These insurers have experienced a notable drop in their returns since the SRA was renegotiated in 2010.
Private crop insurance companies are experiencing a notable downward trend in their return figures. This has been a consistent situation since the Standard Reinsurance Agreement (SRA) was renegotiated in 2010. The SRA renegotiation between insurers and the federal government marked a significant change in the direction of that business.
The change in returns have also aligned smoothly with the Risk Management Agency’s benchmarks.
The U.S. Department of Agriculture’s Risk Management Agency laid out certain benchmarks and the returns seen by private crop insurance companies have fallen into place next to those figures. This, according to the National Corn Growers Association’s (NCGA) recent study results.
NCGA Risk Management Action Team chairperson, Steve Ebke, a Daykin, Nebraska farmer, said “The federal crop insurance program is the cornerstone of farm bill risk management programs, and it is more important than ever given the state of the farm economy.”
The NCGA commissioned an independent study examining the private crop insurance industry’s performance.
According to Ebke, the independent study was commissioned to decide whether or not there is any validity to the criticisms made against insurance company returns. He explained that the analysis determined “that the returns private crop insurance companies receive are much smaller than opponents claim, and they are well within the standards set by RMA.”
The findings were based on data spanning from 1998 through 2010 and then again from 2011 through 2015. What they found was that during that first period of time, crop insurance companies experienced an average 14.1 percent net return on retained premium. That said, during the more recent span of time, the average returns were only 1.5 percent, which marks a considerable tumble in returns – 12.6 percent, in fact.
Private crop insurance companies take part in a partnership between the public and private sector. The agreement was made to make it worthwhile for those insurers to sell the federal government’s crop insurance policies to farmers across the United States. The insurers are responsible for policy sales and claims adjustment process management. They must also take on a certain amount of the associated risk. In return they are compensated by way of Administrative and Operating (A&O) reimbursements and underwriting gains.