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Terrorism Risk: A Continuing Threat – 2012

September 12, 2012 Comments off

Terrorism Risk: A Continuing Threat – 2012

Source: Insurance Information Institute

This report, by Robert Hartwig, president of the Insurance Information Institute, and Claire Wilkinson, analyzes the evolving nature of international terrorism. For property/casualty insurers and reinsurers, the impact of the terrorist attack of September 11, 2001, was substantial, producing insured losses of about $32.5 billion, or $40.0 billion in 2011 dollars. Following the attack, insurers moved to exclude coverage. Only when the Terrorism Risk Insurance Act (TRIA) was enacted by Congress in November 2002 did coverage for terrorist attacks resume. Since its initial enactment in 2002 the terrorism risk insurance program has been revised and extended twice. The report, replete with charts, includes sections on: how insurers treat terrorism risk today; estimating potential terrorism losses; the cyber terrorism threat; the structure and coverage of the terrorism risk insurance program; aviation insurance for terrorism risks; and liability factors. The report concludes that over a decade later, 9/11 remains the worst terrorist act in terms of fatalities and insured property losses. A number of converging factors point to the fact that, while the risk is changing, terrorism is an evolving and ongoing threat for the foreseeable future. Failure to focus on and prepare for this threat will come at an enormous cost to the millions of individuals and businesses who rely on insurance contracts to offset the overall economic impact of a terrorist attack. For property/casualty insurers, the increasing share of losses that they would have to fund in the event of a major terrorist attack on U.S. soil suggests that now is the time to take stock of their terrorism exposures.

Longevity Risk and Insurance Solutions for U.S. Corporate Pension Plans

September 7, 2012 Comments off

Longevity Risk and Insurance Solutions for U.S. Corporate Pension Plans (PDF)
Source: Prudential

This report examines the impact of longevity risk on corporate pension plans, a risk often overlooked by plan sponsors. It highlights the role insurance solutions can assume in addressing longevity and investment risks for sponsors and participants.

NICB Reports 20 Percent Rise in Mid-Year 2012 Questionable Claims

September 2, 2012 Comments off

NICB Reports 20 Percent Rise in Mid-Year 2012 Questionable Claims

 Source:  National Insurance Crime Bureau
The National Insurance Crime Bureau today released its first half 2012 questionable claims (QC) referral reason analysis. The report examines six referral reason categories of claims—property, casualty, commercial, workers’ compensation, vehicle and miscellaneous—for the first half of 2010, 2011 and 2012.
Questionable claims are claims that NICB member insurance companies refer to NICB for closer review and investigation based on one or more indicators of possible fraud. A single claim may contain up to seven referral reasons.
During the first half of 2010, a total of 46,766 QCs were referred. That number increased to 48,887 in the first half of 2011 and to 58,523 in the first half of 2012. There was a 20 percent increase in QCs during the first half of 2012 compared with 2011, and a 25 percent increase when compared with the first half of 2010.
Suspicious theft/loss (non-vehicle) generated the largest increase in volume for a single referral reason in property QCs (5,255) and contributed to the property category’s 40 percent rise in QCs compared to the first half of 2011. The miscellaneous QC category posted the smallest increase—10 percent—compared with the first half of 2011.

Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice – 2012

September 1, 2012 Comments off

Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice – 2012
Source: Insurance Information Institute

This report by Robert Hartwig, president of the Insurance Information Institute, and Claire Wilkinson analyzes the changes taking place within the residual property market, which consists of a myriad of different programs in place across the United States to provide insurance to high-risk policyholders who may have difficulty obtaining coverage from the standard market. So called residual, shared or involuntary market programs make basic insurance coverage more readily available. The report notes the still-burgeoning growth of the market, which now has a massive total exposure to loss that is approaching $900 billion. Despite attempts by certain states to reduce the size of their plans the fact of the matter is that this market of last resort remains the market of first choice for many vulnerable, high-risk coastal properties. The report focuses on the plans in Alabama, Florida, Louisiana, Massachusetts, Mississippi, New York, North and South Carolina, and Texas.

