in mid-Decemberbrought some beauty and much needed

moisture to northeastern Kansas.

15

32

4

VOL. 41, NO. 1

FEBRUARY 2008

TODAYCROPINSURANCE

PUBLICATION OF

NATIONAL CROP

INSURANCE

SERVICES®

VOL. 41, NO. 1

NOVEMBER 2007

1 2007/2008 Pessimistic/Optimistic

4 Proposed Cuts Threaten Reinsurer Support

7 Economic Impacts of the 2007 Drought

11 Ensuring Adjuster Proficiency

15 Sustainable Agriculture Practices

18 Practical Application of Ethical Principles

20 Crop Insurance Workshops have Major Impact

22 Crop Insurance Plan Comparison

26 NCIS Services Spotlight

28 Focus on NCIS Standing Committees

32 Dr. Stu Duncan

34 2007 MPCI and Crop-Hail Reports

36 Insurable Crops: Locations and Plans

43 2008 Grant Thornton Report

TODAYcrop insurance

4 FEBRUARY 08

By Jim Christianson, John B. Collins Associates

The federal crop insurance program is arare example of success in public-privatepartnerships, providing a record number ofthe nation’s farmers with reliable protec-tion against agricultural risks. The successof the program, however, may prove to beits undoing. In developing a new FarmBill, some members of Congress are eyeingcrop insurance as a potential source of rev-enue for other programs and have soughtto substantially reduce its funding.

An unrecognized danger is that thesebudgetary cuts will prove counterproduc-tive in the long run, driving away the rein-surance companies that have played a cru-cial role in the program’s growth by put-ting substantial amounts of their own cap-ital at risk. Any pull back by reinsurerswould have serious repercussions in themarket and, in the end, would leave thegovernment, and taxpayers, to shoulder amuch greater share of the cost of futurecatastrophes that hit the nation’s farmers.

The crop insurance program has grownsignificantly, particularly in the pastdecade, largely due to the development ofnew insurance products combined withhigher commodity prices and higher feder-al premium subsidies. Gross premiums

have increased from approximately $1.8billion in 1998 to $6.5 billion in 2007.During this time of substantial growth, thereinsurance capacity needs of crop insurershave grown as well. As we sit here today,the crop insurance industry has successful-ly garnered the support and capacity fromthe worldwide reinsurance community onthis highly specialized and complex classof business. This has created a healthy,financially stable crop insurance safety netfor America’s farmers.

A Significant Asset forFarmers

Crop insurance has grown from a diffi-cult-to-underwrite line of insurance to asignificant factor in U.S. agriculture. AsCongress weighs competing budgetarydemands in the proposed Farm Bill, theprogram is viewed as a source of funds forother programs. Lawmakers in both theHouse and Senate have proposed sharplyreducing the money the government paysprivate insurers to deliver the program. Inaddition, proposals have been introducedfor an Average Crop Revenue plan thatcould significantly lessen demand for rev-enue insurance by guaranteeing paymentsto farmers should revenue fall beneath arunning three-year average.

Taken together, these changes not onlywould reverse the years of progress madein developing the federal crop insuranceprogram, which was instituted as a meansof weaning farmers from governmentbailouts, they also would drive away thereinsurers who were convinced to enterthe market only after years of concerted

effort. In the early days of the program,instituted in 1980-81, there was only modest support from reinsurers. As theprogram grew, particularly in the 1990s,crop insurers found themselves in need ofreinsurance capacity. The ability to attractprivate capital from reinsurers, in turn, hasplayed a significant role in the growth ofthe program.

Today, reinsurers from around theworld find the U.S. crop insurance marketto be a welcome addition to their portfo-lios. Perhaps most importantly, crop insur-ance is a way for U.S. and internationalreinsurers to diversify their catastropheexposures. Crop insurance exposures donot correlate to the very significant proper-ty exposures that reinsurers face along thecountry’s coasts, such as wind in theNortheast, hurricanes in the Southeast andearthquakes in California. Those traditionalexposures can be very costly for reinsurers,who racked up roughly $42 billion in loss-es for the 2004 and 2005 hurricane seasons.

The participation of reinsurers in thecrop insurance market, however, cameonly after development of sophisticatedmodeling techniques, and after significantefforts to allay concerns about the politicalrisk inherent in becoming involved in agovernment partnership. One major hurdlewas the lack of sophisticated analyticaltools and modeling techniques to allowreinsurers to assess the risks involved inthe crop insurance market. The introduc-tion of probabilistic crop modeling tech-niques—in which Collins played a leadingrole—was a key factor in drawing reinsur-ers into the market.

PROPOSED CUTSThreaten Reinsurer Support

Crop insurance has grown

from a difficult-to-underwrite

line of insurance to a

significant factor in U.S.

agriculture.

Political ContinuityCrucial for Reinsurers

While these modeling techniques haveprovided a greater comfort level for rein-surers when it comes to natural exposures,political risk remains far less predictable.The calls for significant changes to the cropinsurance in this year’s Farm Bill haveheightened reinsurers’ concerns aboutpolitical risk. The possibility of sudden,politically-driven changes introduces ahigh degree of uncertainty for reinsurers,who would be wary of returning to themarket later should Congress enact thecurrent proposed cuts, and then laterchange its mind and try, once again, toemphasize crop insurance.

Among the recent Farm Bill proposalsare major potential changes to crop insur-ance. These would significantly decreasethe need for private reinsurers via increas-es to the mandatory “quota share,” whilealso sharply reducing the expense reim-bursement, or administrative and operating(A&O) subsidy, that is paid to insurers foradministrative and operating programdelivery expenses, in lieu of these expens-es being loaded into farmers’ premiums.Some proposals call for raising the govern-ment’s quota share to as much as 30 per-cent from the current level of five percent.This six-fold increase in the government’sshare of insurers’ risk would likely drivecarriers out of the business as the potentialto earn a profit is greatly reduced and itwould significantly decrease the amount ofmoney that the remaining carriers haveavailable to purchase reinsurance.

Meanwhile, proposals call for cuttingthe A&O subsidy by as much as a third, to15 percent from around 21 percent cur-rently. It is worth remembering that in theearly years of this program, some 60 com-panies were active in the market. That hassince fallen to 16, due in large part toprior reductions in the A&O subsidy.Those insurers that have remained havehad to continually upgrade their systemsto operate efficiently within the scope ofthe program.

To cope with the proposed cuts, insur-ers could take a variety of actions thatwould either increase their reinsurancecosts or push reinsurers away from the


market. For example, carriers may decideto restrict coverage to certain geographicalareas, making it more likely that a singlecatastrophe could cause extensive losses totheir overall portfolio. Such actions couldlead reinsurers to raise their rates, or pullback from the market, because geographicdiversification of risk has been a veryimportant attraction. During the 2004 and2005 hurricane seasons, for instance,Florida suffered major crop losses, butgains in other states minimized the impacton insurers’ overall portfolios.

The institution of the Average CropRevenue plan, which would guaranteepayments to farmers based on their per-acre revenues over the preceding threeyears, would introduce another concernfor reinsurers. These payments wouldreduce the incentive for many farmers toparticipate in the crop revenue insuranceprogram, thereby taking away or reducingpremiums from the market. Through theprocess of adverse selection, crop insurerscould find themselves with only the mosthigh-risk insureds, reducing the attractionfor reinsurers.

Replacing Success withUnpredictability

Other factors that reinsurers have toconsider are political risk and the moralhazard associated with ad hoc disasterbailouts. The current battle over the FarmBill, which, as of this writing, is viewed aslikely to stretch into 2008, only serves toheighten the perceived political risk.Reinsurers may be leery in the future aboutcommitting capital to a market where theground rules could be radically changedby Congress on a periodic basis. Indeed,the history of the crop insurance programhas been marked by constant political bat-tles as well as a continual struggle betweenthe goal of establishing a viable crop insur-ance market and the political expediencyof providing one-off bailouts.

As farmers become more convincedthat Congress will bail them out whentimes turn bad, they have less incentive tobuy crop insurance. To combat this ten-dency, the government enacted rules in the1990s that virtually required farmers to pur-chase crop insurance in order to remaineligible for other agriculture-related farmsubsidies. This brought about a surge infarmer participation as well as significantpremium growth. Like any insurance mar-ket, a healthy crop insurance programdepends on spreading the risk over as

large a pool as possible. Today, farmer par-ticipation is at an all-time high, an impor-tant reason for the program’s success.

This success, however, has put the pro-gram in jeopardy. Faced with thorny budg-etary issues, some Washington legislatorssee cuts in crop insurance as a convenientway to fund other initiatives.

Such a short-sighted approach couldcause irreparable harm to a program thathas served America’s farms and rural com-munities very well indeed. It also wouldcause unintended consequences in theglobal reinsurance market, which hascome to play a key role in helping U.S.agriculture. In the long run, such policychanges would only drive away reinsurers,increasing costs for government and, in theend, for the nation’s taxpayers.

Jim Christianson is Senior Vice Presidentand Leader of the Agricultural Practice atJohn B. Collins Associates Inc. Mr.Christianson has more than two decades ofexperience in reinsurance for agriculture aswell as other property-casualty business.Collins is the world's leading broker of agri-cultural reinsurance. Each year, Collinsintroduces more than $2 billion in cropinsurance risk to leading global reinsurancecompanies—approximately 70 percent ofthe U.S. crop reinsurance market.

As farmers become more

convinced that Congress will

bail them out when times

turn bad, they have less

incentive to buy crop

insurance. To combat this

tendency, the government

enacted rules in the 1990s

that virtually required farmers

to purchase crop insurance

in order to remain eligible

for other agriculture-related

farm subsidies.

6 FEBRUARY 08


A multi-year drought receded in theMidwest in 2007, but the Southeastendured a second very intense year ofdrought, and drought hit SouthernCalifornia hard, contributing to widespreadwildfires as well as agricultural losses.

A dry spell that started in the Southeast18 to 24 months ago turned into a scorch-ing drought during the spring and summergrowing season. As of mid-December,many locations were on track to set all-time records for least precipitation record-ed in a year. Heat was also an importantfactor in the drought. Many weather sta-tions will record 2007 as one of the 10hottest years on record. As of year-end,large areas of Alabama, Georgia andTennessee were rated D4 (exceptionaldrought) on the U.S. Drought Monitormap, indicating the highest level ofdrought severity, and the Carolinas werealmost completely in D3 (severe drought)or D4. The impacts of the drought weredevastating, not only damaging agricultur-al production, but also depressing local

businesses and industries such as landscap-ing, recreation and tourism, and public util-ities. Residential water use has beenrestricted as well. Many drought-strickenareas have imposed voluntary and manda-tory bans on outdoor water use andrequested voluntary indoor water conser-vation. With the La Niña in full force andnot expected to go away until late spring orearly summer, the conditions in the

Southeast are not expected to improve dur-ing the winter months, and could actuallyworsen in many locations, such as Floridaand Georgia.

One of the challenges in reportingdrought’s economic impacts is that eco-nomic data tends to be aggregated intostate and national summaries that don’treflect the extreme hardship faced by indi-vidual agricultural producers. Drought isone of many factors that influence priceson the global commodity market.

Grain ProductionThe good news is that farmers in major

grain-producing states are expecting thehighest cash receipts ever from their 2007crops, given record-high grain prices andnear-record production. The boom of corn-based ethanol production has boosted theprice of corn since 2006. Additionally,Australian drought in 2006 led to a short-age of wheat in the international market,which drove grain prices up further. Figure1 plots the monthly prices of corn and

TODAYcrop insurance

By Ya Ding, Agricultural Economist, and Kelly Helm Smith, Science Communicator, with contributions from Brian Fuchs, Climatologist, National Drought Mitigation Center

One of the challenges

in reporting drought’s

economic impacts is that

economic data tends to be

aggregated into state and

national summaries that

don’t reflect the extreme

hardship faced by individual

agricultural producers.

2007 DROUGHTEconomic Impacts

8 FEBRUARY 08

wheat in the United States. The nationalaverage price of corn was up 20 percentand wheat, 70 percent, from the precedingyear, as of November.

