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History of AACI

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American Association of Crop Insurers: The History

General Background

 

The history of the American Association of Crop Insurers (AACI) tracks that of the modern Federal crop insurance program—a beginning marked by the passage of the Federal Crop Insurance Act of 1980 (FCIA). The FCIA was the "cornerstone" laid by Congress for changing the relationship between farmers and the Federal government relative to assistance with natural, and later on market, disasters that adversely impacted production agriculture.

 

The Failure of Disaster Programs

 

Until the passage of that act and until the crop insurance program gained widespread acceptance, the primary means of assisting farmers with natural disasters was Congress passing ad hoc disaster assistance legislation that would provide distressed farmers a direct payment from the Department of Agriculture. By the late 1970s, after decades of failure of this ad hoc disaster assistance practice, including high rates of fraud, waste and abuse, Congress and the general public were beginning to seriously question the wisdom of a cash-payment-based assistance program to address natural disasters.

This frustration may have been most notably expressed by Bob Bergland, 20th U.S. Secretary of Agriculture (January 23, 1977—January 20, 1981) who testified to the Senate Agriculture Committee in 1977 that "ad hoc USDA disaster programs are themselves a disaster." Following Secretary Bergland's declaration, USDA and its Federal Crop Insurance Corporation (FCIC) began working with Congress to develop an improved crop insurance program for farmers. This work led to the initial plateau in the development of the modern crop insurance program, which is the FCIA of 1980.

 

Private Industry Leaders Establish AACI

 

The industry leaders who established AACI understood the need for a strong and effective voice in Washington. It would bring the industry's expertise to bear on the continually growing interest in building an insurance-based farm disaster assistance program that was begun in 1938 but had been evolving slowly and erratically, ever since. They realized there would be value in an organization that could provide strong and effective industry leadership in the emerging national debate regarding production agriculture disaster assistance. Armed with that critical view, these industry leaders founded AACI.

 

From that "tipping point" the seeds of the modern crop insurance program were beginning to be assembled. Although some in the industry could not envision the significance and potential of the budding movement, those who gave birth to AACI. AACI contributed significantly to the private industry and government partnership that resulted in expanding Federal crop insurance protection for producers at significant benefits to public policy and savings to taxpayers.

 

Crop Insurance is the Center Piece

 

Since 1980, the program has made steady progress. It is now called the "center piece" of the Federal farm safety net. Today, the crop insurance program stands as the last best hope for a safety net for farmers as well as the best assurance of a stable and affordable food supply for consumers. It is the envy of the world, because no other nation has a crop insurance program as successful as ours.

 

Crop insurance has been a remarkably bipartisan program that has relied on leadership from both political parties at critical moments in its history. Regardless of the path that Federal crop insurance will follow in the future, it is clear that the AACI voice was indispensable in the 1980s and 1990s and has been instrumental in shaping the debate and since that time. It will continue to be a necessary and effective voice for the crop insurance program and for private sector delivery going forward. AACI is proud of its history and expects great opportunities as well as challenges in the future.

 

Specific Events

 

The following were indispensable steps in the development of the modern crop insurance program:

 

The Bergland Declaration

1. 1977. In testimony before the Senate Agriculture Committee Secretary of Agriculture Bob Bergland declared that, "disaster programs are themselves a disaster".

 

Early Industry Pioneers Supports Crop Insurance Program

2. 1978-1980. Crop insurance companies that would later form AACI were instrumental in developing Congressional support for the crop insurance bill that would become law in 1980.

 

 Federal Crop Insurance Act

3. 1980. The Federal Crop Insurance Act of 1980 (FCIA) was enacted, which provided the basis for the modern crop insurance program. The FCIA is dated September 26, 1980 as P.L. 96-365.
With the FCIA calling for a public/private partnership, a document—"GENERAL UNDERSTANDING Between the FEDERAL CROP INSURANCE CORPORATION and the PRIVATE INSURANCE SECTOR for Implementing the FEDERAL CROP INSURANCE ACT OF 1980"—was agreed to on December 24, 1980. The crop insurance companies that would formally approve the organization of AACI the following year were industry leaders in the development of this document.

 

The First Agreement to Utilize Private Industry

4. 1980-81. AACI members were instrumental in encouraging FCIC to develop a short term marketing agreement (Master Marketing) thus utilizing the marketing and servicing expertise of the private industry to deliver the expanded crop insurance program to farmers in the interim before the private risk bearing reinsurance was developed. AACI members were instrumental in FCIC providing training to private industry crop hail underwriters and loss adjusters on the necessary skills required for federal crop insurance delivery, sales and service.

