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AheadRace eLearning Module # 06 - Selling Skills for Insurance Agency

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* 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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AheadRace eLearning Module # 06 - Selling Skills for Insurance Agency

  1. 1. Selling Skills for Insurance Agents in the Agriculture Sector e-Learning Module Start
  2. 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 Back Next
  3. 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 Back Next
  4. 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. Back Next 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. 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. Back Next Source: http://www.wakeswcd.org/dustbowl.JPG
  6. 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. Back Next
  7. 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 Back Next
  8. 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.” Back Next
  9. 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. Back Next
  10. 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 Back Next
  11. 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. Back Next
  12. 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 Back Next
  13. 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. Back Next
  14. 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%. Back Next
  15. 15. Noninsured Assistance Program Back Next 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. 16. Additional Revenue Insurance Products Back Next 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. 17. Cooperatives Back Next 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. 18. Impact of Trade Promotion Back Next 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. 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. 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. Back Next ✓ True
  21. 21. Knowledge Checks Farm management systems help improve efficiency of input usage. Back Select the correct option. ⃝ True ⃝ False
  22. 22. Knowledge Checks Farm management systems help improve efficiency of input usage. Back Next ✓ True
  23. 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? Back ⃝ CAT ⃝ NAP ⃝ HPO ⃝ All of the above Select the correct option.
  24. 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? Back Next ✓ HPO
  25. 25. Congratulations For completing the e-Learning Module Selling Skills for Insurance Agents in the Agriculture Sector

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