USDA announced that all 16 private insurance companies who participated in the federal crop insurance program during the 2010 crop year formally agreed to USDA's proposed changes to the system, totaling $6 billion in cuts over the next 10 years.
The signing of the mandated 2011 Standard Reinsurance Agreement (SRA) from all 16 private insurance companies ends negotiations which began in December 2009. USDA first proposed $9 billion in cuts, which were scaled back after three different draft SRAs were released.
Of the savings, $4 billion will be used towards the federal deficit while the remaining will support high-priority risk management and conservation programs.
Secretary of Agriculture Tom Vilsack said that the average return to companies is figured at 14.5%, a "fair and reasonable rate of return" that helps maintain stability in the industry and is slightly less than in the past. An analysis shows that over the past 21 years, crop insurance companies averaged a 17% return when the average reasonable rate for that period was 12.7%.
The crop insurance industry said although the industry felt the negotiation process was generally handled reasonably well by USDA, there were terms and conditions added to the agreement very late in the process that gave companies very little time to react and negotiate a contract that was fair to all parties.
Bob Parkerson, president of National Crop Insurance Services, said the companies had no choice but to sign this SRA because, if they don't, they "cease operating and the safety net that America's farmers and ranchers rely on so heavily would be disrupted."