In the drought-stricken Southeast states,grain prices rose even higher. TheNovember corn price was higher than thenational average by 11 percent in NorthCarolina and by 10 percent in Tennessee.Although higher prices helped offset part ofthe yield loss, many local farmers still facedsignificant economic losses. The averagecorn yield was down from last year by 32percent in North Carolina and by 15 per-cent in Tennessee. Drought also causeddamages to other field crops such as soy-beans, cotton, and hay. Comparing prelim-inary data for 2007 with historic averages,the National Drought Mitigation Center esti-mates that losses to major field crops,including corn, wheat, soybeans, cotton,and hay, totaled more than $1.3 billion forthe Southeast. The region included in theestimate covers Alabama, Florida, Georgia,Kentucky, Mississippi, North Carolina,South Carolina, Tennessee, Virginia andWest Virginia. These data are from theNational Agricultural Statistics Service of theU.S. Department of Agriculture.

Citrus ProductionCitrus crops have also been affected by

the drought. Florida and California are thenation’s top two citrus states, accountingrespectively for 70 percent and 25 percentof the 10.3-million-ton U.S. citrus produc-tion in 2007, according to NASS reports.California’s deep freeze early this year andthe ongoing drought in southern Californiaand Florida reduced the 2006-2007 citruscrop yield by 13 percent, compared withthe previous season. Florida’s orange pro-duction was down 13 percent andCalifornia’s was down 26 percent from thelast season. Accordingly, the price of freshoranges was up 40 percent in Californiaand 90 percent in Florida. Higher priceshelped offset yield losses. The value of thenational crop came to $2.95 billion, upeight percent from the previous season.

Livestock ProductionThe cattle industry was stressed during

the drought because of the shortage of

feed. To take advantage of high cropprices, farmers have planted more acres incorn and wheat, but less in hay and otherfeed crops, which led to a hay shortage.Making matters worse, the heat and dryspell in drought-affected areas witheredpastures and rangelands, causing poorgrass growth. According to a USDA cropprogress report on October 28, 93 percentof pastures in California were rated in poorto very poor condition, as were 57 percentin Georgia, 86 percent in North Carolinaand 63 percent in Kentucky. Nationwide,32 percent of pastures were rated in poorto very poor condition. Poor pasture condi-tions forced producers to pay high pricesfor supplement feed. The increasingdemand intensified the hay shortage, lead-ing to soaring hay prices. Figure 2 plots themonthly hay prices from January 2006 toNovember 2007. The November U.S. aver-age hay price was up over 20 percent fromthe previous year.

Farmers who could not afford expen-sive feed were forced to sell off part of theirherd. Losses were incurred as cattle wereput onto the market before they reachedthe most profitable weight. Meanwhile, alarge number of cattle liquidated onto themarket also reduced the cattle price indrought areas. Cheap cattle prices benefit-ed cattle buyers outside the drought areas.

In June and July, northern Alabama hadthe dubious distinction of being the epicen-ter of drought in the Southeast. Southeast

Farm Press reported July 4, “Many inAlabama have begun selling off cattle forfear they won't have enough hay or grainto feed them through the summer andthrough next winter. State livestock auc-tions are seeing a more-than-60-percentincrease in the number of cows or calvessold at auctions. In the exceptional droughtarea, increases are more than 100 percent.With ponds and streams drying up, somefarmers have had to buy water for their cat-tle to drink, and a cow can drink about 30gallons a day.”

Cattle producers in the Southeast nowface challenges finding enough feed fortheir herds for the winter, according to CurtLacy, a livestock economist with theUniversity of Georgia College ofAgricultural and Environmental Sciences.“It's a very precarious situation right now,”he said in an October 11 press release. “Idon’t see how we will not have to liquidatecows due to the lack of hay supplies wehave in the state going into this winter.” Heestimated the 2007 hay harvest would be600,000 to one million tons of hay, com-pared with the two million tons that is pos-sible in a good year, and that cattle produc-ers would end up reducing beef cow herdsby five to ten percent.

Nursery Crops andLandscape Services

Nursery and landscape businesses werefacing big losses from drought. Nursery

Figure 1


crops are normally one of the largest agri-cultural commodities by gross value ofsales in California and many Southeaststates. Out of the national gross sales of$4.65 billion in 2006, California andSoutheast states made up over 60 percent.In 2007, drought prevented the growth ofnew plants and damaged perennials.Given this year’s drought conditions inCalifornia and Southeast, we anticipate sig-nificant reductions of output and sales ofnursery crops, although the USDA has notyet released 2007 figures for this industry.Landscaping businesses had a harsh year.Plant sales were down, plant mortalityincreased, and watering costs increased.Many businesses were forced to close loca-tions, lay off employees, and even file forbankruptcy. The Georgia-based retailer,Pike Nursery, filed for bankruptcy protec-tion due to drought. As the drought is stillgoing on, the effects may not yet be over.Municipal restrictions on outdoor wateringalso play a significant role in this industry.

Recreation and TourismLakeside recreational businesses were

badly hit by the drought, with reservoir lev-els greatly reduced. Recreation was forcedto take a back seat to other competingneeds such as irrigation, hydropower gen-eration, residential water use, and environ-mental water needs. During the drought,many boat docks and lake beaches wereforced to close, leading to big losses for

lakeside business owners and local commu-nities. Although there are many examplesof businesses that have suffered due todrought, dollar figures for drought-relatedlosses to the recreation and tourism indus-try are not readily available. The federalgovernment is currently providing low-interest (four percent) loans to small busi-nesses through the U.S. Small BusinessAdministration, which might help somerecreational businesses recover.

Public UtilitiesThe exceptional drought in the

Southeast affected hydropower generation.Dropping lake levels forced power compa-nies such as the Tennessee Valley Authority(TVA), Duke Energy and others to reduceelectricity generation from cheaphydropower, to substitute electricity gener-ated from more expensive fossil fuels, andto pass costs along to consumers. ANovember 29 TVA press release reportedthat TVA’s hydropower generation was 24percent below normal for fiscal year 2006,31 percent below normal in FY 2007, and66 percent below normal for the fiscal yearthat began October 1. The TVA attributedthe decrease to 33 percent below-normalrunoff reaching reservoirs in 2007 and 46percent below-normal runoff in 2007. AnAugust 27 Duke Energy press release saidhydroelectric power generation was down45 percent for April-June of 2007 comparedwith the previous seven years.

Residential Water UseThe water shortage in the Southeast was

so serious at the end of the year that somecities including metro Atlanta were in dan-ger of running out of water within a fewmonths. Private and municipal wells havegone dry and many locations are continu-ing to watch municipal water suppliesdwindle. This water emergency has trig-gered the highest level of water restrictionsspecified by plans in many drought-strickenareas, limiting both commercial and homewater use. Drought’s effects were no longerlimited to the agriculture sector or ruralareas, but instead, were felt by normallywell-protected urban residents in their dailylives. Urban and rural areas were pittedagainst one another, and municipalities andstates pointed fingers at one another and atthe U.S. Army Corps of Engineers, accusingeach another of not doing enough to con-serve, and of having misplaced priorities.Accordingly, the media coverage of droughtreached a peak of intensity. The Valdosta(GA) Daily Times said in a widely circulat-ed editorial: “[Atlanta] politicians can’t bringthemselves to tell their greedy constituentscomplaining about the low flows in theirtoilets this week that perhaps if they didn’thave six bathrooms, it might ease the situa-tion a bit. That watering your lawn isn’t asimportant as watering crops. Or that theirgreedy overbuilding has taxed their sup-plies of natural resources beyond theircapabilities.”

ConclusionIn 2007, drought’s economic impacts

extended well beyond agricultural sectors,even in the Southeast, which people nor-mally perceive as having plenty of water.The intense drought in a densely populatedpart of the country can and should bringabout permanent changes in the way wehandle drought. Drought affected recre-ation and tourism, and commercial and res-idential water use. It raised questions aboutthe long-term sustainability of currentdevelopment patterns. The need to addressthe likelihood of water shortages in thefuture through policy, legislation anddrought planning is currently difficult toavoid. We hope that decision-makers at alllevels will keep these questions in the fore-front until they have been addressed.

Figure 2 Hay

The private crop insurance industrytakes seriously its responsibility to deliverthe Federal crop insurance program asintended by Congress, with fairness, and inaccordance with all applicable guidelinesand regulations as established and agreedto in the Standard Reinsurance Agreement(SRA). To this end, the SRA establishes spe-cific training requirements for individualsinvolved in the loss adjustment process,including annual training hour require-ments (both classroom and field), andbasic competency testing requirements.The purpose of this article is to address theissue of ensuring that all individuals whoadjust claims on crops reinsured by USDA,as part of the Federal Multiple Peril CropInsurance (MPCI) program, have demon-strated a level of proficiency consistentwith the expectations of the SRA.

One SRA requirement is that individualcrop adjusters comply with the statelicensing requirements in any and allstates where they adjust claims. At facevalue, this requirement appears simple oreasy to comply with, however in practice,in many states it is not. For example, somestates have specific crop insurance

requirements; some have little-to-no cropinsurance specific requirements and relyon the broader Property and Casualty(P&C) license; while other states have nolicensing requirements for crop adjusters.Moreover, the continuing educationrequirements and reciprocity betweenstates lack uniformity and there is no cen-tral database of qualified crop adjusters.

The National Association of InsuranceCommissioners (NAIC) is in the process ofdrafting a model bill for independentadjuster licensing that recognizes cropinsurance as a separate line of business. Ifapproved and accepted by the individualstates, the guidelines in this bill will helpbring uniformity to the expectations ofadjusters working crop claims. This wouldbenefit not only the MPCI program butadjusters of private products as well.

In some states where crop insurance isnot recognized as a major line, the licens-ing exams rarely include crop insuranceand/or include crop questions that are outof date, inaccurate, or irrelevant. Thisoccurs because the Federal program is verydynamic with numerous changes eachyear, as shown in the accompanying tablelisting the major handbook, special provi-sions/actuarial, and mid-year changes. It isa challenge to stay current with thesechanges; even for those intimately involvedin the crop insurance industry.Consequently, it is difficult for state regula-tory personnel to provide and maintainaccurate information on adjuster licensingrequirements. These conditions foster com-pliance problems and hinder adjustermobility needed to meet demand followingcatastrophic widespread losses.


TODAYcrop insurance

Ensuring ADJUSTERPROFICIENCY

By Dr. Laurence M. Crane, NCIS

Crop InsuranceHandbook (pages) New = 481 New = 546 Slip.(214) = 559

LAM (pages) New/Slip.(24) = 380 New/Slip.(30) = 428 New = 428

Loss Handbooks(New/revised) 13 27 33

RMA Bulletins(Mgr. Info., FAD) 84 118 100

Policies(New/revised) 21 16 14

SPOI/ActuarialChanges 21,252 23,822 32,109

Table 1 Summary of changes in the MPCI programFiling Year 2004 2005 2006

12 FEBRUARY 08

The most unfortunate aspect of all isthere is no guarantee that an adjuster isproficient in adjusting losses, even whenall state licensing requirements are met,especially if those requirements aren’trelated to the specific duties unique tocrop insurance. For these reasons, NCIS isproactively working with the RiskManagement Agency (RMA) and the NAICto establish a process whereby cropadjusters can demonstrate their proficiencyconsistent with the SRA and state insurance

department licensing requirements. TheNCIS Board of Directors has committed thefunding for this program so participationwill be cost-free for individual adjustersand state insurance departments.

Crop AdjusterProficiency Program

The goal of the Crop AdjusterProficiency Program (CAPP) is to ensurethat all loss adjusters of Federally insuredcrops have demonstrated an approvedlevel of proficiency. The objective is to ful-fill the education and testing requirementsnecessary for individual crop adjusters toqualify for a state crop adjuster license, andto satisfy the continuing education require-ments for adjusters of crops insurableunder the Federal crop insurance programadministered by RMA.

The two components of this proficien-cy certification are: 1) the process ofobtaining, maintaining, and verifyingadjuster proficiency, and 2) determining

and maintaining the content or knowledgebase required for an individual to receiveand maintain a proficiency designation.

