* Describe the factors leading to increased dependence on agricultural insurance * Recognize the operational risks faced by farms due to falling prices and loss of insurance * Explain the benefits of linking Farm Management System with crop insurance * Identify the insurance selling opportunities

1. Selling Skills for Insurance Agents
in the Agriculture Sector
e-Learning Module
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2. Learning Objectives
After completing this course, you will be able to:
✓ Describe the factors leading to increased
dependence on agricultural insurance
✓ Recognize the operational risks faced by farms
due to falling prices and loss of insurance
✓ Explain the benefits of linking Farm
Management System with crop insurance
✓ Identify the insurance selling opportunities
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3. Topics
1 U.S. Production Increased Dependence on Insurance
2 Farms at Risk from Falling Prices and Loss of Insurance
3 Linking Farm Management Systems to Crop Insurance
4 Selling Skills for Crop Insurance Agents
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4. Protection Against Natural Disasters
Agricultural producers including farmers and ranchers use insurance to protect their
businesses against natural disasters or for the loss of income due to the decline in
agricultural prices.
The former issue has always been a concern for farmers as natural disasters often
occur in cycles, and this type of insurance is a legacy of the severe drought
conditions during the Great Depression of the 1930s.
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In response, the U.S. implemented a subsidized multi-peril federal insurance
program, administered by the Risk Management Agency, and authorized by the
Federal Crop Insurance Act (which is actually title V of the Agricultural Adjustment
Act of 1938, P.L. 75-430), as amended.

5. Protection Against Price Decline
The second type of insurance has become more prominent as net farm incomes
have dropped 50% during the last four years – oddly, the most severe four year
decline since the Depression. The National Farmers Union recently reported that,
“commodity prices are now below the cost of production, and this downtown has
spurred a 3rd wave of consolidation among agricultural input suppliers.
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Source: http://www.wakeswcd.org/dustbowl.JPG

6. Increased Dependence Since 1980
American farmers have sharply increased the use of farm insurance since 1980 but
the programs have disproportionally benefitted large farms and the primary crop
staples. Nearly 90% of US production value is derived from four prominent crops:
corn ($52.4B), soybean ($40.3B), wheat ($11.9B), and alfalfa ($10.8B). Production is
much more broadly diversified at family farms (USDA – 3/5/15).
The farm operations of the largest 60,000 US farms are materially different from the
remaining 97% of small farms, by necessity. Scale allows these operators to focus on
price leadership and every aspect of their business processes are automated,
adjusted to market conditions in real time, and hedged with insurance protection
and Chicago Mercantile Exchange (CME) options hedging contracts.
But all US agriculture firms operate under the framework of Federal and State
subsidies, lending programs, and perks. Now an average of two thirds of crop
insurance is subsidized by taxpayers and catastrophic insurance is subsidized.
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7. Topics
1 U.S. Production Increased Dependence on Insurance
2 Farms at Risk from Falling Prices and Loss of Insurance
3 Linking Farm Management Systems to Crop Insurance
4 Selling Skills for Crop Insurance Agents
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8. The Farm Bill
According to Crop Insurance America, crop insurance is the centerpiece of the
agricultural safety net and is the core of their risk management system following
changes made in the Farm Bill of 2014. The Agricultural Act of 2014 (“the Farm
Bill”) sought to repeal of $4.5 billion in annual direct cash payments, a long
disfavored policy where farmers received a fixed amount of money for every acre
they owned, regardless of whether it was planted or not.
This bill replaced the direct cash payments with a nearly equal amount of subsidies
for crop insurance. The New Republic explained what happened, “federally
subsidized crop insurance programs pay almost two-thirds of a farmer’s premium,
as well as most of the insurance claims, guaranteeing revenue regardless of crop
failure or even price swings. The current farm bill expands the program to cost the
government $90 billion over ten years, an increase of $7 billion. But that’s just an
estimate, which may be low.”
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9. Budget Cut
This planned increase has now been scaled back by a third. The budget recently
released by the White House would cut the federal crop insurance program by $28.5
billion — or roughly 36% over 10 years. A Governmental Accountability Office (GAO)
analysis shows that a $40,000 premium support cap would have affected 26% of total
insured liability in the crop insurance program in 2011.
“So while a premium subsidy cap might only impact a small number of producers, it
would put a very large portion of crop production at risk.” Jeff Harrison, a lawyer who
represents the Crop Insurance Professionals Association. “In practical terms, you’re
really going after full-time farm families.”
The White House’s proposed budget also would cut nearly $9 billion from Title I
commodity supports, including the Agriculture Risk Coverage (ARC) and Price Loss
Coverage (PLC) programs, by reducing the adjusted gross income (AGI) eligibility cap
from $900,000 to $500,000.
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10. Topics
1 U.S. Production Increased Dependence on Insurance
2 Farms at Risk from Falling Prices and Loss of Insurance
3 Linking Farm Management Systems to Crop Insurance
4 Selling Skills for Crop Insurance Agents
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11. Benefits of Linking Farm Management System
The concept of a farm management system is now widely adopted in the US
agriculture sector, even among the typical 400 acre farms run by small farmers.
Inputs from preferred suppliers are specified, including the cost of full time and
seasonal labor, and the associated costs are all mandated to be reported in the
required Schedule A tax forms required by all self-employed workers.
Farm management systems help improve efficiency of input usage by linking FMS to
crop insurance availability.
Some agricultural economists such as Dr. Scott Irwin, at the University of Illinois,
suggest that farmers will reduce plantings to adapt to the reduction of insurance. He
suggests this could bring production in better balance with demand over time.
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12. Topics
1 U.S. Production Increased Dependence on Insurance
2 Farms at Risk from Falling Prices and Loss of Insurance
3 Linking Farm Management Systems to Crop Insurance
4 Selling Skills for Crop Insurance Agents
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13. Selling Catastrophic (CAT) Coverage
The Federal Crop Insurance Reform Act of 1994 (P.L. 103-354, Title I) and the
Agriculture Risk Protection Act of 2000 (P.L. 106-224), greatly expanded the original
Federal Crop Insurance Act of 1938. By offering heavy subsidies for catastrophic
(CAT) coverage to producers who grow an insurable crop, the USDA greatly
expanded the industrial agriculture industry and disadvantaged family farms which
couldn’t afford the capital intensity of these operations for the expensive
production equipment.
For a small premium, industrial farmers buy additional coverage beyond the CAT
level, and until the 2014 Farm Bill, many were getting paid by the USDA NOT TO
GROW !
Crop insurance agents from State Farm, Nationwide, Westfield and Farm Bureau
Financial Services make most of their margin on CAT supplements and cross-selling
additional financial services.
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14. Markets to Avoid
Large equipment suppliers like Deere and Caterpillar make most of their profit on
lending programs, insurance, and selling high-tech accessories on their platforms.
Crop insurers typically avoid these markets. Even the used agricultural equipment
aftermarket has been chronically weak with discounts often over 80%.
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15. Noninsured Assistance Program
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The Noninsured Assistance Program (NAP) assists in providing Federal crop
insurance for the non-insured products beyond the 100 plus covered by the USDA
Risk Management Service. Private insurance companies sell and service NAP crop
insurance, which has a portion of their premiums, administrative and operating
expenses subsidized by the Federal Government.
The Federal Crop Insurance Corporation reinsures the companies by absorbing
some of the losses of the program when indemnities exceed total premiums. The
bulk of clients of NAP are small farmers trying to grow specialty and organic
products and the cutbacks in crop insurance will disproportionately shift insurance
costs back to them. “It’s clear that this budget was written without input from
farmers who would be severely affected,” Ron Moore, president of the American
Soybean Association representing 300,000 soybean farmers across 26 states.

