$6 Billion Cuts in Crop Insurance Program

As we have discussed in this blog before, the Obama administration is going forward with $6 billion in cuts to the crop insurance program.  This will end up slashing agent commissions that have been as high as 30% of premium.  Under the new plan, these commissions will now be capped at around 18% of premiums earned.

Insurance companies will also see their long-term return declining from an average of 17 percent to about 14.5 percent.  Of the $6 billion in savings, $4 billion of it will go toward reducing the federal deficit with the other $2 billion going to other USDA programs.

Anytime that you have an industry earning upwards of 17% on a long-term return and being subsidized by the government, we knew that cuts would be coming in this environment.   Also, as discussed in this blog, many of the counties that used to have crop insurance no longer have crop insurance.  It will be interesting to see how these cuts affect farmers going forward.  My guess is that it will not be favorable.