ProcessTo receive a proficiency certification, an

individual would be required to accom-plish the following:

Step 1: Satisfy all company level SRArequired training

(See summary of SRA requirements listedin the accompanying box on page 13.)Complete all Approved InsuranceProvider (AIP) training requirements foradjusters as specified in the SRA, includ-ing passing a company administeredCompetency Exam. These companylevel competency exams are whereregional and/or individual crop specific(e.g., nursery, coarse grains, livestock,etc.) issues are covered.

Step 2: Gain access to the NCIS CAPPtesting site

Upon completing the SRA trainingrequirements with a company, the AIPwill give the adjuster a unique compa-ny identification code that will berequired to logon to the NCIS testingweb site. The company will also pro-vide to NCIS the names and social secu-rity numbers of the individual adjusterswho have completed the SRA requiredtraining with their company. Theadjuster will use the provided companycode and their social security numberto gain access to the NCIS CAPP testingsite. On their initial visit, adjusters willestablish a user id and password to usefor subsequent visits to the NCIS CAPPtesting site.

Step 3: Complete the three requiredCAPP exams

Pass at the 80% level, three onlineopen-book, timed exams developedand administered by NCIS. These examswould cover:Exam 1. General Insurance Terms and

Concepts (35 questions/75minutes)

Exam 2. Basic Policy Provisions (35questions/75 minutes)

Exam 3. Loss Adjustment Manual andgeneral adjuster information(50 questions/120 minutes)

Step 4: Receive documentation of CAPPcompletion

Once an individual has successfullypassed the required exams, NCIS willprovide the individual with documenta-tion verifying the individual’s proficien-cy status. (The adjuster will receive anindividualized credit card-sized plasticcard similar to those used in the healthinsurance industry to provide proof ofinsurance.) The individual will use thisdocumentation as proof to StateInsurance Departments that they havesatisfied the education and testingrequirements established by the cropinsurance industry. NCIS will also pro-vide each AIP with the status of eachindividual who has accessed the NCISCAPP testing site using their companyspecific access code. NCIS will also ver-ify to any State Insurance Departmentthat the individual of interest has com-pleted the exams as required. Uponrequest, NCIS will also provide RMAwith the status of each individual whohas accessed the NCIS CAPP testing site.Only pass/fail results, and not individ-ual scores, will be provided to AIP’s,Insurance Departments, and RMA.

Step 5: Complete SRA ContinuingEducation requirements to maintainCertification

To maintain the NCIS Crop AdjusterProficiency designation, the adjustermust complete the annual companytraining requirements specified in theSRA. Each AIP will report to NCIS theadjusters who have satisfied theserequirements with their company. Anyindividual who does not meet theserequirements by the end of each calen-dar year will have their designation can-

The most unfortunate

aspect of all is there is no

guarantee that an adjuster

is proficient in adjusting

losses, even when all state

licensing requirements are

met, especially if those

requirements aren’t related

to the specific duties unique

to crop insurance.

NCIS will maintain a historical

database of individuals who

have qualified for the Crop

Adjuster Proficiency designa-

tion and the status of their

annual continuing education

requirements.


celled. Once cancelled, an individualwould need to successfully re-take thethree qualifying exams.

VerificationNCIS will maintain a historical database

of individuals who have qualified for theCrop Adjuster Proficiency designation andthe status of their annual continuing edu-cation requirements. This database can beaccessed only by user id, password, andcompany code. Thus a company can onlyaccess the pass/fail records for those indi-viduals who registered to take an examusing their company code. An individualwill only be able to access their own per-sonal records.

RMA and State Insurance Departments

will have permission to audit the designa-

tion process and content (all exams, con-

tent material upon which the exams are

based, any education modules developed

specifically for exam preparation, etc.) of

the CAPP upon request, including the his-

torical database of individuals receiving

certification. In fact, NCIS would encour-

age state insurance departments to review

the program in sufficient detail to acquire a

high level of comfort.

New loss adjusters must participate in a structured training program of at

least 60 hours (including at least 24 hours of classroom training).

Experienced loss adjusters must annually complete at least 18 hours of

structured training (including at least 6 hours of classroom training).

All loss adjusters must pass a basic competency test every three years.

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Implementation ScheduleThe CAPP website will be accessible

from the NCIS homepage (www.ag-risk.org) in April 2008 for adjusters tobegin establishing their user ids and pass-words and accessing core study materials.It is expected the site will be fully function-al at that time for adjusters to take theonline exams. A more complete descriptionof the exam process with specific detailedinstructions will be included in the Mayissue of Crop Insurance TODAY.

ExpectationsFor states which have a licensing

requirement that is not crop specific, and

who are wrestling with how to bestaddress the many issues discussed above,this proficiency program being offered byNCIS provides a workable solution. Statesthat have an existing crop specific licens-ing requirement would likely continuewith the status quo, i.e., “if it’s not broken,don’t fix it.” And states that currently donot require licensing for crop adjusterscould continue with the status quo, or theymay wish to adopt a licensing requirementand use this program to satisfy the require-ments for a license.

Summary of SRA Adjuster TrainingRequirements

TODAYcrop insurance


Idaho potato growers are trying newsustainable farming practices thanks to aSustainable Agriculture Research andEducation (SARE) grant that University ofIdaho potato cropping specialist BryanHopkins received in 2002. Hopkins want-ed to learn why more potato farmers werenot using the best management practicesrecommended by researchers. With theSARE grant, Hopkins found and publicized14 “model” potato growers who use arange of sustainable agriculture practicesthat enable them to reduce their pesticideand fertilizer use while maximizing returns.

At field day demonstrations and work-shops, Hopkins showed results from hison-farm trials comparing the 14 “model”potato grower practices alongside plotsreceiving higher rates of chemical fertiliz-ers and pesticides. Growers were “wowed”by the results: The “model” plots nettedthree percent more profit per acre than theplots with higher inputs. Similar yields andreduced costs for buying agrichemicalsswung the management-heavy plots intothe profit column.

The list of best management practicesfor potatoes include recommendationsabout incorporating crop residue into soilfor fertility, scouting fields to check oncrop health, and incorporating greenmanure to reduce populations of nema-todes and pathogens. By showcasing suc-cessful potato growers, Bryan Hopkins

prompted 25 other potato growers—impacting some 110,000 acres—or one-quarter of Idaho’s potato production, to trynew sustainable agriculture conservationmeasures.*

Just as the Idaho potato growerslearned new ways to manage risks andincrease profits by adopting sustainableagriculture practices—which also benefitedthe environment, their family and commu-nity—other crop producers and ranchersacross the United States are also using sus-tainable agriculture practices. These prac-tices include: cover crops, conservationtillage, diversified crops and livestock as away to minimize risk associated with fluc-tuating markets, pastured grazing, directmarketing and other methods that strive tobalance profitability, conservation, andcommunity revitalization.

Considered by some to be unusualpractices, Congress included recognitionof sustainable agriculture as a “goodfarming practice” (along with organic andconventional farming practices) in theFederal Crop Insurance program,www.rma.usda.gov, via the AgricultureRisk Protection Act of 2000.

How can a producer be assured todaythat their loss adjuster recognizes what sus-tainable agriculture practices are in casethey have a loss and questions are raisedregarding acceptable good farming prac-tices? A place to start is the Basic Provisions

of Insurance, which provides a definition ofsustainable agriculture: “A system or processfor producing an agricultural commodity,excluding organic farming practices, whichis necessary to produce the crop and is gen-erally recognized by agricultural experts forthe area to conserve or enhance naturalresources and the environment.”

In addition, there is a definition forAgricultural Experts—“Persons who areemployed by the USDA’s Cooperative,State Research, Education and ExtensionService (CSREES), or other personsapproved, whose research and occupationis related to the specific crop or practice forwhich such expertise is sought.” CSREESprovides a wealth of information, andimportantly, hosts the SARE programwww.sare.org, the only federal grantmaking organization devoted solely toadvancing sustainable agriculture in theUnited States. SARE’s website is a goldmine of online sustainable agriculture pub-lications and research and educationreports from its grantees.

As you can see, there is no precise, setformula for sustainable agriculture prac-tices. However, practices must be adaptedto each site’s unique natural and agronom-ic characteristics. Loss adjusters and othersmay be interested in obtaining more infor-mation and tap the expertise in this field tobetter understand the relationship betweensustainability and risk management.

SUSTAINABLEAgriculture PracticesStriving to Balance Profitability, Conservation andRevitalize Communities

By Sharon Hestvik, USDA-RMA and Jill Auburn, USDA-CSREES-SARE Director

In 2008, SARE is celebrating its 20 yearsof research and education with The NewAmerican Farm Conference: Advancingthe Frontier of Sustainable Agriculture—tobe held March 25-27 in Kansas City,Missouri. The conference will be a goodopportunity for agents, loss adjusters andother insurance workers, and RiskManagement Agency employees to askquestions about all aspects of sustainableagriculture, including how it relates to cropinsurance and risk management.

Over the years, SARE has invested inmore than 3,700 initiatives to develop sus-tainable practices across the nation—andhundreds of grantees will be on hand atthe conference to showcase the results oftheir work. SARE plans more than 45breakout and plenary sessions and 100posters, covering topics ranging from inno-vative marketing and production, pestmanagement, stewardship practices, diver-sification and much more. Plus, partici-pants can choose from 12 tours to see sus-tainable agriculture at work in the field.

One of the conference plenary speakers

will be Karl Kupers, who speaks fromextensive field and business experience.Once a traditional grain farmer, heswitched to an innovative and profitable“systems” approach on his grain farm,which included diversifying crops, no-tilland direct marketing. He began small,using a SARE grant in 1996 to test alterna-tive crops. He also pioneered and refined“direct-seeding,” placing seeds into the soilwith a drill, which leaves the soil untilled.After he transitioned his entire farm to a no-till, diversified system—and added a prof-itable direct marketing business to themix—he turned his attention to marketingfull-time. Today, Karl is marketing directorof Shepherd’s Grain, a coop he helpedform. It currently has 20 Pacific Northwestno-till farmers—all Food Alliance certified.Karl is also chairman of Western SARE’sadministrative council and a former presi-dent of the Pacific Northwest Direct SeedAssociation.

Combining cover crops and no-till farm-ing is another innovative idea to be pre-sented at the conference. While no-till has

become a widespread practice, combiningit with cover crops—another importantsustainable agriculture practice—is lesscommon. Steve Groff will describe how hehas virtually eliminated erosion, improvedsoil and water quality, and made a goodliving with his “permanent cover croppingsystem” on 200 acres of vegetables androw crops in hilly Lancaster County,Pennsylvania. Steve’s innovations includemodifying a Buffalo Rolling Stalk Chopperto quickly and effectively roll down hiscover crop, avoiding the need for herbi-cides. “The first thing I always emphasize isthat it is a system,” says Steve. “We’velearned no-till alone is not a ‘magic bullet.’To achieve all three of our objectives—higher profits, enhanced soil quality andless dependence on pesticides—wedepend equally on no-till, cover crops androtations.”

For more conference details, visitwww.sare.org/2008conference.

*SOURCE: SARE 2006/2007 Highlights-Potato Growers

Emulate “Model” Methods for Higher Profits.

By showcasing successful potato growers, Bryan Hopkins (right), shown with Don Horneck,prompted some 25 farmers to try new conservation measures.Photo by Bryan Hopkins

Since John Deere Risk Protection* stepped onto the field, the rules have changed. Only John Deere provides its agents with distinctive resources like qualified prospects from lead-generation efforts, unique marketing areas and the power of the most recognized brand in agriculture — resources that put John Deere agents in a league of their own. And John Deere crop insurance agents receive exclusive training to utilize leading-edge technologies to help customers optimize their crop insurance data. Not only changing the rules in the industry, but making John Deere agents exceptional.

To learn more about qualifying to be a member of this elite team, call 1-866-404-9057.

