To:Ross Davidson, Administrator, Risk Management Agency
From:Pat Borowski and Kellie Bray, National Association of Professional Insurance Agents
Re:Crop Insurance for Burley Tobacco
Date:March 16, 2005
As you discussed with Pat Borowski last weekend at the NAIC meeting, independent agents are facing great difficulty writing crop insurance policies for burley tobacco this year because of the recent change from insuring based on pound and now basing coverage on yield. This change occurred as a part of the tobacco buyout in 2004.
Apparently, USDA/FSA offices are not in position to have past years burley tobacco reports converted from the former measure of pounds to the new rating base of yield in time for the March 15 closing of the federal crop insurance contract spring season. This is of great concern to professional independent agents because accurate background information on prior yield information is needed in order to determine with their farmer customers what the amount of insurance to secure for the coming year.
It has been reported to us that this background information may not be available to farmers and agents until May 1, 2005. With the current crop closing date of March 15, 2005, this leaves agents with a huge E & O exposure and leaves the burley producers in jeopardy of either over insuring or under insuring based on poundage information from previous years.
PIA has been working closely with insurance agents in Kentucky as well as Senate and House Agriculture Committee staff to find the best possible solution at this time. After conversations between RMA staff based in Kansas City and Senate Agriculture Committee staff, the option of using past T-yield numbers was suggested. While this would seem like helpful information to use, it would still be a virtual guessing game to estimate the correct anticipated yield for the upcoming growing season.
As we noted in our previous discussion, this is the same issue that arose in North Dakota a couple of years ago. Agents did their best to “guess” what the proper amount of coverage should be on a crop (the rating base of which was similarly being converted by USDA) for which no prior information or numbers were available. Some attempted to convert, while others left it on the previous base and assumed from there. Before accurate new rating-based information was available, a crop loss ensued; the farmer had what turned out to be too little coverage (despite the agent’s best and reasonable efforts in the absence of any guidance); the agent was sued; and the farmer collected from the agent’s E&O carrier. This, as advised, is the major “chilling” effect to E&O insurers’ attitudes towards writing crop insurance. Several are now excluding it. Other related situations have occurred in other states as we discussed.
We would like to be able to discuss several possible temporary options to manage this for the farmers and agents only through this immediate crop insurance spring contract year. A few choices that come to mind:
- Delay the 2005 spring Federal Crop Insurance Contract deadlines for Burley Tobacco Only until May 15, 2005, predicated on FSA’s target date.
- If T-yields are used, there needs to be clear instructions as to how these conversions are to be calculated and applied, and we will need an indemnification for the agents in doing so.
- Work off the old rating base, noting that conversions will be implemented into the contract year as available, and farmers will be given a specific number of days to adjust as they require.
Of course, there are two constant factors in any of these choices:
- The farmers' investment needs be properly protected, so any count/insured value will need to have flexibility if a loss ensues before final accurate data is available.
- Our PIA members need to be indemnified so that their reasonable, prudent and professional efforts with the information that they have been given is sufficient.
Once a solution has been identified, we ask that RMA issue a bulletin to crop insurers and farmers letting them know of the change. Having timely and accurate information is of utmost importance as our agents finalize their crop insurance books for this year.
We look forward to speaking with you via conference call on Monday, March 21, at 4:00 pm. In the meantime, if you have any questions or would like to discuss this matter further, you can reach Pat Borowski at 703-518-1360 () or Kellie Bray at 703-518-1364 ().
- 1 -
400 N. Washington St., Alexandria, VA22314-2353
Tel: (703) 836-9340 Fax: (703) 836-1279