The U.S. Department of Agriculture's Risk Management Agency announced Tuesday that it will update the methodology to set crop insurance premiums, leading to lower insurance premium rates for many corn and soybean producers in the 2012 crop year.
The rate adjustment is based on findings of an independent study and peer review process.
"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. "On average, these new rates should reduce corn farmers' rates by 7% and soybean farmers' by 9%. "
RMA contracted for a study by Sumaria Systems Inc., which examined premium rates, and the rating process, starting with the United States' two major commodities: corn and soybeans. RMA then requested an independent expert peer review to provide feedback on the Sumaria study results. RMA will conduct further review and analysis of the study's recommendations along with comments and issues raised by peer reviewers, making additional adjustments as warranted and appropriate. Accordingly, RMA is taking action to implement adjustments to premium rates in a "phased in" approach that allows for any further adjustment pending additional analysis of peer review comments.
RMA periodically reviews premium rates and makes necessary adjustments for actuarial soundness, aiming to establish the most appropriate premium rates for today's producers. The current approach will make a concerted effort to adjust premium rates in a manner that recognizes the latest technology, weather, and program performance information. Updated data pertaining to prevented planting, replant payment, and quality adjustment loss experience, was also used in determining rates changes.
RMA will release actuarial documents by November 30 reflecting premium rates and other program information that will be effective for the 2012 spring crop season.
The National Corn Growers Association supported the move.
"Crop insurance rating reforms have been a priority for our members for many years," NCGA President Pam Johnson said. "NCGA feels the Risk Management Agency's announcement represents real reform in decreasing the widening gap between the loss ratio for corn and the premiums charged to growers for policy coverage."
Johnson noted also that the adjustments were a "great first step" and are pleased to see additional modifications.
"Corn farmers have historically paid more than their fair share of crop insurance premiums and we are pleased to see USDA moving forward with the proper changes," Johnson noted.