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3. 2013 Extension Risk Management Education National Conference

Understanding the SRA Will Improve Public Policy Decision Making

G. Art Barnaby, Jr.

Summary

Understanding the Standard Reinsurance Agreement (SRA) is the key to understanding the gains and losses in crop insurance. In 2011, nearly 82% of the national premium was placed in the commercial pool. Most of the historical underwriting losses are in the assigned-risk pool. Would improvements in underwriting and rating of the assigned risk pool lower the taxpayer’s cost for crop insurance?

It is expected most Approved Insurance Providers (AIP) will have an underwriting loss in Iowa caused by 2012 drought for the following reasons:

1. Most AIPs expect a 2012 Iowa loss ratio below 220, and as a result the AIP pays most of the loss on the commercial pool.

2. It is expected most of Iowa’s contracts will be placed in the commercial pool.

3. Iowa has nearly double the premium of Indiana; so even if the Indiana loss ratio is above 220, the Iowa AIPs’ dollar losses will still be larger because of the size of the book and AIPs pay only 10% of the loss above a 220 loss ratio in a Group 1 state (5% in a Group 2 state).

4. The Group 1 states account for about 1/3 of the total USA premium.

This presentation will explain the 2011 SRA that applies to the current crop insurance program. This will help participants understand the complexity of the impacts on taxpayer costs for the program. This should lead to a better understanding of the public policy consequences when changes are made in current crop insurance policy.

Details

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