Crop Insurance Industry Forced To Consolidate

The crop insurance industry will be forced to consolidate by a government plan to spend $6 billion less on subsidizing farmer policies, according to the president of the insurers trade group.

All 16 companies that provide government-subsidized policies to protect farmers from natural disasters, including Wells Fargo & Co. and Ace Ltd., have agreed to the 20 percent cut in funding over 10 years, according to the USDA.

The deal, which companies had to sign to continue to receive subsidies, will drive some companies out of business within two years, says Bob Parkerson, the head of National Crop Insurance Services.

“Our hands were definitely tied, and we were marched against the wall” to sign the agreement, Parkerson said in a telephone interview from the group’s headquarters in Overland Park, KS.

Under the USDA’s proposal announced June 10, payments for government-subsidized administrative costs would be capped at $1.3 billion next year, with the limit rising annually to $1.37 billion in 2015. Two-thirds of the cut will go toward federal-deficit reduction, with the remainder sent to government land-conservation programs, the USDA said.

The consent of crop insurers “lays the foundation for a more sustainable crop-insurance program, reduces the federal deficit, and improves the farm safety-net,” said Agriculture Secretary Tom Vilsack in the USDA statement.

(Source: Bloomberg Businessweek)

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