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The Death of a Farm Program Reform

POSTED: 08:15 AM ET, 12/18/2007 by The Editors

In advance of this year's farm bill debate, The Washington Post reported that 16 private crop insurance companies made $3.1 billion in profits from the heavily subsidized program over the past eight years while the government lost $1.5 billion. Rep. Henry A. Waxman (D-Calif.), citing findings of the Government Accountability Office and the Agriculture Department's Inspector General, dubbed the crop insurance program "a textbook example of waste, fraud and abuse in federal spending."

But last week, in one of several examples of the farm lobby's ability to beat back reform, an amendment reducing industry subsidies by $2 billion over 10 years was soundly defeated, 63 to 32. The proposal from Sens. Sherrod Brown (D-Ohio) and John Sununu (R-N.H.) would have cut federal administrative contributions and required the industry to share slightly more of the underwriting gains in good insurance years. To block it, farm organizations and well-heeled crop insurance lobbyists pulled out the stops. It is a familiar outcome to anyone who followed the debate over the last farm bill.

One example: Both Maine senators voted "no" after local insurance agents protested their margins would be trimmed and blueberry and potato farmers raised concerns that insurance might no longer be available.

This year alone, the American Association of Crop Insurers, representing most private crop insurance companies and hundreds of large agents, has distributed nearly $80,000 to 40 members of Congress. The group's executive director, Michael R. McLeod, called the defeated legislation "the Brown amendment to terminate crop insurance." Big reinsurance companies that backstop the program would have refused to share its risks if the Brown-Sununu trims had gone forward, he contended.

On the contrary, Brown contended, revenues to crop insurance companies would actually increase under the Senate bill, in part because of a new provision requiring farmers and ranchers seeking federal aid after weather losses to have purchased crop insurance. Senate Agriculture Committee Chairman Tom Harkin (D-Iowa), whose campaign fund collected $9,000 from McLeod's group in January, wasn't swayed by the crop insurers' logic. He voted for the amendment.
--Dan Morgan

By The Editors |  December 18, 2007; 8:15 AM ET Harvesting Cash
Previous: Addiction Treatment Abused | Next: Another Arrest in D.C. Tax Scandal

Comments

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Dear Mr. Morgan,

I challenge you to get your facts straight. There is a huge difference between company underwriting gains and profit. Please take time to contact some of the insurance companies administering this program in order that you might educate yourself on this subject. Should the Brown Amendment have passed, it would have been devasting to Crop Insurance, Rural America and our nation's farmers. If researched with an open mind, I'm certain you will change your opinion.

Posted by: Jayson Johnson | December 19, 2007 1:01 PM

Mr. Morgan, I'm a firm believer in a level playing field in all matters. Information used to establish a number of positions concerning crop insurance were developed from incorrect and skewed information which was admited to by the GAO. Had the Brown amendment passed, it would essentially have shut down the Crop Insurance Program which is needed so badly by the Agricultural Sector. Banks would have had no real basis for operating loans and the dwindling number of producers would have been further reduced. The proposal was a disaster before it could have happend when a successful program now exists. It's time to get the facts straight and play on a level field!

Posted by: Michael R Johnson | December 19, 2007 2:57 PM

Dear Mr. Morgan,
It is easy to listen to one side and form an opinion. Before you print articles it is your job to obtain all the facts before forming an opinion. You, in this case, with little knowlege or study have decided to undermine the American farmer. The Brown proposal would have destroyed the crop insurance industry as well as our Farmers.

Posted by: Bill Robinson | December 19, 2007 4:19 PM

You need to stick to subjects that you know something about.Crop insurance is one of the most successful goverment subsidized programs ever and The Brown amendment would have ruined it.Neglect agriculture in this country and we will all pay the price but I am sure you have never lacked for food,fiber or the many other things you enjoy by being taken care of by American agriculture the best in the world.