KCC Issues Report on Historical Hurricanes That Would Cause $10 Billion or More in Insured Losses Today

August 30, 2012 Comments off

KCC Issues Report on Historical Hurricanes That Would Cause $10 Billion or More in Insured Losses Today
Source: Karen Clark & Company

Karen Clark & Company (KCC), independent experts in catastrophe risk, catastrophe models and catastrophe risk management, today issued a report identifying historical US hurricanes that would likely cause $10 billion or more in insured losses were they to strike today.

Employing a robust methodology developed by the firm, KCC examined the nearly 180 hurricanes that have hit the United States since 1900 and determined that 28 of those storms would result in $10 billion or more in insured losses in 2012 given the greater number, size and cost of structures in their paths.

The 1926 Great Miami Hurricane tops the list with an estimated $125 billion loss. The two deadliest hurricanes in US history, the 1928 Okeechobee Hurricane and the famous Galveston storm of 1900, are the next costliest at $65 billion and $50 billion, respectively. Two other Florida storms, the 1947 Fort Lauderdale Hurricane and 1992′s Hurricane Andrew are also estimated at $50 billion. Rounding out the top loss producers are 1915′s Galveston ($40 billion), 2005′s Katrina ($40 billion), the 1938 Great New England ($35 billion), and 1954’s Hazel and 1965’s Betsy. both estimated at $20 billion. Hurricane Donna in 1960 affected the entire East Coast from Florida to Maine and would likely cause a $25 billion loss today. The remaining 17 storms on the list range from $10 to $15 billion each.

2012 CoreLogic Storm Surge Report Reveals More Than Four Million U.S. Homes at Risk for Hurricane Storm Surge Flooding

August 28, 2012 Comments off

2012 CoreLogic Storm Surge Report Reveals More Than Four Million U.S. Homes at Risk for Hurricane Storm Surge Flooding
Source: CoreLogic

CoreLogic (NYSE: CLGX), a leading provider of information, analytics and business services, today released its annual Storm Surge Report detailing exposure of single-family homes to storm-surge damage within several predefined geographic areas in the United States. The 2012 CoreLogic Storm Surge Report provides the first-ever property-level analysis of residential property risk along the Atlantic and Gulf Coasts broken down by region and by individual state, in addition to a snapshot of risk within previously reported major metro areas.

This year’s report indicates that just over four million homes in the U.S. along the Atlantic and Gulf Coasts are at risk of hurricane-driven storm-surge damage, with more than $700 billion in total property exposure. In the Atlantic Coast region alone, there are approximately 2.2 million homes at risk, valued at more than $500 billion. Total exposure along the Gulf Coast is nearly $200 billion, with just under 1.8 million homes at risk for potential storm-surge damage.

Hurricane Andrew and Insurance: The Enduring Impact of an Historic Storm

August 10, 2012 Comments off

Hurricane Andrew and Insurance: The Enduring Impact of an Historic Storm
Source: Insurance Information Institute

Hurricane Andrew struck Florida on August 24, 1992, and the tumult it created for the property insurance market in the state has not ceased in the 20 years since, according to an analysis by the Insurance Information Institute (.I.I.). The I.I.I. white paper outlines six key insurance market changes attributed to the costliest Florida disaster. Insurance claims payouts for Andrew totaled $15.5 billion at the time ($25 billion in 2011 dollars), and it remains the second costliest U.S. natural disaster, after Hurricane Katrina, which hit in 2005. Hurricane Andrew forced individuals, insurers, legislators, insurance regulators and state governments to come to grips with the necessity of preparing both financially and physically for unprecedented natural disaster.