* John Deere Risk Protection, Inc. (dba JDRP Crop Insurance Services in the State of California) is a subsidiary of John Deere and acts as the Managing GeneralAgent for crop insurance for Westfield Insurance Company and Westfield National Insurance Company. Not offered in all states. John Deere Risk Protection,Westfield Insurance Company, and Westfield National Insurance Company are equal opportunity providers. CR0810303 (07-09)

18 FEBRUARY 08

TODAYcrop insurance

The crop insurance program, especiallyMultiple Peril, is incredibly complex andcan be easily misunderstood by farmersand provides opportunities for agents tomake unintentional mistakes. The numberof forms, pages of policy and procedurallanguage, and numerous deadlines of thisprogram can be overwhelming at times.

As an agent, does your loyalty lie withyour client in providing them with the bestservice no matter what? Or does your loy-alty lie with the insurance company youare writing policies for?

“Ethics” has been defined as what weare supposed to do, and “morality” is ouractions. “Training” is defined as teachinghow to do a task and “education” isdefined as explaining why the task isimportant. Crop insurance agents receiveexcellent training by their companiesregarding changes to the program. And allinclude a component on the importance ofmaintaining strong business ethics duringthe sale and service of crop insurance poli-

cies. But sometimes ethics is not alwaysblack and white. We have all read someambiguous policy language that we knowdoesn’t quite make sense in all situations.For example, sometimes allowing a clientto report acreage a certain way is technical-ly “legal,” but due to unclear language,maybe isn’t always “ethical.” What do youdo?

This article is intended to help agentstake the ethics training they’ve receivedand turn it into practical application in theireveryday business life.

As a licensed crop insurance agent, it isextremely important for you to adequatelyand accurately explain all of the insuranceoptions available to the farmer. To do so, itmight be well for us to review a couple ofdefinitions. “Insurance” is defined as asmall certain loss (premium) to protectagainst a large uncertain loss (claim). Theamount of premium a farmer pays isincreasing, due in large part to the rise incommodity prices. Therefore, it is vitallyimportant that your client understandsexactly how much coverage they have just purchased and from what potentialcauses of loss they are protected.“Indemnification” is the purpose of insur-ance and is defined as “to put back as itonce was or to make it whole without prof-it to the insured.” Insurance, by definition,is easily applied to crop insurance; if thereis no reduction in yield, the client receivesnothing. Indemnification, on the otherhand by true definition, doesn’t applybecause no insurance company can literal-ly “fix” a farmer’s corn crop when it has

been destroyed by hail. Therefore, the cropinsurance policy should probably bedescribed as a value contract and that, nomatter the circumstances, the productionguarantee determined in the policy is themaximum amount paid out to the client inthe event of a loss.

The insurance contract is defined as acontract of adhesion. One party draws it upand offers it to the other party on a “take itor leave it” basis. It is very important for theagent to have empathy and patience withhis client in order to ensure that he under-stands the limits and restrictions containedwithin the policy prior to signing on thedotted line. Most of the complaints on anyinsurance contract are from the client whosays, “I thought I was covered.” A thoroughexplanation to the farmer of exclusions inthe policy is the responsibility of the agentat the time of application, not after a lossoccurs.

It is also important to remember the pur-pose of two signatures on each application.The signature of the applicant is his guaran-tee the answers are correct, and the agentsignature is a guarantee that all questionswere asked and the applicant’s answersrecorded. Herein lies what could be an eth-ical dilemma for the agent. Earlier I men-tioned a number of deadlines a farmer mustadhere to to be in compliance with the pol-icy provisions. Acreage reporting date, finalplanting date, contract change date, salesclosing date, etc., are just a few of the dead-lines an agent must remind his clients to fol-low. The potential dilemma . . . let’s say thefinal plant date for full coverage on winter

ETHICALPRINCIPLES

Practical ApplicationBy Lawrence E. Holthus, Insurance Educator

As a licensed crop insurance

agent, it is extremely

important for you to

adequately and accurately

explain all of the insurance

options available to

the farmer.

Under the direction of its Board ofDirectors, National Crop InsuranceServices has developed two nationalawards to be given to individuals whoachieve excellence in the criteria set out bythe awards.

The first award is the OutstandingService Award. This award, primarily foragents, has actually been in existence since2001 and has been awarded to severalexcellent individuals. The purpose of thisaward is to promote exceptional serviceindustry-wide, and encourage outstandingoutreach efforts to all farmers, especiallylimited-resource farmers, by highlightingan individual who has demonstratedexceptional service.

The newest award established is theIndustry Leadership Award. This award,targeted primarily to members of the NCISregional/state crop insurance committees,was created to formally recognize individ-uals who are directly involved in the cropinsurance industry and who consistentlyserve the industry by providing outstandingleadership. Company employees at boththe field and management level are eligibleto be nominated.

The criteria for both awards are:1. Strong personal and business ethics.2. Demonstrated service above and

beyond to the crop insurance industry.3. Represents themselves, their company,

and the crop insurance industry well.

The two winners will be presented withtheir awards at the crop insurance industryannual convention held in February ofeach year.

All nominations must be submitted inwriting to NCIS by October 15, 2008, forawards to be given at the 2009 AnnualConvention. For nomination informationand forms to be submitted, please go tothe NCIS website at www.ag-risk.org todownload. If you have any questionsregarding the criteria or whom is eligiblefor either award, please contact LaurieLangstraat at NCIS at [email protected] or913-685-2767.

INDUSTRYAWARDSNCIS


wheat is October 20. Your client entersyour office and says he planted 200 acreson October 20. You know that is impossi-ble because it rained all day long on the20th and there was no way the farmercould get his equipment in the field toplant. What do you do? Do you allow theinsured to provide inaccurate informationbut retain full coverage on his winterwheat, or do you stand firm on the finalplanting date and reduce his coverage?

The ethical considerations inherent todecisions we make at work are sometimesfar more complex and difficult to navigatethan those we may expect to face in ourpersonal lives. While it is never right toundertake an unethical action, the rightcourse of action is not always clear. In suchcases, it is necessary to carefully weighalternative actions and outcomes, seek theperspective of trusted associates, and makethe decision that you believe to be—andcan defend as—ethical.

As I stated earlier, it is important toexplain all of the policy options and cover-age available to a farmer to protect his

farming operation. Sometimes the best cov-erage for a farmer will not result in a highpremium and consequently a higher com-mission for the agent. However, as a rule ofthumb, it might be best to start at the top—the highest amount of coverage available—and work your way down. At the time ofapplication, the insured is thinking “lowestpremium.” But at the time of loss will bethinking “maximum claim to be collected,”and it would be beneficial to the agent if alloptions and declinations were noted inwritten documents. As an agent, you

should always be willing to provide thebest service to your client without thoughtof your own personal gain.

The world of insurance is not alwaysviewed in a favorable light these days.Many in the general public believe they arebeing short changed by the insuranceindustry, and many insurers distrust theirclients and scrutinize the validity of everyclaim. Crop insurance is no different. TheIndustry has been the topic ofCongressional hearings and bad press a lotin the last few months. It is imperative thateveryone maintain a high standard of moralconduct and avoid questionable short-termgains that may compromise the overallintegrity of the program. No one is exemptfrom scrutiny in this program—from thecompany CEO to the farmer. A good mottofor all to follow is found in a quote fromMark Twain—“Always do right—this willgratify some and astonish the rest.”Editor’s Note: Mr. Holthus has been a farmer,insurance agent, and currently teachescontinuing education classes on insuranceethics. He lives in Smith Center, Kan.

The ethical considerations

inherent to decisions we

make at work are some-

times far more complex and

difficult to navigate than

those we may expect to

face in our personal lives.

Crop insurance agents and other riskmanagement service providers play a keyrole in helping their farm and ranch clientsmake more profitable risk managementdecisions. Colorado State University,Kansas State University and the Universityof Nebraska provide an educational oppor-tunity to facilitate this process. They havejoined forces to provide risk managementprofessionals with the tools and informa-tion they need to assist their clients.

Each year for the past nine years, a one-day workshop has been conducted in eachof the three states on consecutive days.The agenda and the speakers are commonfor each of the workshops. The only devi-ation from the one set of speakers formatis for topics that are specific to each state,such as water issues.

Workshop ObjectivesThe general objectives of the work-

shop are: 1. Crop insurance agents, agricultural

lenders, marketing consultants, agri-cultural educators and other riskmanagement service providers willbe able to help their clients makemore profitable risk managementdecisions.

2. Farmers and ranchers will be ableto apply the information to theirdecisions.

The specific learning objectives foreach workshop relate to the agenda topicsfor that year.

Origins and Organizationof the Workshops

Laurence Crane from NCIS originallyencouraged states to conduct workshops forcrop insurance agents. He was able to pro-vide some financial assistance, through agrant, in 1999 to get the project started. Thefinancial assistance also provided some riskcapital for a new educational initiative with anew clientele group. The three states dis-cussed the idea, and with Laurence’s assis-tance, concluded that once a workshop wasorganized and speakers were arranged therewere economic benefits to delivering thesame workshop in each of the states.

The Colorado workshop is held in Brush,Colo., which is in the northeast part of thestate; the Nebraska workshop is conductedin the Grand Island area; and, the Kansasworkshop has settled in Salina after experi-menting with Great Bend and Hutchinson aslocations. The combined attendance at thethree workshops is between 250-300 eachyear.

The organizers of the workshops are Dr.Art Barnaby from Kansas State, Dr. NormDalsted from Colorado State and Dr. DougJose from the University of Nebraska. Theplanning committee that works with theorganizers includes Dr. Crane and a repre-sentative from each of the companies thatsell crop insurance in the three states. At thefirst meeting in the spring of 1999, the plan-ning committee decided early to mid-November was the best time to conduct theworkshops. Recently the scheduling has set-

tled on the Tuesday through Thursday of thefirst full week of November. Fortunately,weather has never been a problem for thespeakers and organizers to get from oneworkshop to the next.

Workshop TopicsThe presentations are designed to pro-

vide risk management service providers withinformation and tools they can use as theyinteract with their farmer clients and assistthem with their risk management plans. Thecategories of topics addressed in the work-shop every year include:

1. Assessment of the Political EnvironmentRelated to Crop Insurance—speakershave included RMA administrators,Congressional aids, lobbyists and pol-icy consultants.

2. Agricultural Policy—presentationshave included the development anddetails of the Farm Bill, including theimplications for farmer decisions aswell as other Federal policies thatimpact producers.

3. Regional RMA Issues—the Director ofthe Regional Office of RMA in Topekahas been a speaker each year. A keycomponent of the workshops hasbeen the involvement of RMA. It is anopportunity for regional RMA person-nel to interact with agents who deliv-er the program in their region.Sometimes controversial questionshave come up, but we have beenpleased with the support and contri-bution of the Topeka office.

Crop InsuranceWORKSHOPS

HAVE MAJOR IMPACTBy Doug Jose, Extension Farm Management Specialist, University of Nebraska

TODAYcrop insurance

20 FEBRUARY 08


4. Update on RMA Products—in thepast three years this component hasfocused on the livestock insuranceproducts, including discussion of thebackground concepts such asoptions.

5. Detailed Analysis of Some Aspect ofthe Crop Insurance Program—thiscould also be termed “Dr. Barnaby’ssection.” We are fortunate to haveDr. Barnaby as part of our project.He is one of the recognized leadersin the country for his knowledge ofthe crop insurance program and hisanalysis of the alternatives for pro-ducers. In 2007, his presentationfocused on “How Much I Can Affordto Pay for the Harvest Price Option.”

6. Climate and Related Issues—topicshave included weather trends andwater issues and their impact onproducer cropping decisions.

7. Current Topics—a wide range oftopics related to crop productionand crop insurance have been pre-sented. These have included reinsur-ance, the use of satellite imagery byRMA, and data mining and otherprocedures to reduce fraud andabuse. In 2007 we addressed thedevelopment and future of theethanol market, which proved to bea very popular topic.

Continuing EducationCredit

About half of the participants each yearrequest continuing education credits.

Credits are offered for Wyoming and SouthDakota, in addition to the three sponsoringstates.

