CUNA Mutual, CUs Aid Farmers in Drought

The U.S. is experiencing the worst drought in nearly a half-century. CUNA Mutual Group's crop insurance business is there to help, but will not know the extent of claims until after the harvest.
 

Drought-stressed corn on the Western Tennessee/Kentucky border in late July. (Photo by Crane Station)

The U.S Department of Agriculture (USDA) Wednesday added 218 counties in 12 states across the Great Plains Midwest and South to its designation of natural disaster areas, with the widespread drought scorching cropland and pastures. That means nearly 1,600 counties--more than half the counties in the U.S.--in 32 states are eligible for government assistance for losses caused primarily by the drought  (Bloomberg.com Aug. 1).
 
In the past several years, CUNA Mutual has become more involved in helping farmers.
 
"We have been involved with Pro-Ag, a crop insurance company since 2006," Becky Piechowski, CUNA Mutual Group vice president of agricultural products, told News Now. "In the third quarter of 2009, we purchased ProAg, which is one of 15 approved insurance providers in the U.S."
 
Approved insurance providers, otherwise known as AIPs, have a contractual agreement with the federal government to provide crop insurance programs to agents and then to farmers. In the U.S., 15 companies have supplemental reinsurance agreements with the federal government to provide crop insurance. CUNA Mutual is the sixth-largest crop insurance writer in the U.S., Piechowsksi said.   
 
"In 2009, CUNA  Mutual decided to diversify, and crop insurance is complementary to the credit union system," she explained. "The crop insurance industry--similar to credit unions--is based on relationships. It asks how do we help American farmers protect against natural disasters or weather-related events?" 
 
ProAg is a national writer of crop insurance in more than 40 states. While the drought is a significant event this year, ProAg's national presence will help CUNA Mutual offset weather-related losses in states that are affected, Piechowski said.
 
CUNA Mutual will not know until after harvest time what type of crop yields farmers got from their fields. Farmers have until about the middle of December to report claims, she added. So, the process likely will extend into 2013, and CUNA Mutual has no specific total numbers of claims and dollar amounts at this time.
 
Will this summer's drought bring more future crop insurance business to CUNA Mutual?
 
"It is not a saturated market," Piechowski said. "We do anticipate growth levels for years to come. In addition, we anticipate that current coverage levels will increase." As an example, a farmer might have bought a basic policy this year, but might increase coverage down the road because of the drought this year, she explained. 
 
One issue is that an increasing number of farmers with crop insurance may file insurance claims and give up on their crops. Farmers who have bolstered insurance coverage on their crops may be preparing to file claims and plow under their damaged crops without attempting to administer costly pesticides and weed killers to salvage an emaciated harvest, said Property Casualty360 (July 20).
 
An increasing use of federally supported crop insurance and a movement toward bigger policies and newer schemes that safeguard revenue now place farmers in a position in which they may be better off claiming a total loss, as opposed to trying to make the best of a diminished harvest. Such a trend could worsen a 50% spike in corn prices by reducing the supply further, Property Casualty360 said.
 
However, CUNA Mutual is aware of that issue and has safeguards in place, Piechowski said. "The crop insurance program has been developed by a private/public [government] partnership for over 30 years," she explained. "There is very specific language regarding fraud, waste and abuse. So farmers cannot abandon their crops and file insurance claims."
 
If there is fraud, waste and abuse, farmers can be prosecuted by the federal government, she added. "USDA and insurance companies have very sophisticated data-mining tools and whistleblower networks to manage those aspects of the program," Piechowsksi said.
 
Since CUNA Mutual got into crop insurance, its diversification strategy has paid off financially. In 2010, ProAg was responsible for 50% of CMG's operating-revenue growth, Piechowski said. Also, in 2010, CUNA Mutual was able to pay state credit union leagues $5 million more than in the past, she added.
 
At the individual credit union level, the credit union's role is to advise farmers through tough times such as a drought, Diane Jentz, business lending manager at the Platteville, Wis., office of Heartland CU, based in Madison, Wis., told News Now.
 
"So much is unknown out there," Jentz  said. "We're trying to assist members to make the best decisions--such as when to get out in the fields in their combines--and to work with insurance agents to make sure the members are aware of everything. Our involvement is more of awareness raising and consulting.
 
"We will be able to work with farmers in refinancing, but that won't be determined until the harvest comes in, crop insurance comes in, and then [we deal with] what's left," she added. "Until the combines are rolling and the crops get cut, we don't know."