Managing Biofuels Portfolio Risk – The Role of Financial and Risk Analysis

July 17, 2012 Comments off

Managing Biofuels Portfolio Risk – The Role of Financial and Risk Analysis
Source: Deloitte

The Department of Navy (DON), Department of Energy, and United States Department of Agriculture are together pursuing an ambitious program to support military requirements for viable and cost effective biofuels and to accelerate the growth of a national biofuels industry to address strategic energy security concerns. These three departments are stakeholders in a major program utilizing Defense Production Act (DPA) Title III authority to invest up to $510M in the nascent US biofuels industry. The investment, further leveraged by a one-for-one funding match by the private sector, could create a total portfolio in excess of $1B. The magnitude of this industry-shifting investment has attracted significant attention from the biofuels industry, investment community, law and policy makers and the US public.

Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice – 2012

July 11, 2012 Comments off

Residual Market Property Plans: From Markets of Last Resort to Markets of First Choice – 2012
Source: Insurance Information Institute

This report by Robert Hartwig, president of the Insurance Information Institute, and Claire Wilkinson analyzes the changes taking place within the residual property market, which consists of a myriad of different programs in place across the United States to provide insurance to high-risk policyholders who may have difficulty obtaining coverage from the standard market. So called residual, shared or involuntary market programs make basic insurance coverage more readily available. The report notes the still-burgeoning growth of the market, which now has a massive total exposure to loss that is approaching $900 billion. Despite attempts by certain states to reduce the size of their plans the fact of the matter is that this market of last resort remains the market of first choice for many vulnerable, high-risk coastal properties. The report focuses on the plans in Alabama, Florida, Louisiana, Massachusetts, Mississippi, New York, North and South Carolina, and Texas.

J.D. Power and Associations 2012 Auto Insurance Study

June 30, 2012 Comments off

JD Power and Associates 2012 Auto Insurance Study
Source: J.D. Power and Associates

Led primarily by increases in satisfaction with policy offerings and billing and payment, overall customer satisfaction with auto insurance companies has reached an all-time high, according to the J.D. Power and Associates 2012 U.S. Auto Insurance StudySM released today.

The study measures customer satisfaction with auto insurance companies across five factors: interaction; price; policy offerings; billing and payment; and claims. Overall satisfaction with auto insurance companies is 804 (on a 1,000-point scale), up 14 points from 2011. Satisfaction levels in 2012 are the highest since the study was launched in 2000.

Satisfaction increases in all factors in 2012, with significant improvements in policy offerings (+30 points) and interaction (+19 points). Satisfaction with price is essentially unchanged from 2011.

2012 Insurance Website Evaluation Study

June 22, 2012 Comments off

2012 Insurance Website Evaluation Study (PDF)
Source: J.D. Power & Associates

Websites have become a primary source for comparison shopping, and reading product reviews a common first step in the shopping process for many purchase decisions. As online activities become more embedded in the shopping process, refinements introduced in one industry often immediately reshape consumers’ expectations in other industries. Insurance company websites that may have been considered innovative or state of the art even a year ago may be perceived as quaint and outdated by today’s savvy insurance shoppers.

Numerous insurers have made significant investments in building websites to serve the needs of a growing segment of shoppers who want to interact and purchase personal auto insurance online. It is therefore critical for insurance companies to meet those expectations in order to continue to grow. The stakes are extremely high: in a marketplace that generated $169 billion in premiums in 2011, the 10% of customers who switched insurers during that time period represented an addressable market worth nearly $17 billion. This may explain in part why t

The J.D. Power and Associates 2012 Insurance Shopping Study SM (ISS), which was released in March, finds that insurance company websites are playing an increasingly greater role in the auto policy shopping process, whether customers are requesting a quote or simply using the website to gather contact or policy-related information. The management discussion for the ISS, titled “The Role of the Web in Shopping for Insurance,” highlights three key trends that address how the Web has influenced the auto insurance shopping process for recent shoppers (those requesting a quote in the last 12 months):