The Participants and theImpact

About 60 to 65 percent of the partici-pants each year are crop insurance agents.Lenders make up about 20 percent of theparticipants and the other 15 to 20 percentinclude producers, commodity brokers,government agency personnel and exten-sion staff. Each of the risk managementservice providers works with an average ofabout 175 clients. The participants haveestimated that they will discuss risk man-agement planning with an average of 72percent of their client base within sixmonths of the workshop. They estimatethat each of the clients they discuss riskmanagement planning with can increasetheir annual net farm income by about$23,000 with more careful planning. Withan average of 225 risk management serviceproviders attending the three workshopsand each of those working with 175 clients,these workshops are having a major impacton the risk management planning by pro-ducers in the three states.

Workshop WebsiteIn 2006 the three states received a small

RMA grant to enhance the learning objec-tives of the workshops. One of the goalswe were able to achieve was to establish adedicated website for the workshops. Thewebsite includes information about upcom-ing workshops and presentation materials

from previous workshops. The address is:http://cropinsure.unl.edu

Workshop Promotionand Cost

Word of mouth discussion on the bene-fits of the workshops has been very help-ful in promoting and building support.Members of the planning committee andother crop insurance personnel have donean outstanding job of promoting the work-shops within their companies and encour-aging their colleagues to attend. NCIS hasbeen very cooperative and helpful in mail-ing brochures to insurance agents in thethree states and to those who live closeenough to the workshop sites in surround-ing states. Dr. Barnaby notifies subscribersto his list serve of those interested in cropinsurance topics. It is also publicized onthe Kansas State website, AgManager. Inaddition, mailings are made to a mailing list

of those who have attended a previousworkshop or have expressed interest in theworkshops. The cost of the workshop in2007 was $75. This included workshopmaterials and the noon luncheon.

The unique collaboration betweenthree states has delivered a risk manage-ment workshop for risk management pro-fessionals in Colorado, Kansas andNebraska. These workshops ultimatelyimpact about 40,000 farmer clients eachyear and provide a much needed and well-received place where information can belearned and shared between those whoattend.

Dr. Art Barnaby leads a discussion at a crop insurance conference.

About 60 to 65 percent of

the participants each year

are crop insurance agents.

Lenders make up about 20

percent of the participants

and the other 15 to 20 percent

include producers, commodity

brokers, government

agency personnel and

extension staff.

The NCIS Crop Insurance PlanComparison was initially published in theAugust 2001 issue of Crop InsuranceTODAY. This side-by-side comparison ofthe more widely available crop insuranceproducts was originally developed as aquick-reference job aid for crop insurancecompany personnel, crop insuranceagents, and producers alike. The compar-ison is a rather thorough, yet compact listof major attributes for the Crop RevenueCoverage (CRC), Group Risk IncomeProtection (GRIP), Group Risk Plan(GRP), Income Protection (IP), MultiplePeril Crop Insurance (MPCI), andRevenue Assurance (RA) plans of insur-ance. A current Crop Insurance PlanComparison frequently has been request-ed by our members over the past sixyears, so the list has been updated and re-published periodically.

The Crop Insurance Plan Comparisonhas not been updated or published since2005. With the anticipation of the release ofthe combo product, we had been holdingoff on updating the document and focusingour resources on other projects. Recently,the Risk Management Agency (RMA)announced that the combo product wouldnot be released until at least the 2010 rein-surance year. With this announcement, wedecided it was about time we updated ourcomparison.

Several additions and changes were madeto the Crop Insurance Plan Comparison for 2007 filing year (2008 crop year for most crops).

• A row was added describing whatthe product insures against.

• The subsidy factors were added todetail the changes made to the GRIPplan of insurance. The GRIP andGRP subsidy factors used to be thesame. However, the subsidies forthese two products were recentlyreviewed and while the GRP subsidies proved to be accurate,some of the GRIP subsidies werenot. Beginning with the 2008 cropyear, the GRIP subsidy factordecreased from .64 to .59 at the 75percent coverage level; from .59 to.55 at the 85 percent coverage level;and from .55 to .48 at the 90 percentcoverage level.

• The Maximum Price Movement fea-ture in the GRIP column was cor-rected. The indication that a pricemovement was “not applicable” waschanged to read, “none” as it wouldhave been possible to have a maxi-mum increase or decrease in pricedefined in the GRIP HarvestRevenue Option. However, like IPand RA, there is no such limitationfor GRIP.

• The CRC written agreement restric-tion for optional units was clarified.

• The Written Agreement Amendmentrow was added. This policy lan-guage, originally introduced in 2006,was updated and applicable for the2007 and succeeding crop years forall crops with a contract change dateon or after June 30, 2006, and for the2008 and succeeding crop years forall crops with a contract change dateprior to June 30, 2006.

• The row header entitled “PPProvisions” was revised to read,“Prevented Planting Provisions”.

• In addition to the changes listedabove, non-substantive miscella-neous changes were made through-out for aesthetic purposes.

So without further adieu, here is the lat-est version of the quick reference side-by-side Crop Insurance Plan Comparison. It isa good general overview of the productsavailable on a national or almost-nationalbasis that you can use to help make senseof the different crop insurance products.

Please note that the products and prod-uct topics summarized in this outline arenot all-encompassing and do not substitutefor the policy provisions. See the policyprovisions and/or contact your companyfor a complete description of available coverages and their terms and conditions.

PLAN COMPACrop InsuranceCrop Insurance

The most widely available revenue protection policy is CRC. This policy guarantees an amount of revenue (based on the individ-ual producer’s actual production history (APH) x commodity price) called the final guarantee. The coverage and exclusions of CRCare similar to those for the standard MPCI policy. This final guarantee is based on the greater of the spring-time generated price (baseprice) or the harvest-time generated price (harvest price). While the guarantee may increase, the premium will not. Premium will becalculated using the base price. Since the protection of producer revenue is the primary objective of CRC, it contains provisions address-ing both yield and price risks. CRC covers revenue losses due to a low price, low yield, or any combination of the two. A loss is duewhen the calculated revenue (production to count x harvest price) is less than the final guarantee for the crop acreage.

Crop Revenue Coverage (CRC)

The most widely available revenue protection policy is CRC. This policy guarantees an amount of revenue (based on the individ-ual producer’s actual production history (APH) x commodity price) called the final guarantee. The coverage and exclusions of CRC aresimilar to those for the standard MPCI policy. This final guarantee is based on the greater of the spring-time generated price (base price)or the harvest-time generated price (harvest price). While the guarantee may increase, the premium will not. Premium will be calcu-lated using the base price. Since the protection of producer revenue is the primary objective of CRC, it contains provisions addressingboth yield and price risks. CRC covers revenue losses due to a low price, low yield, or any combination of the two. A loss is due whenthe calculated revenue (production to count x harvest price) is less than the final guarantee for the crop acreage.

Crop Revenue Coverage (CRC)

22 FEBRUARY 08

TODAYcrop insurance

By Lisa Cain, NCIS

ARISON

Like GRIP, GRP coverage is based on the experience of the county rather than individual farms, so APH is not required for this pro-gram. GRP indemnifies the insured in the event the county average per-acre yield or payment yield falls below the insured's triggeryield. The Federal Crop Insurance Corporation (FCIC) will issue the payment yield in the calendar year following the crop year insured.Since this plan is based on county yields and not individual yields, the insured may have a low yield on their farm and not receivepayment under GRP.

Group Risk Plan (GRP)

MPCI is the oldest and most popular product to make this list. As the name implies, MPCI provides protection against a loss in yielddue to nearly all natural disasters. For most crops, that includes drought, excess moisture, cold and frost, wind, flood and unavoidabledamage from insects and disease. MPCI guarantees a yield based on the individual producer’s APH. If the production to count is lessthan the yield guarantee, the insured will be paid a loss.

Multiple Peril Crop Insurance (MPCI)

GRIP is based on the experience of the county rather than individual farms, so APH is not required for this program. A GRIP poli-cy includes coverage against potential loss of revenue resulting from a significant reduction in the county yield or commodity price ofa specific crop. When the county yield estimates are released, the county revenues (or payment revenues) will be calculated prior toApril 16 of the following crop year. GRIP will pay a loss when the county revenue is less than the trigger revenue. Since this plan isbased on county revenue and not individual revenue, the insured may have a loss in revenue on their farm and not receive paymentunder GRIP. The GRIP Harvest Revenue Option (HRO) Endorsement is available. This optional endorsement offers “upside” price pro-tection by valuing lost bushels at the harvest price in addition to the coverage offered under GRIP.

Group Risk Income Protection (GRIP)

IP is a revenue product that, based on the individual producer’s APH, protects against a loss of income when prices and/or yieldsfall. While IP looks a lot like CRC, it does not have the increasing price function of CRC. The guarantee and the premium will be cal-culated using the spring-time generated price (projected price). An indemnity is due when the revenue to count (production to countx harvest price) is less than the amount of protection.

Income Protection (IP)

The coverage and exclusions of RA are similar to those for the standard MPCI policy. However, MPCI provides coverage for loss ofproduction, whereas RA provides coverage to protect against loss of revenue caused by low prices or low yields or a combination ofboth. RA has the Fall Harvest Price Option (FHPO) available. This Option uses the greater of the fall harvest price (harvest-time gen-erated price) or the projected harvest price (spring-time generated price) to determine the per-acre revenue guarantee. So, with theOption, RA works like CRC, without the Option, it works like IP. RA protects a producer’s crop revenue when the crop revenue fallsbelow the guaranteed revenue.

Revenue Assurance (RA)


24 FEBRUARY 08

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26 FEBRUARY 08

NCISTOD

AY

SpotlightOne of the biggest components of the

MPCI program is the ability of the Industryto accurately determine an indemnity to bepaid to a farmer when he incurs a crop loss.The policies and procedures to accuratelydetermine the amount of loss paid are writ-ten by the Risk Management Agency (RMA)and carefully reviewed by NCIS and itsmember companies.

Two NCIS staff, who focus the majorityof their time on this task, are MikeO’Connor and Shane Weaver, CPCU. RMAdevelops what is called the LossAdjustment Standards Handbooks (LASH)for each crop procedure in draft form forthe Industry to review. Typically, RMArequires comments back to them within 10days. Mike and Shane, and other NCIS staffas needed, carefully review the languageand/or procedural changes in these docu-ments. Many times the draft language canbe ambiguous or need further clarificationand NCIS will provide alternative languagefor RMA to consider. Other times, changesto a policy may result in changes to proce-dure that RMA may or many not have con-sidered or realized. It’s the job of NCIS toanalyze these changes and determine ifthey might have a negative impact on farm-ers and the Industry.

NCIS provides written comments tomembers prior to the submission date andprovides the same review and analysis toRMA to aide in their development of thefinal product. Once the LASH is issued,Mike and Shane do a final review and pro-vide the NCIS membership with an analysisof the final product.

There are over 75 loss adjustment hand-books, the majority of which are reviewedon an annual basis. Of those reviewed eachyear, about 30 are typically revised resultingin the release of new handbooks.

In addition to the LASH reviews, Mikeand Shane are responsible for creating lossadjustment and underwriting forms basedon RMA issued standards. These forms aremade available to members for their use.When a new or revised procedure isissued, often times one or more formsmust also be revised to accommodate thechanges. There are currently 135 lossadjustment forms and 50 underwritingforms available.

Shane and Mike also take the informa-tion from the revised forms and proce-dures to put together presentations thatthey give at either one of the NCIS spon-sored update conferences or claims man-agers’ conference. The presentations andmaterials given to the companies thatattend these meetings are used in turn totrain their agents and adjusters on themany changes to the program. It’s criticalthat all companies are trained adequatelyso that loss adjustment procedures areapplied fairly to each crop no matterwhere the loss occurs and procedural lan-guage is interpreted and followed correct-ly throughout the Industry.

In addition to the many phone calls thatMike and Shane field from members regard-ing clarification of issues or policy language,these two gentlemen are also staff liaisons toseveral of the NCIS regional/state commit-tees. Mike is a responsible for overseeing thecoordination of meetings and loss adjustmentschools for the Colorado/Wyoming andCalifornia/Nevada regional/state committeesand Shane is responsible for the Gulf States,Southwest and South Dakota regional/statecommittees.

This function of NCIS providing anaccurate and detailed analysis of proposedchanges to the crop insurance programand the affects of those changes to the

Industry is a key component of the manyservices NCIS provides.

