Des Moines Register 05-03-07 Congress targets crop insurer profits

Des Moines Register
Congress targets crop insurer profits
Washington, D.C. — The growing profits that crop insurance companies are
making from selling their federally subsidized policies is catching the eye of
Profits from crop insurance are three times as high as the rate of turn that
insurance companies normally get from property and casualty insurance,
government investigators told the House Oversight and Government Reform
Forty cents of every dollar the government pays for the program goes to
insurance companies, not farmers, said Lisa Shames, an official with the
Government Accountability Office, the investigative arm of Congress.
The chairman of the House committee, Rep. Henry Waxman, D-Calif., called the
program a “textbook example of waste, fraud and abuse in federal spending.”
The U.S. Agriculture Department reimburses crop insurance companies for
administrative expenses as well as paying them underwriting gains when
premiums exceed indemnities.
USDA paid the insurance companies $2.8 billion in underwriting gains from 2002
and 2006, an annual rate of return of 17.8 percent, Shames said. The rate of
return for companies selling property and casualty insurance during that period
was 6.4 percent, she said.
Representatives of the crop insurance industry told a House Agriculture
subcommittee earlier this week that it’s unfair to consider underwriting gains as
profit, because companies need to save some of those earnings for years when
indemnities exceed the premiums.
Bruce Babcock, an agricultural economist at Iowa State University, told the
oversight committee that the government could save money and make much of
the insurance unnecessary by overhauling the way crop subsidies are paid.
Sixteen companies are authorized to sell the federally subsidized policies, five of
which are based in Iowa.