  • Nearly three-fourths (73%) of insurance shoppers visit at least one insurer’s website during their shopping process
  • During the past 3 years, the proportion of shoppers able to complete all their shopping activity online has increased by more than 50%, from 15% to 23% of shoppers
  • More than one-third (34%) of shoppers say they would most prefer to purchase their policy online instead of through a local agent or call center

With a significant and increasing share of shoppers using insurer websites to obtain insurance quotes, as well as to find contact or policy information, the ability of websites to easily deliver this information in a clear and appealing manner may make the difference between a shopper considering a brand or bouncing to a competitor’s website that more readily meets their needs and expectations. This management discussion will provide an overview of what website design characteristics are most critical for insurers in order to provide prospect shoppers with an outstanding website experience, and draws from the detailed findings and recommendations of the J.D. Power and Associates 2012 Insurance Website Evaluation Study SM (IWES).

Celebrate safely – ABI publishes guide on organising street parties and other events

June 22, 2012 Comments off

Celebrate safely – ABI publishes guide on organising street parties and other events
Source: Association of British Insurers

With over 3,500 applications made so far to local authorities alone for street parties to celebrate the Queen’s Diamond Jubilee, this year looks set to be a bumper year for celebrations. To help party organisers ensure that events run smoothly, whether on public or private land or in your own home, the ABI has produced a guide.

‘Celebrate – An ABI guide to planning an event’ sets out what party organisers need to know, including:

  • Things to consider about your venue, such as is it safe for the number of people you expect, are outdoor activities involved, such as bouncy castles, and what fire aid will be available.
  • If planning a street party, steps you need to take, including contacting your local council.
  • Any requirements for public liability insurance and how this cover can help party organisers protect against things that could go wrong.

2012 Insurance Regulation Report Card

June 22, 2012 Comments off

2012 Insurance Regulation Report Card
Source: R Street

A state-by-state study of the U.S. insurance regulatory system, examining which states are doing the best job of regulating insurance through limited, effective and efficient government. Authored by R Street Public Affairs Director R.J. Lehmann, the report card measures states on 14 objective variables, including the concentration of home and auto insurance markets and relative size of residual markets; the effectiveness of state solvency and fraud regulation; the transparency and politicization of insurance regulation; the tax and fee burden placed on insurance markets and the proportion of fees used to support insurance regulation; and the relative freedom granted to insurers to set risk-based rates, including through the use of credit and territorial information.

Report Shows More Corporations Disclose Water Risk Following SEC Guidance, Though Data is Lacking

June 21, 2012 Comments off

Report Shows More Corporations Disclose Water Risk Following SEC Guidance, Though Data is Lacking
Source: Ceres

Overall corporate disclosures of water-related risks have increased since 2009, but most reporting remains weak and inconsistent according to Clearing the Waters: A Review of Corporate Water Risk Disclosure in SEC Filings, a new report issued today by Ceres.

Since 2010, the Securities and Exchange Commission has required companies to disclose financially material risks from climate change to their investors. These risks include “significant physical effects of climate change, such as effects on the severity of weather (for example, floods or hurricanes), sea levels, the arability of farmland, and water availability and quality.”

In light of this guidance, Clearing the Waters analyzes changes in water risk disclosure by more than 80 companies between 2009 and 2011, finding that though reporting has risen, it is lacking especially in regard to data on financial impacts, quantitative water metrics and potential supply chain risks. The report covers water use in eight water intensive sectors: beverage, chemicals, electric power, food, homebuilding, mining, oil & gas and semiconductors.

