In 1940, Hollywood turned John Steinbeck's classic American novel about the Great Depression, The Grapes of Wrath, into an epic film which, to this day, has great historical significance. We follow the impoverished Joad family as they migrate from the dust bowl of Oklahoma to find work in the orchards of California and as they struggle to maintain at least a little of their dignity and pride.
The Joads would have fared somewhat better today because of the post-Depression social programs that were enacted and the on-going recognition that the agricultural industry is essential to the country's prosperity. But the farm community today still has its problems. Weather extremes have wrought hundreds of millions of dollars worth of damage to farm areas in recent years. Farmers must endure the cost of taking on new, technologically advanced equipment; and, in addition to weather conditions, the market price fluctuations of their products have played havoc with their bottom lines.
For these reasons, today's farmers are looking to the federal crop insurance program to do more than just reimburse them for crops lost due to a catastrophic occurrence. It is estimated that, in 1998, the crop insurance program insured roughly $28 billion in liabilities. However, the 1998 forecast for cash receipts for crops in the U.S. is $104 billion. Even a doubling of the amount insured would still account for only a little more than half of U.S. cash crop receipts. For that reason, farmers want the program to expand its current emphasis on yield protection to include "revenue" protection. The good news is that the government is moving in that direction. The not-so-good news is that bringing about the changes desired could be a long road to hoe.
Independent insurance agents have played a major role in the changes that already have taken place in the crop insurance arena in recent years. Since the inception of the crop insurance program, agents associations have worked with congressional leaders to refine the program and to define the most cost-efficient method of delivery. On two fronts, they have been successful.
One point of contention for agents was the fact that the program had to be funded annually, a time- consuming process, according to Lydia Astorga, assistant director of industry affairs for the National Association of Professional Insurance Agents. But the Federal Agricultural Improvement and Reform Act of 1996 brought about some sweeping changes in the crop insurance program. The funding period was expanded to five years, instead of one year.
Second, the government now has placed the delivery of crop insurance into the hands of independent insurance agents. "The Department of Agriculture runs the crop insurance program," says Astorga. "Prior to the 1998 crop year, federal workers competed with independent agents in the delivery of crop insurance. Now, the delivery of the product is completely within the private sector."
The change came about when Agricultural Secretary Dan Glickman, responding to requests by the PIA, the Independent Insurance Agents of America (IIAA) and other industry groups, ordered that the sales and servicing of all crop insurance policies be handled solely by the private sector, beginning with the 1998 crop year. Major agents associations lauded the move.
Tom McCrocklin, director of federal affairs for the IIAA, agrees with Astorga that the change was a welcome one. "This is certainly a victory for independent agents. The Administration favored a dual delivery system for crop insurance because they saw crop insurance as a social component of the Agriculture Department's activities. But that system made it difficult for agents to compete. Glickman rightly decided that there are enough crop insurance agents out there to ensure that all farmers have access to catastrophic (CAT) coverage."
Sharon K. Heaton, president of the Pontiac, Illinois-based Heaton Agency and past chairperson of the PIA's Crop Advisory Committee, also praises the elimination of the dual delivery system for crop insurance--but adds that the new program that came about with the 1996 Act places greater responsibilities squarely on the shoulders of independent agents. "We feel that all are best served by the insurance agent who works in this business full-time," says Heaton. "The current program is complex and will become more so as new programs become available in the future. We feel the insurance agent plays an integral part in educating the buyer."
That comment about agents working "full-time" on crop insurance is not delivered lightly. Heaton believes that the program is now so complex and that so many new products are coming out that agents will have to become "specialists" in the area in order to serve farmers properly. The new products address areas with which many agents may not be familiar. Farmers, it appears, are more concerned with market price fluctuation than they are with crop yields, and some new crop insurance products are geared toward guaranteeing "price," a concept which is a far cry from the traditional CAT product.
"In the past, crop insurance was never envisioned as a whole safety net for a farmer's bottom line," says McCrocklin. "Now the government is taking a holistic approach toward crop insurance. It's going to be tricky, with agents having to deal with livestock insurance and futures. And the Board of Trade will be involved as well. The Feds want agents to sell more crop insurance at higher levels, and agents are going to have to work harder than ever before."
That may present a Catch-22 situation. On the one hand, farmers want the new products, but on the other they are not exactly ecstatic about paying higher premiums. Moreover, agents want to sell crop insurance, but they may find themselves mired in new paperwork so that selling the product becomes unprofitable. Therefore, now that the agents have won their battle in terms of being the sole delivery system for crop insurance, if agents fail to sell and service the new products as envisioned, the federal government might step right back into the picture.
"The 1996 Farm Bill will soon come under official scrutiny," says Astorga, "not only by a multitude of farmers, bureaucrats and agent advisors, but by the Commission on 21st Century Production Agriculture. The Commission was mandated by the Federal Agricultural Improvement and Reform (FAIR) to review the impact of the legislation and to make recommendations for future agriculture policy."
In addition to the new products, the government is trying to convince farmers to "manage" the risks associated with farms, and here again agents are going to have to play a role. In the area of risk management, many farmers are resistant to change. They see risk management as too complex and too costly. So, this is yet another challenge that agents face.
The next couple of years will be a telling time for the new crop insurance as it exists today. There's an old saying: "Be careful what you wish for, you might get it." Agents wished to be the sole delivery system for crop insurance. They have their wish. But they have their work cut out for them. *
Sharon Heaton, president of the Heaton Agency in Pontiac, Illinois, is past chairperson of PIA's Crop Advisory Committee.
©COPYRIGHT: The Rough Notes Magazine, 1999