Mike joined the NCIS staff in 1998 andhas a distinguished history working in thecrop insurance industry. His professionalexperiences include operating a generalagency, soliciting production, supervisingunderwriting, adjusting claims, and provid-ing training to both agents and adjusters. Heserved two years as chairman of the NCISNebraska Regional/State Committee. Heholds a bachelors degree from theUniversity of South Dakota – Springfield,and a Masters degree from Wayne StateCollege. Prior to his life in crop insurance,Mike was a classroom teacher and coach,elementary Principal and high schoolAthletic Director.

Shane grew up on a farm in east-centralIllinois. He came to the Kansas City area toattend school at William Jewell College inLiberty, Missouri, where he earned a B.S. inBusiness Administration. Shane began hisemployment with NCIS in June of 2000 inthe Data Processing Customer Service role.In June of 2002, Shane began his currentposition with NCIS as a Crop InsuranceSpecialist. In March of 2007, Shane earnedthe Chartered Property Casualty Underwriter(CPCU) professional designation.

Many thanks to Shane and Mike on atough job well done!

Shane Weaver (left) and Mike O’Connor


Your risk is our focus.

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CropInsuranceToday12.07_V2.eps 12/27/07 10:13:01 PM

We have discussed in past issues ofthis publication the importance and roleof the 18 NCIS Regional/State CropInsurance Committees. Their function, asthe voice of the people “in the field” tobring forward recommended policyand/or procedural language changes forboth the crop-hail and MPCI programs,has been an important function of thisassociation since its inception.

Equally important to the structure ofNCIS, is the role of the NCIS standingcommittees. These committees, com-prised of member company representa-tives, provide invaluable input to the rec-ommended policy and proceduralchanges, or issues that arise in the indus-try. They also offer direction to NCIS staffon handling day-to-day industry concerns.In the next few issues of the magazine,we will explain the functions of each ofthe standing committees to help you bet-ter understand how the efforts of themembers work for the betterment of theentire industry.

To begin, in this article, we will start atthe top of the standing committee struc-ture and focus on the NCIS Board ofDirectors and the Program DevelopmentCommittee.

NCIS Board of DirectorsNCIS is governed by an elected Board

of Directors, who sets policy and providesoverall direction for the association and

staff. Each elected director much be a rep-resentative from an NCIS full membercompany. This means that the companyrepresented subscribes to the full menu ofservices available through membershipand thus pays assessments to NCIS for alllines of insurance written by that membercompany. Each member of the Board iselected during the business portion of theassociation annual meeting, and serves atwo-year term.

Within the Board of Directors is theExecutive Committee, made up of theChairman of the Board, Vice Chairman,and Second Vice Chairman. Each positionis a one-year term, and cannot be held formore than two consecutive terms. TheExecutive Committee can exercise any orall of the powers of the full Board ofDirectors and reports on a regular basis tothe full Board concerning its actions. Inpractice, most Board activities are con-ducted in person with a quorum of the fullboard, whereas, the executive committeeusually functions when time constraintsmake convening the full board impracticalor unworkable.

One of the main Board functions is totake action on recommendations receivedfrom the subordinate standing committees.In fact, all actions taken by a standingcommittee are only in the form of a rec-ommendation to the BOD and these rec-ommendations only become effective ifapproved by the Board. Currently there are

eight advisory standing committees, namely:1) Program Development Committee(PDC), 2) Technology and InformationProcesses (TIP), 3) Crop-Hail Actuarial& Statistics (C-H/A&S), 4) MPCI Actuarial& Statistics (MPCI/A&S), 5) Crop-HailPolicy, Procedure, and Loss Adjustment(C-H/PPLA), 6) MPCI Policy, Procedure,and Loss Adjustment (MPCI/PPLA),7) Training and Education, and 8) PublicRelations. As stated above, the specificfunctions of these committees will bediscussed in detail in future issue of themagazine.

For example, when one of the region-al/state crop insurance committees makesa recommendation to NCIS, it is always inthe form of a recommendation to theBOD. However, prior to action by theBOD the recommendation is firstreviewed and discussed by an appropriatetechnical standing committee(s) for itsinput. The genius behind this practice isto ensure that all recommendations havebeen thoroughly discussed and vetted byindividuals with the technical and subjectmatter expertise to ensure that the intend-ed results occur, if the recommendation isapproved, and to avoid unintended con-sequences. Consequently, sometimes theoriginal recommendation, after being dis-cussed at the standing committee level, issent back to the original regional/statecommittee making the recommendationfor more information or further clarifica-

Focus onNCIS STANDING

COMMITTEES

TODAYcrop insurance

By Laurie Langstraat, NCIS

28 FEBRUARY 08


tion. And all recommendations from theR/S committee that are accepted by thetechnical standing committees are pre-sented to the other R/S committees fortheir input prior to going before the BOD.By following this process, recommenda-tions that seem proper for one region ofthe country are discussed in the otherregions to guard against regional differ-ences in practices and actions. Ultimately,the recommendations move from theregional/state level, through the standingcommittee level, to the ProgramDevelopment Committee. All recommen-dations from the other seven standingcommittees are considered by the PDCprior to being addressed by the NCISBoard of Directors for action—eitheracceptance or rejection of the recommen-dation.

The NCIS Board not only functions asa group to help better the overall strengthof the crop insurance industry, it serves asthe guide for the overall operation ofNCIS. The Board is responsible for settingand approving the operating budget eachyear for NCIS and for appointing aPresident of the association, who overseesand directs the overall day-to-day opera-tions of the association. The President ofNCIS, may also serve as a Board member.The Board of Directors meets regularly ona quarterly basis but can meet at othertimes if deemed necessary.

Program DevelopmentCommittee

The Program Development Committee(PDC) is the final body that reviews therecommendations from each standingcommittee before they are passed on tothe Board of Directors for final action. This“training ground” for future Board mem-bers is comprised of the chairmen of eachstanding committee. This approach helpsprovide the PDC members with first-handinsight into discussions that occurred at the standing committee level with regardsto each proposed recommendation.Consequently, if the proposed recommen-dation is rejected by PDC, or sent back forfurther discussion and clarification, thePDC member on that standing committeehas an understanding of what type of addi-

tional information is needed and it is easi-er for the Committee to clarify the recom-mendation before sending it back up theladder for further review.

The PDC meets on a quarterly basisjust before the NCIS Board of Directors is

scheduled to meet. The chairman of thePDC is a member of the NCIS Board ofDirectors and is appointed to that positionby the full Board.

NCIS Board of DirectorsRandy Tronnes, Chairman, Rural Community Insurance Services

Steve Harms, Vice Chairman, Rain & Hail L.L.C.

Steve Rutledge, Second Vice Chairman, Farmers Mutual Hail Insurance Company of Iowa

Jim Aldeman, American Farm Bureau Insurance Services

Greg Burger, NAU Country Insurance

Ted Etheredge, ARMtech Insurance Services

Ben Latham, ProAg Insurance Group

Robert Parkerson, National Crop Insurance Services

Tim Weber, Great American Insurance Company

Program Development Committee

Tim Weber, Chairman, Great American Insurance Company(Member of the NCIS Board of Directors)

Ron Brichler, Great American Insurance Company(Chair of the MPCI Actuarial & Statistics Committee)

Michael Connealy, ProAg Insurance Group(Chair of the Crop-Hail Actuarial & Statistics Committee)

Mike Day, Rural Community Insurance Services(Chair of the Training and Education Committee)

Gene Grimsley, Agro National L.L.C.(Chair of the Public Relations Committee)

Bob Haney, Rain and Hail L.L.C.(Liaison to the Litigation Committee)

Darrell Matejcek, Heartland Crop Insurance(Chair of the MPCI Policy, Procedure, and Loss Adjustment Committee)

Greg Meek, Farmers Mutual Hail Insurance Company of Iowa(Chair of the Crop-Hail Policy, Procedure, and Loss Adjustment Committee)

Michael Smith, ARMtech Insurance Services(Chair of the Technology and Information Processes Committee)

30 FEBRUARY 08

Continued from President’s page

consistent and timely adjustment ofinsured losses while maintaining a focus onprogram integrity.

The year began with an early freezeevent in California that threatened the avo-cado and citrus crops. Similar to a situationthat occurred late in 1998, RMA authorizedusage of expedited loss adjustment proce-dures that enabled companies to dealquickly with the damaged citrus crop. Thisevent was soon to be followed withexceptionally warm late-winter weather inthe central U.S. causing wheat and othercrops to come out of dormancy early andbegin growing. Then these crops werefaced with a damaging freeze in early Aprilaffecting much of the wheat crop in east-

ern Kansas and Oklahoma, as well as nurs-ery and other fruit bearing crops all theway to the East coast. As nurseries inKentucky and Tennessee were hit espe-cially hard by this freeze, NCIS, in cooper-ation with RMA, held an industry adjustertraining session to provide updates on cur-rent procedures specific to the situation.Continued early-season wet weatherthroughout the central plains broughtabout issues concerning whether or not itwould be practical to replant damagedspring crops under various conditions.NCIS, on behalf of its membership, recent-ly submitted a recommendation to RMAwhich we hope might alleviate many ofthe issues and concerns surrounding prac-tical to replant and first/second crop con-siderations. In other parts of the country,the growing season progressed into peri-ods of exceptionally dry conditions. Thiscreated a need for RMA to clarify proce-dures when dealing with insureds attempt-ing to salvage what they could of theircorn crop by chopping it for silage. Theclarification gave companies the ability tomore expeditiously authorize usage of rep-resentative strips for later appraisal. The

extreme dry conditions also affected muchof the crop producing areas of theSoutheastern U.S. with the year culminat-ing in hot dry winds and wild fires insouthern California. RMA has been work-ing closely with the industry in identifica-tion of the resultant southern Californiacrop losses that were due to insurablecauses.

There were other areas within the cropinsurance program where a close workingrelationship within the industry was war-ranted in order to bring about better pro-cedural or policy clarity. In addition to themany regularly sponsored NCIS adjustertraining schools, NCIS also facilitated spe-cial training sessions on Onion loss adjust-ment and the 2007 Peanut program. 2007was also the first full year for implementa-tion of the new quality adjustment provi-sions for many of the insurable graincrops. Considerable time at our NCISUpdate Conferences was devoted tounderstanding these new provisions andtheir applicability under various situations.A workgroup of member company volun-teers was formed to work with RMA toexplore possible ways to capture andtransmit crop quality information back toRMA with the goal of gaining a betterunderstanding of the types of insurablequality defects that occur and the resultantaffect grain quality has on indemnities.

NCIS, with the help of many of ourmember AIPs, worked closely with RMAtowards the goal of bringing about proce-dural uniformity and better clarity withrespect to conflict of interest disclosureguidance.

Crop-Hail The 2008 Final Average Loss Costs

were filed in Arizona, Iowa, Kansas,Kentucky, Minnesota, Nebraska, NewMexico, North Dakota, Oklahoma, SouthDakota, Tennessee and Texas. All loss costfilings were approved and distributed tothe membership by mid-September. Formfilings which included a revision to theAssignment of Indemnity were filed in allstates for 2008. Over 90 percent of theform filings were approved by mid-October. The last of the form filings wasapproved the first of December.

Filings were submitted electronicallyusing the SERFF (System for ElectronicRate and Form Filing) method. Currently10 states require that SERFF be used whensubmitting filings to the state.

The states that are scheduled for newFinal Average Loss Costs for the 2009 cropseason include: Alabama, Arkansas,California, Colorado, Florida, Georgia,Idaho, Illinois, Indiana, Louisiana,Michigan, Mississippi, Missouri, Montana,Nevada, North Carolina, Ohio, OregonSouth Carolina, Utah, Virginia,Washington, Wisconsin and Wyoming.

The NCIS Board also directed Staff andboth the Crop-Hail Loss Adjustment andInsurance Products and Crop-HailActuarial and Statistical Committees toinvestigate the feasibility of developing a“production plan” crop-hail program. BothCommittees have met to discuss it and willcontinue to work on it in 2008 and reportto the NCIS Board throughout the process.