CRS — SEC Climate Change Disclosure Guidance: An Overview and Congressional Concerns

June 5, 2012 Comments off

SEC Climate Change Disclosure Guidance: An Overview and Congressional Concerns (PDF)
Source: Congressional Research Service (via Federation of American Scientists)

Publicly traded companies are required to transparently disclose material business risks to investors through regular filings with the Securities and Exchange Commission (SEC). On January 27, 2010, the SEC voted to publish Commission Guidance Regarding Disclosure Related to Climate Change, which clarifies how publicly traded corporations should apply existing SEC disclosure rules to certain mandatory financial filings with the SEC regarding the risk that climate change developments may have on their businesses. The Guidance has been controversial and has prompted legislation in the 112 th Congress to repeal it.

Proponents of the Guidance, including several union and public pension funds, have argued that it was necessary because a consensus has been established on the reality of climate change and that, given the salience of climate change and the various related legislative and regulatory responses to it, the Guidance would help foster a better understanding of how the SEC’s existing disclosure requirements applied to it. Some that oppose the guidance, including several business interests, argue that the current state of the science and the law underlying the idea of global climate change remains uncertain; existing SEC disclosure rules are adequate with respect to corporate reporting on environmental change; and while certain interest groups had advocated for such climate change disclosure guidance, the climate change disclosure guidance’s usefulness for most investors is unclear.

In the 112th Congress, Senator John Barrasso and Representative Bill Posey introduced identical bills (S. 1393 and H.R. 2603, respectively) that would prohibit the enforcement of the SEC’s climate change disclosure guidance.

Since the Guidance went into effect on February 8, 2010, there have been several attempts to gauge its impact. A 2011 report from Ceres, a nonprofit coalition of institutional investors, environmental organizations, and other public interest groups, concluded that most corporate filers needed more experience at communicating the risks associated with climate change. Although it found that large public companies had improved their climate-change risk disclosures in recent years, the report concluded that there was more work to be done in this area.

A report from the law firm of Davis Polk & Wardwell found that the Guidance did not appear to have had as significant an impact on disclosure as some had expected; that new disclosures emerged involving potential changes in demand for products and services and increases in fuel prices; and that there was little disclosure of actual or potential reputational harm that might result from climate change.

A third study published for the American Bar Association found that many companies reported seeing little upside and even less downside in climate change disclosures. It also found that many companies reported few meaningful business opportunities resulting from climate change disclosures, which instead carried a potential for creating risks. In addition, many companies indicated that disclosing frequently uncertain climate change-related information was often a very speculative process and that there were few, if any, penalties from the SEC for nondisclosure of climate change matters. This perception was underscored by other observations that characterized the SEC’s level of enforcement in this area as negligible.

This report will be updated as events warrant.

Life Insurance Providers Could Benefit by Increasing Outreach and Education, Deloitte Survey Reveals

May 28, 2012 Comments off

Life Insurance Providers Could Benefit by Increasing Outreach and Education, Deloitte Survey Reveals
Source: Deloitte

A prime reason many uninsured individuals don’t have insurance coverage is that no carrier has invited them to purchase their products, according to a Deloitte survey of life insurance buyers. Even insured individuals who are open to buying additional coverage often say that they have not been solicited by carriers.

“From our survey it is clear that life insurance is very much on the minds of many consumers,” said Rebecca C. Amoroso, Vice Chairman and U.S. Insurance Leader for Deloitte LLP, who was the survey’s executive sponsor.

Adds Amoroso, “A significant percentage of respondents have simply not been offered coverage recently; many also noted that they never shop for coverage on their own initiative. Not soliciting their business exacerbates this gap between insurers’ interests and consumers’ needs.”

The survey – “The Voice of the Life Insurance Consumer” – was conducted to provide life insurers with insights into how people perceived the value of life insurance, including where coverage ranked among their other financial priorities, as well how consumers preferred to be reached. The survey covered buyers and non-buyers’ related beliefs, motivations, influences, priorities and preferences.

Deloitte also identified some of the marketing challenges life insurers face in expanding their penetration among the uninsured and underinsured. “A significant number of respondents frankly don’t know if they need more insurance – or if they do, they don’t know how much they might need to buy,” said Sam Friedman, Insurance Leader for Deloitte Research, who led the project. “Still others say they want life insurance but cannot afford it – leaving open the question as to whether these cost-conscious prospects might in fact purchase a policy if they realized what the price and value for coverage might actually be.”