Posted by: Kip Grant | December 19, 2007 4:22 PM

It is obviously you only know one side of the story. Underwriting gain is quoted as being the industry's profit. This is far from the truth in that companyes spend more than is covered by the expense reimbursment provided by the government. This comes out of underwriting gain to get the true net profit the companies. Your story is very misleading.

Posted by: Richard Bill | December 19, 2007 4:38 PM

Crop Insurance is the only input cost that guarantees income.Think about that. Today's farmers have many choices to pick an insurance plan that is tailored to their ability to handle risk. Farm expenses are at an all-time high. Banks rely on insurance to underwrite their risk,without it many farmers would not qualify for loans. The crop insurance program has been the underlying support system for many years. Try to understand it before you want to pick it apart.

Posted by: Patrick Hardt | December 20, 2007 9:37 AM

Higher Prices on Corn, soybeans and other crops and here we are giving these farmers free money...
I certainly Hope Scottie Pippen uses his subsidy wisely. I would hate to see him and his farms go under.

Posted by: KraziJoe | December 20, 2007 10:53 AM

Senator Brown's statement that if his amendment would have passed, revenues to crop insurance companies would have increased is baloney. Research would have shown this has been required for years. If a producer applies for emergency disaster aid, they are required to purchase crop insurance for at least two years. Disaster programs are a huge burden on taxpayers with no ability to budget the potential cost in a catastrophic year. The private sector has demonstrated it's ability to market all of the extremely confusing products available to farmers today so successfully that they have become the focus for obtaining funds for other non-essential "wasteful programs".

Posted by: Joe Young | December 20, 2007 11:02 AM

My family has been in this business our entire lives and know the history well as ones that are part of one of the 16 Insurance Providers. The GAO and Congress is well aware that it takes around 26.5% administrative and expense reimbursement just to break even to run this most complex line of insurance. This puts companies at a minimum 6% or more above the current levels of expense reimbusement. In response to the Brown amendment, the industry has already answered the call to higher reimbursements for expenses for Revenue type plans (80% of all premium approx) years ago as the Standard Reinsurance Agreement paid 3.4% "less" than standard yield plans to account for higher premiums for those type of plans. In 2005, higher levels of coverage, which are the norm, were then cut yet again as much as an additional 3%.

It is correct that underwriting gains, if any, must first be used to pay yearly expenses and reinsurance costs before any profit is realized. The fact is clear that companies who bear the majority of risk and who operate with expenses higher than the expense reimbursement are taking on a higher defit as prices rise. There simply is no windfall margin at the company level. Bottom line is higher risk comes with higher reward and there certainly is no guarantee when dealing with the weather. With only 16 companies down from around 60, it proves the complexities and risks associated with this industry. Taking risk for the chance at underwriting income was the complement to years of expense reimbursement cuts. Those cuts have exceeded 30% over the years and expenses have risen. For the government to take any portion of the underwriting income or loss is just wrong. With all due respect, education is lacking or history is just being ignored for the unsuccessful attempt of hurting one industry to fund the appetite of special interests of others.

Posted by: Gregory Deal | December 20, 2007 11:17 AM

As a journalist working in Washington, do you always accept any and all statements by a Senator or Representative as Cardinal Truth? Do you automatically accept every report that a federal agency produces as fact without investigating whether those facts are indeed true?

Your article quotes Waxman and Brown and implies that "They said it, therefore it must be true." Unfortunately like most issues as complex and involved as the federal insurance program, sound bites seldom capture the truth of a matter. It takes time, perseverance, and work to come to a full understanding of the issues and it is far too easy to accept sound bites as fact. Shame on you for doing so.

If you choose to understand this program fully, and if your interest is to fully reveal the truth, take the time to understand why the entire crop insurance industry and most all of the farm organizations take exception to the analysis of the GAO and even more so the politically motivated comments of Brown and Waxman. You will find that there is something more than greed behind the industry's claim that the profits made by the companies delivering the program are less than those in the rest of the P&C market and that the program serves farmers and the nation in a economical and effecient manner.