ResearchThe NCIS research department was

busy overseeing 22 different agronomicresearch projects in 16 states, one inCanada and one in Great Britain. 2008 willprove no different as there are 27 projectsin 17 states, one in Canada and one inGreat Britain.

Education & TrainingNCIS sponsored 35 loss schools, field

days, and conferences in 2007 with over2,200 people attending. The highlight ofthese was the second annual ProgramIntegrity Conference, which provided anexcellent opportunity to discuss the issuessurrounding program integrity and proac-tively set forth an agenda to ensure ethicalconduct by all associated with the cropinsurance program. Planning is under wayfor the third annual conference scheduledfor May of 2008.

A new initiative in 2007 was approvalby the NCIS Board to establish a programwhereby crop adjusters can demonstratean approved level of proficiency (cur-rently called the Crop AdjusterProficiency Program or CAPP). Theintent of this program is to help adjusterssatisfy state licensing requirements con-

. . . take the optimistic

approach to tell the

true story . . .


sist with the requirements of the SRA.(See the full article on AdjusterProficiency on pages 11-13.)

NCIS also continued to be activelyinvolved with universities and organiza-tions that have a special talent in reachingsmall and limited resource farmers, andproducers in states identified by RMA forspecial emphasis on risk managementeducation.

Public RelationsOver 100 press releases, many indi-

vidualized for specific states were dis-tributed to regional and local newspa-pers regarding sales closing deadlines,changes and program expansion, andothers. Many of these were placed inagricultural magazines and websites.Over 75,000 copies of the 2007 Guide toCrop Insurance were distributed to farm-ers across the country and the reader-ship of Crop Insurance TODAY contin-ues to grow.

AdministrativeIn 2007, NCIS provided actuarial doc-

ument services to 5,111 agents who areaffiliated with NCIS members. Over theyear, NCIS processed more than 353,000document and map pages to provide thisservice. By year end, only 204 of these5,111 agents still received their docu-ments on paper; the remainder receiveactuarials on CD-Rom. In addition, 1,477agents now access their actuarial docu-ments online, through the NCIS web siteeither as a supplement to their paper orelectronic versions, or in place of them.

The NCIS web site remained quiteactive in 2007 and continues to be a pri-mary means by which NCIS deliversinformation to its members. Here aresome highlights:

In 2007,• More than 3,000 individuals used logon

IDs and passwords that grant themaccess to NCIS products through ourweb site.

• Our home page was viewed 63,958times.

• Agents accessed actuarial documentsonline 12,092 times.

• NCIS members visited our online “Form

Store” 916 times, making 284 onlinepurchases.

• Over 1,300 people registered for meet-ings online.

• NCIS members linked to NCIS bulletinsfrom our bulletin release announce-ments 2,510 times.

Legal2007 was an active year on the litiga-

tion front. One litigation highlight of theyear was securing a final victory on thefederal pre-emption issue in the challengeto Florida's efforts to tax MPCI premium.We hope this deters future state actions to intrude on the federal crop insuranceprogram.

The long running Minnesota Sugar Beetlitigation passed two significant milestonesin 2007. First, the indemnification claimagainst FCIC was resolved, and settlementfunds were distributed in the summer.Second, agreement was reached with thebeet growers who protested their APHadjustments based on the prior settlementof their crop year 2000 claims, and weexpect execution of final documents inthat matter quite soon. Thus, the first quar-ter of 2008 should close out the last aspectof the Minnesota Sugar Beet litigation.

Throughout 2007, the CAT ("Winstar")case remained very active, and 2008should see us complete preparation for ahearing on the merits before the CivilianBoard of Contract Appeals. This suitseeks recovery of CAT administrative feeseliminated by the 1998 Research Act, andCAT LAE reduced by that Act as well asARPA 2000.

Last year brought two new litigationmatters, both of which involve crop year2006 corn planted in Texas under theGroup Risk Income Protection plan ofinsurance. Irrigated farmers commencedan arbitration complaining about theamount of indemnities they had received,and non-irrigated farmers filed a suit inAmarillo federal court contesting FCIC's2006 determination that planting non-irri-gated corn in certain Texas counties didnot constitute a good farming practice.

ContractingNCIS was active in 2007 in several signif-

icant risk management education activities.

NCIS was awarded a competitively fundedagreement with RMA in the BillingsRegion to provide training on Livestockinsurance and risk management.

USDA/RMA research contracting activi-ties for 2007 included an expert reviewcontract on cherries, which was awardedto NCIS late in the year. Staff will continueto work on this project in 2008.

Special ProjectsGrant Thornton LLP was engaged by

NCIS and its member companies to updatethe 2004 Profitability and EffectivenessAnalysis of the Federal Multi Peril CropInsurance Program for the period of 1992-2006. This study benchmarked the MPCIindustry against the Property & Casualtyinsurance industry. (The full report can befound on the NCIS website.)

The report pointed out several keyfindings that disputed other reports fromgovernment agencies. Because of the keyfindings, NCIS Staff, along with GrantThornton associates, were invited toWashington D.C. to explain the analysis tomembers of Congress and their staff. Webelieve that the report was well-receivedbecause it was referred to and portions ofthe report were read during the Senatedebate on the 2007 Farm Bill.

Conclusion2007 was a very busy year for every-

one in this Industry! As we said earlier, thesaga of the '07 Farm Bill continues into'08. And as the price of corn and wheatgoes up, the pessimism from the presstowards this Industry increases. Thesenegative and confusing stories as told bythe media and some congressional peopledo nothing to help the farmers and ranch-ers in this country.

The NCIS Board and Staff have decid-ed to take the optimistic approach to tellthe true story of how this program isworking as it was designed to. We willbring out the facts on how this programhas saved many family farms and helpsmake payments on operational loans andmortgages. And we will continue to doour part to ensure that the abundantamount of food we enjoy today continuesfor many years to come.

32 FEBRUARY 08

Stu Duncan is the Northeast AreaExtension Crops & Soils specialist on facul-ty at Kansas State University (KSU), locatedin Manhattan. His primary responsibilitiesare to develop extension production cropsand soils educational programs and pro-vide technical support to the 24County/District Agriculture and NaturalResources agents in the NortheastExtension Area. To provide the basis forthese programs, he establishes appliedresearch and demonstration plots through-out the area on KSU Experiment Fields andon farmer fields. His crop production pro-gram covers a wide variety of row crops(corn, cotton, soybeans and grainsorghum), wheat and forages (alfalfa,smooth bromegrass and native range).

Growing up on a small, diversified cropand livestock farm near Olivet, in east cen-tral Kansas, developed a hunger in Stu topursue a career in production agriculture.Duncan earned his B.S. in Agronomy fromKSU in 1977, and began his career as theJackson County Ag Agent in Holton, Kan.in 1978. In 1986, he returned to KSU as agraduate research assistant for Drs. JimShroyer and Bill Schapaugh. He earned his

M.S. (1988) and Ph.D. (1991) degrees eval-uating relay intercropping soybeans intowheat. Upon graduation in 1991, he contin-ued his career with the CooperativeExtension Service as the South Central AreaExtension Crops and Soils specialist locatedin Hutchinson, Kan., and moved to theNortheast Area Office in Manhattan in 2004.

As an Area Agronomist, one of the manyhats worn is that of a “first responder.”When a County Agent is faced with a situa-tion beyond his or her capability, or onerequiring a second opinion, the AreaAgronomist is the person called. Duncanthrives on the diversity of in-season oppor-tunities ranging from evaluating wheatresponse to a late freeze, disease or insectinfestations, herbicide or fertility issues orany number of other issues.

Since the passage of the 1996 Farm Bill,many agronomic opportunities have arisenfor Duncan. He initiated applied research ofplanting dates and hybrid/variety maturitygroups with soybeans, grain sorghum andsunflowers in south central Kansas wherelimited acres of these crops had been plant-ed full season. The sorghum and soybeanprojects were folded into statewide initia-tives within two years. Also at that time, cot-ton acreage began to increase in Kansas,mostly in the south central area. With theintroduction of adapted Roundup Readyvarieties, acreage grew to 115,000 acres in2006. Duncan was named the lead cottonextension specialist for KSU in 1997. One ofthe first KSU projects was sponsored byNCIS to determine an appropriate plantingwindow for cotton. In addition, Duncanand Dr. Scott Staggenborg have headed theKSU Cotton Production project. The KSU

Cotton Performance Variety Tests had 48entries in 2007. In addition, the project hasevaluated seed insecticide treatments, overthe top insecticide treatments, cotton popu-lations, costs of harvest delays, double-cropping potential and defoliation treat-ments. These projects have been estab-lished on KSU and cooperator fields fromthe Missouri border on the east to theColorado border on the west, and norththree tiers of counties from the Oklahomaborder.

Currently, Duncan is working with NCISto evaluate the effects on yield of differentpercentages, heights and timing of wheathead breakage. This three year projectshould be completed in 2008. Field resultsto help develop a replanting guide for corn,cotton, soybean and wheat growers havebeen collected for one growing season withat least one more set of data points to begathered. Duncan and co-workers are alsointensively evaluating fungicide treatmenton winter wheat, corn and soybeans. Hethrives on the diversity of the opportunitiespresented by the Kansas environment.

Extension Specialist, Crops & Soils Northeast Area Extension OfficeKansas State University

TOD

AYRESEARCH

Dr. Stu DuncanTODAYcrop insurance

Dr. Stu Duncan

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TOP 20 STATES FOR NCIS MEMBERS

AL17

AZ6

AR27

CO44

CT 0

DE 2

GA37

KS79

OK127

TX51

NM93

UT61

WY31

M016

NH 0

VT 0

RI 0

NJ 0

NY31

PA81

VA21

NC52

SC62

WV0

OH20

WI30

NV0

NE43

MT67

MS4

ND74

MN54

SD31 MI

73

MA 0

MD 0

ME0

LA13

TN39

KY72

IA30

IN21

IL14

ID40

OR89

WA7

FL46

CA27

0 to 35

66 to 100

101 and up

36 to 65

Data Source: NCIS 6-B Adjusted Verified Totals as of 01/2/2008.

© National Crop Insurance Services.

TODAYcrop insurance

2007 US CROP-HAIL LOSS RATIO BY STATEAll Crops • All Losses • All Policies

STATE PREMIUMS LOSSES LOSS RATIO %Nebraska 61,891,718.00 26,314,327.00 42.52North Dakota 59,052,893.00 43,736,383.00 74.06Iowa 50,834,400.00 15,161,397.00 29.83Texas 46,893,032.00 23,707,352.00 50.56Kansas 42,561,075.00 33,511,794.00 78.74Minnesota 39,703,255.00 21,299,234.00 53.65Illinois 38,751,333.00 5,332,939.00 13.76South Dakota 23,474,738.00 7,329,430.00 31.22Montana 18,008,211.00 12,068,771.00 67.02North Carolina 10,696,809.00 5,508,609.00 51.50Missouri 10,398,766.00 1,690,229.00 16.25Indiana 9,521,427.00 2,036,380.00 21.39Colorado 9,208,183.00 4,031,098.00 43.78Washington 9,100,899.00 644,354.00 7.08Wisconsin 8,716,858.00 2,632,332.00 30.20Idaho 8,656,194.00 3,485,098.00 40.26Oklahoma 8,621,279.00 10,987,334.00 127.44Arkansas 7,933,546.00 2,164,935.00 27.29Ohio 5,113,822.00 1,007,693.00 19.71Michigan 3,616,317.00 2,624,174.00 72.56All State Totals 492,073,262.00 234,151,581.00 47.58

Data Source: NCIS 6-B Adjusted Verified Totals as of 01/02/2008.© National Crop Insurance Services

34 FEBRUARY 08

STATE RANKINGS OF PREMIUMS FOR MPCI

* Rounded to ThousandsData Source: RMA Summary of Business as of 12/31/2007. • Prepared by National Crop Insurance Services 01/2008.