 

AACI Established as a Trade Association 

5. 1981. AACI was formed as the primary trade association of private insurance providers who had interest in private insurance company delivery and catastrophic reinsurance for private risk bearers to provide improved crop insurance. Mike McLeod was hired as the first Washington representative. Two years later, Gene Gantz was hired as the first manager and full-time staff. He was a tireless promoter of the crop insurance program and its delivery by the private industry.

 

 Lyng Helps AACI Overcome Early Problems

6. 1985. The first four years of the new crop insurance program and of AACI's members were difficult ones. The officials in the Department of Agriculture were accustomed to administering a program of supply management and subsidies for farmers. They were skeptical of the role of the private insurance companies and agents in the total scheme of farm programs. Many farm organizations also shared this skepticism. Insurance companies were not accustomed to dealing with the Department of Agriculture.

 

The members of AACI were very frustrated in dealing with a USDA whose managers often treated them with skepticism if not disdain. At that time they turned to Richard Lyng, who had just retired as Deputy Secretary of Agriculture. After serving in the first four years of the Reagan Administration, he had retired to write a book and do some consulting.

 

Mr. Lyng agreed to serve as a public member, not as lobbyist, on AACI's board. In that position he provided excellent counsel to AACI members. He advised that they should not get discouraged, but should just patiently continue to make their case to the USDA officials. He only served in that position for a year, because his old friend, President Reagan, called on him to serve as Secretary of Agriculture in 1986. He did so for the remainder of the Reagan presidency.  Under his leadership as Secetary, the crop insurance program made great strides. 

 

AACI Helps End Dual Delivery

7. Late 1980s. AACI provided the leadership for the crop insurance industry to persuade USDA to end the dual delivery system, ending Master Marketing. USDA was persuaded to discontinue issuing government (FCIC) insurance of policies. From that point forward, the private sector has delivered the program to producers.

 

AACI works with Secretary Espy to Pass Critical Reform

8. 1994. AACI was instrumental in working with Secretary of Agriculture Mike Espy (Secretary during the first two years of the Clinton Administration) and Congress to pass the Federal Crop Insurance Reform Act of 1994. With the support of the then OMB Director Leon Panetta, an additional sum $1 billion per year was made available for the crop insurance program. This was possible because it was estimated that there would be a $1 billion annual savings in ad hoc disaster payments if crop insurance was made more universally available because of the new catastrophic insurance program. In addition, the legislation added the Non-insured crop Assistance Program (NAP) so that producers growing uninsured crops would get assistance. This legislation put the crop insurance program on the road to being the success it is today.

 

RMA is removed from FSA Jurisdiction

9. 1996. In the Department of Agriculture Reorganization Act of 1994, The RMA was placed under the jurisdiction of the Farm Services Agency. This was stifling the ability of the RMA to operate the crop insurance program. AACI worked with Chairman Pat Roberts of the House Agriculture Committee to remove RMA from the jurisdiction of the Farm Services Agency and re-establish it as a separate agency. This was included in the 1996 Farm Bill.

 

AACI Secures Permanent Funding for Crop Insurance

10. 1998. In the Agricultural Research Act of 1998, AACI successfully pushed for enactment of mandatory funding of the crop insurance program. Chairman of the House Agriculture Committee Bob Smith included it in the Act. In an era of increasing budgetary constraints, it would not have been possible to operate a successful crop insurance program that was dependent on discretionary funding of annual appropriations bills.

 

Agriculture Risk Protection Act of 2000

11. 1999-2000. AACI worked with Congress to pass the 2000 Agricultural Risk protection Act of 2000, legislation that greatly enhanced crop insurance protection for farmers. It made crop insurance more affordable for farmers at higher levels of coverage, even in higher risk areas. The passage of this legislation was led in the House by Agriculture Committee Chairman Larry Combest. AACI had to work hard for this legislation in the Senate, where it passed the Senate Agriculture committee by only one vote. This legislation, as implemented by RMA and delivered to farmers by AACI members, made it possible for the crop insurance program to enjoy the popularity with American farmers it enjoys today.

 

AACI Continues to Work for a Successful Program

12. In each of the farm bills since the passage of ARPA in 2000, AACI members, working with Commodity and Farm organizations, were instrumental in persuading Congress to place greater reliance on crop insurance to provide increasingly effective risk management tools to farmers. This reliance was justified in 2012, when farmers suffered the worst drought since the dust bowl years, and it was not necessary to pass a disaster bill. With ever greater budget pressure and the growth of crop insurance program as the primary risk management tool left for farmers, AACI and its members works hard every year to preserve the hard won gains in the program.