If you continue to choose not to do that, then I hope your readers will see your position as one-sided and ill-prepared.

In the meantime, the companies that work in partnership with the USDA, the hundreds of crop insurance agents working deligently to develop a sound risk managment program for their farmer customers, and the farmers and consumers of food, fiber, and (now) energy in this country can thank their lucky stars that the "reforms" you seek were not successful.

Posted by: Rodney Clark | December 20, 2007 3:02 PM

Mr. Morgan
Shame on you. Did you fully understand the full extent and facts on this issue?
The Brown admendment was based on mis -information and very bias conclusions.
GAO would pull back thier 1st report if they could. Please look at all the facts.
Ed McAlpine

Posted by: Ed McAlpine | December 20, 2007 3:33 PM

Mr. Morgan, If the Crop Insurance Business is so good, I invite you to give it a try. Also the invitation goes for farming as well. Americans receive their food and fiber for a smaller share of their income, than anywhere in the world. Why are you insistant on increasing that cost to the american people? The Brown ammendment whould have done that and more. If you will take time to do your job right, and look into the real profits of the crop insurance companies, perhaps you will find why there are only 16 left out of over 50 just a few years back.

Posted by: Richard Goshert | December 20, 2007 4:43 PM

As a corn farmer in Illinois I know first-hand how important the federal crop insurance program is toward assuring a sustainable future for American agriculture. Also as a crop insurance agent I understand the cost and complexities of delivering such a program to the American farmer. I resent those in Washington who are claiming to try to "reform" an industry that is working exactly as intended. Crop insurance is no windfall, believe me -- for neither the providers nor the producers enrolled. It is a public/private partnership that helps insure that you have food on your table, clothes on your back and fuel in your car. The power of the pen held by the misinformed is a dangerous combination . . .

Posted by: Jamie Walter | December 20, 2007 8:56 PM

Mr Morgan,
Next time you write about crop insurance, please contact someone who knows the program facts. The Brown amendment would have destroyed the crop insurance industry.
Farming today is a very risky business and crop insurance is badly needed by American farmers who struggle with ever increasing risks to help manage risks of producing much of the worlds food supplies.
The American food supply is a bargain in today's world made possible because of the best Agriculture systems in the world!

Posted by: Howard Lemons | December 21, 2007 10:55 AM

Mr. Morgan,
I could go for several pages, but most of the other posts do a great job at hitting the same points I would. I do have a couple of things that need hammered over and over. As a family farmer, crop insurance is a must. To pass this so called "reform" would kill crop insurance and in a short period of time, our food supply. The GAO report is severely flawed and full of errors. Heck, the GAO even ADMITTED to that fact. Underwriting gains and Profits are NOT the same. The companies spend more than they receive to uphold the integrity of the program they deliver.
I am sorely disappointed in the article. I hope that the next article will be researched and reported a lot better.

Posted by: Ray Keiser | December 21, 2007 1:45 PM

It is true that farm producers are at record levels of revenue. It is also true that farm expenses have gone through the roof. In many areas it is not uncommon for cash rent to exceed $300 per acre. Input costs across the board have increased by an average of 30% in the past two years! The fact is that farmers have tremendous risk of financial disaster each and every year, particularly in light of the current high expenses and revenues, and the vast majority of those risk factors are completely out of their control. Crop insurance is the only tool farm producers have to ensure that they can stay in business, growing crops that impact every one of our lives in a meaningful way. Without the federal subsidy, that insurance would be far too costly for virtually every farm producer out there. To those 63 Senators who voted No to this amendment--well done. To the 32 Senators who voted Yes--please, talk to your constituents and get the true facts. To the 5 Senators who did not vote at all because you were too busy playing politics, not wanting to land on either side of the fence--shame on you. That's not leadership, and it is not lost on us that all five of you are running for the highest position of leadership in our country.

Posted by: Mike McKay | December 21, 2007 1:48 PM

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