+ The Voice of the Life Insurance Consumer

Life Insurance Benefits: Variations Based on Workers’ Earnings and Work Schedules

May 21, 2012 Comments off

Life Insurance Benefits: Variations Based on Workers’ Earnings and Work Schedules
Source: Bureau of Labor Statistics

According to data from the National Compensation Survey, nearly two-thirds of private industry workers were offered life insurance benefits by their employers in March 2011; of these, 97 percent chose to enroll in this benefit. This high “take-up” rate reflects that only 5 percent of private industry employees in basic life insurance plans were required to pay part of the cost of coverage. Life insurance plans were much more likely to be offered to full-time workers than to part-time workers, as well as to workers in higher earnings brackets, compared with those in lower brackets. These differences in access result in differences in the participation rates reported by work schedule and earnings level.

Chart 1 shows that the difference in the rates of access and participation among full-time and part-time workers is substantial: 73 percent of full-time workers had access to life insurance benefits plans through their employers, and 71 percent participated in such plans. By contrast, only 14 percent of part-time workers had access to life insurance benefits, and 13 percent participated.

Report Finds U.S. Crop Insurance, Credit Programs Harm Fruit and Vegetable Growers; Encourage Commodities for Unhealthy Food

April 26, 2012 Comments off

Report Finds U.S. Crop Insurance, Credit Programs Harm Fruit and Vegetable Growers; Encourage Commodities for Unhealthy Food
Source: Union of Concerned Scientists

The U.S. Department of Agriculture (USDA) is urging Americans to eat substantially more fruits and vegetables, but its crop insurance and credit programs handicap produce growers and instead promote commodity crops that are disproportionately used in heavily processed junk food, according to a report released today during a conference call held by the Union of Concerned Scientists.

The report, “Ensuring the Harvest: Crop Insurance and Credit for a Healthy Farm and Food Future,” recommends a number of common-sense policies that would help American farmers grow more healthy food for our communities.

Weather makes farming a risky business, so the USDA offers crop insurance, making it easier for farmers to obtain bank loans or credit early in the year to cover the cost of seeds, fertilizer and equipment for spring planting. In the event of extreme weather—from spring frosts to summer flooding—that insurance gives farmers a safety net if their crops are destroyed or their price declines. For many farmers, insurance and credit is the difference between profiting and bankruptcy.

The USDA offers this crop insurance and credit to large farms growing corn, soy and other commodity crops, and to some large fruit and vegetable farms, such as tomatoes in California , but the agency shuts out “healthy-food” farms—small- to medium-size farms growing fruits and vegetables or raising livestock sustainably.

Many healthy-food farms, which sell their products locally at farmers markets, restaurants and schools, have become a market force in recent years. Currently, their local-food sales total $5 billion annually. But if fruit and vegetable consumption increased to meet the USDA’s MyPlate dietary guidelines, driving demand for healthy, sustainable produce, local food sales could increase to as much as $14.5 billion a year and generate as many as 189,000 new jobs, according to the UCS report.

+ Full Report

Free Farm Insurance Could Save Taxpayers up to $18.5 Billion

April 22, 2012 Comments off

Free Farm Insurance Could Save Taxpayers up to $18.5 Billion
Source: Environmental Working Group

A new report released today shows that an Environmental Working Group proposal to reform the costly federal crop insurance program through the 2012 farm bill could save taxpayers up to $18.5 billion over 10 years and provide more farmers with a reliable safety net.

EWG commissioned Dr. Bruce Babcock, an economics professor at Iowa State University, to analyze the impact of offering farmers a free insurance policy that would cover 70 percent of average crop yield at 100 percent of the market price for the lost crop.

