AUBURN, Ill. — The USDA Risk Management Agency’s (RMA) announcement that it will update the methodology used to set crop insurance premiums was met with mixed reaction by corn growers’ organizations at national and state levels.

The rate adjustment, based on findings from an independent study and a peer review process, will lead to lower insurance premium rates for both corn and soybean producers in the 2012 crop year, according to the RMA.

“We are improving the formulation of our rate-making methodology, and are moving to establish the most fair and appropriate premium rates for today’s producers,” said RMA Administrator William J. Murphy, in a news release dated Nov. 28.

“On average, these new rates should reduce corn farmers’ rates by 7 percent and soybean farmers’ by 9 percent. As good stewards of taxpayers’ dollars, we welcome the opportunity to match premium rates more accurately with current risks.”

According to the RMA, the updated approach will focus on efforts to adjust premium rates to reflect modern technology, weather and program performance information. Also considered were updated data pertaining to prevented planting, replant payment and quality adjustment loss experience in determining rate changes.

The National Corn Growers Assoc. (NCGA) praised the USDA’s announcement.

“The RMA periodically reviews premium rates and makes necessary adjustments for actuarial soundness, in order to establish the most appropriate premium rates for today’s producers. The current approach they are offering (adjusts) those premiums in a manner that recognizes the latest technology, weather and program performance information,” said NCGA President and Auburn, Ill., farmer Garry Niemeyer.

“We have newer, better technology in seed corn that we’re planting that has resulted in diminished yield variability. We feel like that justifies lowering the premiums to reflect that technology. Our farmers have historically paid more than their fair share of insurance premiums and we are pleased to see this is finally coming to an end.”

The Illinois Corn Growers Assoc. (ICGA) stopped short of endorsing the RMA’s decision, saying while future crop insurance investments by Midwest farmers will now more closely represent their risk, the re-rating of premiums still misses the mark on making sure farmer and government investments stay out of corporate pockets.

“House Ag Committee Chairman Frank Lucas (R-Okla.) really complicated this process,” said Jeff Scates, newly-elected ICGA president, while also commending the RMA’s decision. “(Lucas’) arbitrary objection to RMA’s established actuarial system, followed by obstructionary tactics aimed at politicizing an action that should have been an ordinary course of RMA’s business, meant that the re-rate did not correct farmer overpayment as much as it could have.

“Lucas’ actions really demonstrate he isn’t interested in a regional equity and what’s best for family farmers.”

Federally supported crop insurance programs were structured to have a loss ratio of 1.0, resulting in an equal number of dollars paid out in claims over time. Premium overpayments, however, have accrued to crop insurance companies as profit, corn growers allege.

“The loss ratio was at 0.59, I believe, and historically it should be closer to 1.0.” said Niemeyer.

The discrepancy has definitely resulted in less money in farmers’ pockets and more profits for insurance companies, Scates continued.

“Our members do their due diligence to minimize claims, Obviously the goal each crop year is to farm the farm, not farm insurance programs,” he said. “Crop insurance companies, however, have farmed the premiums, knowing full well it will grow their profits, rather than equal out to a zero-sum game as was intended.”

RMA contracted with Sumaria Systems, Inc. for the crop insurance premium study and requested an independent expert peer review to provide feedback on the results. 

The RMA announced it will conduct further review and analysis of the study’s recommendations and peer review results in order to make further appropriate adjustments on a “phase-in” basis.

“We will continue to work with the USDA as they implement these new premiums,” said Niemeyer.

Scates allowed that the re-rate represents positive news for Midwest corn and soybean farmers who have long been subject to premium overpayments.

“Illinois corn farmers, in partnership with the (NCGA), have been working on this re-rating process for nearly 10 years and across multiple administrations,” he said. “It took persistence, but that investment in time and energy will pay dividends, as corn farmers in Illinois have made progress toward a more equitable premium system that has historically benefited crop insurance companies with premium overpayments.”

The RMA has released actuarial documents reflecting premium rates and other program information that will be effective for the 2012 spring crop season on its website at www.rma.usda.gov