STATE 2007 PREMIUMS* 2006 PREMIUMS * % CHANGEIllinois 620,014 418,961 47.99Iowa 600,392 366,695 63.73North Dakota 535,036 384,851 39.02Minnesota 519,602 318,241 63.27Texas 467,777 399,747 17.02Nebraska 447,297 286,365 56.20Kansas 442,496 281,988 56.92South Dakota 424,066 264,203 60.51Indiana 300,789 194,370 54.75Ohio 193,026 127,343 51.58Missouri 187,697 128,166 46.45California 186,385 186,653 -0.14Wisconsin 158,189 98,485 60.62Colorado 138,481 91,329 51.63Florida 137,027 83,300 64.50Montana 120,027 95,641 25.50Michigan 116,043 78,785 47.29North Carolina 108,335 88,873 21.90Georgia 90,381 89,091 1.45Oklahoma 88,811 62,506 42.08Arkansas 61,434 49,515 24.07Kentucky 60,283 39,194 53.81Mississippi 59,629 44,375 34.38Washington 57,115 52,122 9.58Louisiana 51,554 37,756 36.55Tennessee 46,973 33,412 40.59Pennsylvania 44,700 32,537 37.38Idaho 43,063 38,480 11.91Alabama 39,295 35,085 12.00South Carolina 38,509 31,286 23.09Virginia 37,206 26,388 41.00Oregon 24,040 20,579 16.82Maryland 23,904 17,015 40.49New York 21,873 18,594 17.63New Mexico 14,110 11,191 26.08Wyoming 13,048 10,443 24.94Delaware 8,777 5,566 57.69Arizona 7,415 9,023 -17.82Maine 5,408 5,147 5.07Connecticut 4,217 3,452 22.16New Jersey 4,181 3,065 36.41Massachusetts 2,943 2,456 19.83Utah 2,166 2,096 3.34West Virginia 1,847 1,359 35.91Hawaii 1,618 1,080 49.81Vermont 1,445 989 46.11Nevada 805 821 -1.95New Hampshire 386 315 22.54Rhode Island 86 65 32.31Alaska 35 36 -2.78Totals 6,559,936 4,579,035 43.26


ADJU

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Ark

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Col

orad

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nect

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Mas

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Min

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90-2

Mis

siss

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Mis

sour

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(P)9

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6190

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Jer

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90-2

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Car

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690

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nd(P

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6190

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ont

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inia

(P)6

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6190

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hing

ton

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290

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90-7

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irgin

ia61

90-1

4W

isco

nsin

6190

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Wyo

min

g61

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0-2

INSURABLE CROPSLocations&Plans

The following pages contain a list of all federally subsidized insurable crops, what states they are insurable in, under what plan(s)of insurance, and the number of counties where they are insurable. Please note this information is current as of December 15, 2007.Changes are constantly occurring in the crop insurance program and you should contact your crop insurance agent for the mostup-to-date information.

The numbers in the matrix refer to specific insurance plans by the plan number as identified by the Risk Management Agency (RMA).A number containing a dash indicates that the crop is not insurable in every county in the state. The number following the dash representsthe number of counties in that state the crop is insurable under the plan of insurance indicated by the number before the dash. For exam-ple, the code 90-16 means that specific crop is insurable under the APH plan of insurance in sixteen counties in the state. If the numberdoes not contain a dash, the crop is insurable in every county in the state. A number including (P) is a pilot program.

*AG

R is

a p

lan

of in

sura

nce

and

not

a c

rop

. Und

er A

GR

man

y cr

ops

(incl

udin

g li

vest

ock)

are

insu

rab

le

that

are

not

insu

rab

le u

nder

any

oth

er p

lan

of in

sura

nce.

10 = PNT-Peanuts12 = GRP-Group Risk Plan13 = GRPRI-GRP Rainfall Index14 = GRPVI-GRP Vegetation Index25 = RA-Revenue Assurance30 = TGP-Tobacco (Guaranteed Production)40 = TDO-Tree Based Dollar Amount of Insurance41 = PRV-Pecan Revenue42 = IP-Income Protection

43 = AQDOL-Aquaculture Dollar44 = CRC-Crop Revenue Coverage45 = IIP-Indexed Income Protection46 = ARC-Avocado Revenue Coverage50 = DO-Dollar Amount of Insurance51 = FD-Fixed Dollar55 = YDO-Yield Based Dollar Amount of Insurance61 = AGR-L-Adjusted Gross Revenue - Lite63 = AGR-Adjusted Gross Revenue

70 = TQ-Tobacco (Quota)73 = GRIP-Group Risk Income Protection81 = LRP-Livestock Risk Protection82 = LGM-Livestock Gross Margin84 = GS-GYC Span86 = G-Grower Yield Certification90 = APH-Actual Production History92 = APHAR-APH-Alternatively Rated96 = IAPH-Indexed APH

36 FEBRUARY 08

CITR

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150

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0-28

Geo

rgia

90-4

90-9

(P)9

0-2

90-3

Haw

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(P)9

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Idah

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-43,

(P)4

2-43

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4390

-17

90-2

25-2

6,90

-26

90-4

Illin

ois

90-1

90-4

(P)9

0-3

Indi

ana

90-2

90-4

Iow

a90

-11

90-4

Kan

sas

90-7

590

-12

Ken

tuck

y90

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Loui

sian

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aine

9090

-8M

aryl

and

90-1

890

-10

Mas

sach

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N90

-39

90-3

190

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90-5

(P)9

0-2

(P)5

1-2

Min

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-74,

(P)4

2-74

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7490

-41

90-1

525

-24,

90-2

4M

issi

ssip

pi90

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isso

uri

90-1

7M

onta

na25

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2-55

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5590

-18

90-1

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ska

90-2

690

-25

Nev

ada

90-1

2N

ew H

amps

hire

New

Jer

sey

90-7

90-3

90-4

New

Mex

ico

90-4

90-4

90-1

(P)5

1-2

New

Yor

k90

-15

90-1

390

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(P)9

0-3

Nor

th C

arol

ina

90-5

790

-190

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orth

Dak

ota

25,(P

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9090

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25-9

0O

hio

90-2

(P)9

0-2

Okl

ahom

a90

-24

90-1

Ore

gon

(P)4

2-30

,90-

3090

-390

-990

-7(P

)90-

390

-7(P

)51-

690

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nnsy

lvan

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-54

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CROP INSURANCE TODAY 39CROP INSURANCE TODAY 39

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40 FEBRUARY 08

RICE

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42 FEBRUARY 08


In recent months, sharp divisionshave arisen in Congress with regard tothe future direction of government sup-port for agriculture. Congressional effortsto renegotiate and reauthorize the FarmBill faced strong pressures from a num-ber of directions. Among the proposalswere plans to reduce Federal funding forcrop insurance as a means to increaseother benefits to farm producers.

In reaction to these attacks on theprogram, and under the leadership of itsBoard of Directors, NCIS engaged theservices of Grant Thornton LLP to devel-op a formal response to the informationreaching Congress that had created aninvalid perception of the profitability ofthe crop insurance industry and the costeffectiveness of the delivery system. Thisled to a decision to update a series ofearlier reports on industry profitabilityand effectiveness developed byPricewaterhouseCoopers (1997 and1999) and revised by Deloitte (2004).Industry-wide premiums, Administrationand Operating (A&O), and underwritinggains and losses through reinsuranceyear 2006 were obtained from RMA,while company expenses were collectedvia a survey of NCIS member compa-nies. Data for the Property/Casualty(“P&C”) insurance industry wereobtained from A.M. Bests’ Aggregatesand Averages annual publications. Theupdated report, “Federal Crop Insurance

Program: Profitability and EffectivenessAnalysis – 2007 Update” was released onOctober 4, 2007. An indication that thereport had made a favorable impressionbecame evident when the 2007 GrantThornton report was cited explicitly dur-ing recent Congressional discussions ofthe Farm Bill.

One of the critical issues on which anindustry perspective was needed was inresponse to testimony given on May 3,2007 by representatives of the GeneralAccountability Office (“GAO”) before the Committee on Oversight andGovernment Reform of the House ofRepresentatives. According to the GrantThornton report:

“In that testimony, the GAO statedthat over the five-year period 2002through 2006, the MPCI program gener-ated Underwriting Gains representing anaverage annual rate of return of 17.8percent which was considerably higherthan the P&C benchmark of 6.4 percentfor the same period. That testimony iscontradictory to our findings.”

The GAO comparison was misleadingin several ways. One problem was theuse of different time periods as the basisof the comparison. Grant Thornton foundthat the GAO testimony compared theMPCI results for 2002 through 2006 toP&C industry results for 2001 through2005. This resulted in a significant distor-tion of the comparison because 2001 wasthe year of the World Trade Center attackin New York City. Due to the enormouslosses resulting from that event, 2001became the first and only year in the his-tory of the P&C industry that the industryas a whole suffered a loss. This meantthat GAO had compared an exceptionallyprofitable period for the MPCI industry toa period including the worst single yearin P&C industry history. By shifting theperiod one year, to the five-year period2002 to 2006, the Grant Thornton reportestimated the P&C industry average annu-al return to be 12.6 percent of premium,nearly twice the figure reported by GAO.

This mismatch of time periods wasnot the only issue with the GAO analysis.

The Grant Thornton ReportMPCI PROFITABILITY& EFFECTIVENESSBy Frank Schnapp, NCIS

TODAYcrop insurance

The GAO comparison was

misleading in several ways.

One problem was the use

of different time periods as

the basis of the comparison.

Grant Thornton found

that the GAO testimony

compared the MPCI results

for 2002 through 2006 to

P&C industry results for

2001 through 2005.

GAO also failed to account for the waysin which P&C data differs from MPCIdata. In particular, P&C premiums areexpense loaded while MPCI premiumsare not. By failing to take this differenceinto account, GAO had used mismatchedpremium bases in its calculation of MPCIand P&C profitability ratios, an exampleof the familiar “apples vs. oranges” com-parison. To account for this difference,Grant Thornton adjusted P&C industrypremiums to represent just the expectedindemnity payments. This was accom-plished by removing P&C industryexpenses from the P&C premiums.Deloitte’s 2004 report incorporates thesame adjustment. With this change, thecorrected P&C profitability ratio for 2002-2006 rose to 20.6 percent, exceeding the17.8 percent figure that GAO had report-ed for MPCI.

In its analysis, the GAO had reportedMPCI profitability of 17.8 percent versus

6.4 percent for the P&C industry.However, after accounting for the two cor-rections described above, as well asadjusting for the shortfall in A&O subsi-dies to cover all of the industry’s expens-es over the historical period used in theanalysis, Grant Thornton indicated theprofitability comparison should bereversed, with MPCI at 13.0 percent ofpremium versus 20.6 percent for the P&Cindustry over the 2002 to 2006 period. Inaddition to being less profitable, the MPCIprogram was also riskier than standardP&C business as measured by the standarddeviation of returns. This is at odds withthe traditional concept that greater risksare associated with greater rewards.

In summary, the Grant Thorntonreport found that MPCI is not as prof-itable as P&C when stated on a consis-tent basis, even though MPCI entailsgreater risk. The report also found thatA&O subsidies paid to the industry have

historically been below the actualexpenses incurred. These amounts aresignificant and cannot be disregarded inevaluating the profitability of the pro-gram. The final finding of the GrantThornton report was that MPCI expenseto premium ratios are significantlybelow those of the P&C industry whenstated on a comparable basis. Whilesome of this may be due to the differentways in which the two industries oper-ate, most of the difference is due to thegreater cost effectiveness of crop insur-ance companies.

Questions regarding this story can be directed to Frank Schnapp [email protected]. A copy of the entireGrant Thornton report can be found on theNCIS website at www.ag-risk.org.

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© 2007 Great American Insurance Company. All rights reserved.

For over 130 years, we’ve given our customers the security of knowing they have the upper hand in managing their business. We’ve given our expertise, our resources and our word that we’ll be here when you need us. Our top priority at Great American is to give you help and hope to overcome even the most devastating crop challenges.

We’re proud to offer quality insurance products, superior customer service and a history of financial strength. As one of the largest Crop insurers in the Midwest, Great American is recognized as a leader in this specialized marketplace.

Visit us online at www.MyAgriTrust.comGreat American is an equal opportunity provider.

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