If farmers were charged a small fee to cover administrative costs, taxpayers would save $10.4 billion over 10 years and cover every acre planted with corn, cotton, rice, soybeans and wheat in 2011. Savings would grow to $18.5 billion over 10 years if only the acres insured in 2011 were covered by the new safety net. “The reality that giving away free insurance would actually save money underscores how inefficient the current system is,” writes Dr. Babcock.

Under the current system, farmers only pay a small portion of the policy premiums, and the private insurers that sell the policies pay less than half of the damage claims from crop revenue losses. Taxpayers pick up the rest, along with exorbitant administrative costs and agents’ commissions. The result is that one taxpayer dollar goes to insurance companies and agents for every dollar sent to farmers to pay claims.

The cost to taxpayers of the current crop insurance system has soared from $2.4 billion in 2001 to nearly $9 billion in 2011 as a result of high commodity prices and the generous premium subsidies that lead farmers to buy the most expensive insurance available.

+ Full Report (PDF)

CRS — Conservation Compliance and U.S. Farm Policy

April 17, 2012 Comments off

Conservation Compliance and U.S. Farm Policy (PDF)
Source: Congressional Research Service (via National Agricultural Law Library)

The Food Security Act of 1985 (P.L. 99-198, 1985 farm bill) included a number of significant conservation provisions designed to reduce production and conserve soil and water resources. Many of the provisions remain in effect today, including the two compliance provisions—highly erodible land conservation (sodbuster) and wetland conservation (swampbuster). The two provisions, collectively referred to as conservation compliance, require that in exchange for certain U.S. Department of Agriculture (USDA) program benefits, a producer agrees to maintain a minimum level of conservation on highly erodible land and not to convert wetlands to crop production.

Conservation compliance affects most USDA benefits administered by the Farm Service Agency (FSA) and the Natural Resources Conservation Service (NRCS). These benefits can include commodity support payments, disaster payments, farm loans, and conservation program payments, to name a few. If a producer is found to be in violation of conservation compliance, then a number of penalties could be enforced. These penalties range from temporary exemptions that allow the producer time to correct the violation, to a determination that the producer is ineligible for any USDA farm payment and must pay back current and prior years’ benefits.

As Congress considers the reauthorization of farm policy through the next farm bill, issues related to conservation compliance have emerged. One of the most controversial issues has been the idea that crop insurance subsidies should be added to the list of benefits that could be lost if a producer is found to be out of compliance. Federal crop insurance subsidies were originally included as a benefit that could be denied under the compliance provisions, however, they were removed in the Federal Agricultural Improvement and Reform Act of 1996 (1996 farm bill) to increase producer flexibility, and direct payments were added. Presently, high commodity prices have resulted in few or no counter-cyclical payments, leaving conservation program participation and direct payments as the remaining major benefits that could motivate producer compliance with conservation requirements. Many environmental and conservation groups are asking Congress to consider re-tying crop insurance subsidies to compliance requirements, especially if direct payments are reduced or eliminated. Farm organizations and the crop insurance industry are generally opposed to tying crop insurance to compliance requirements, suggesting there may be a potential for reduced farmer participation in the federal crop insurance program.

The reduction in soil erosion from highly erodible land conservation continues, but at a slower pace than following enactment of the 1985 farm bill. The leveling off of erosion reductions leaves broad policy questions related to conservation compliance, including whether an acceptable level of soil erosion on cropland has been achieved; whether additional reductions could be achieved, and if so, at what cost; and how federal farm policy should encourage additional reductions in erosion. These broad policy questions, in addition to general concerns of program oversight and implementation, may influence the farm bill policy debate. Some environmental and conservation groups have asked Congress to tighten compliance requirements as one way of reducing soil erosion and preventing the conversion of wetlands. Many agricultural groups, however, prefer additional financial incentives through voluntary farm bill conservation programs as an alternative to conservation compliance.

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