16. Additional Revenue Insurance Products
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Several additional revenue insurance products are available on major crops as a
form of supplemental coverage, and this premium generation opportunity would
be undercut by the proposed 36% cut in crop insurance over the next decade.
The harvest price option (HPO) crop insurance policy has provided protection on
lost production at the higher of the price projected just before planting time or the
price at harvest.
Farmers who use forward contracting rely on HPO as another means of mitigating
their risk as well as livestock producers who grow their own feed, so crop
insurance premiums are written off the forward purchase contract value assigned.
HPO has provided drought protection for farmers during the past thirty years after
the Plains drought and only kicks in if crop prices drop below a fixed or “reference”
price.

17. Cooperatives
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Farmer cooperatives exist where insurance coverage comps from pooled
payments, in compliance with Federally-regulated and State-regulated programs.
For example, National Crop Insurance Services (NCIS) “provides a unique suite of
services to the crop insurance industry ranging from actuarial and analytical
support to the development of crop loss adjustment standards and industry-wide
training for both company staff and industry loss adjusters.” NCIS seeks to
eliminate duplication of coverage, actuarial analysis and legal support.
Similarly, the Crop Insurance Professionals Association (CIPA) seeks to offer its
membership a new suite of risk management tools which will be needed to
supplement the scaling back of Federal crop insurance over the next decade.

18. Impact of Trade Promotion
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Another opportunity may come from selling crop insurance by agents in the
context of the renegotiation of NAFTA, which was discussed by Agriculture
Secretary Purdue in his recent trip to Canada. Accordingly, Agricultural
Department watchers are going look to the new Undersecretary for Trade to play a
major role in export promotion.

19. Knowledge Checks
American farmers have sharply increased the use of farm insurance
since 1980 but the programs have disproportionally benefitted large
farms and the primary crop staples.
Back Select the correct option.
⃝ True
⃝ False

20. Knowledge Checks
American farmers have sharply increased the use of farm insurance
since 1980 but the programs have disproportionally benefitted large
farms and the primary crop staples.
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✓ True

21. Knowledge Checks
Farm management systems help improve efficiency of input usage.
Back Select the correct option.
⃝ True
⃝ False

22. Knowledge Checks
Farm management systems help improve efficiency of input usage.
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✓ True

23. Knowledge Checks
Which of the following provides protection on lost production at the
higher of the price projected just before planting time or the price at
harvest?
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⃝ CAT
⃝ NAP
⃝ HPO
⃝ All of the above
Select the correct option.

24. Knowledge Checks
Which of the following provides protection on lost production at the
higher of the price projected just before planting time or the price at
harvest?
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✓ HPO

25. Congratulations
For completing the e-Learning Module
Selling Skills for Insurance Agents
in the Agriculture Sector