The Reagan administration's effort to end federal subsidies for crop insurance has set off a bitter fight between competing private insurance companies over millions of dollars in business they hope to get from farmers.
One group of private agents who sell the federal insurance contends that the budget proposals will kill the program and leave farmers without protection. An opposing group of companies, while concerned about the potential loss of the subsidies, calls the proposals "a dream come true" for cornering business.
The president's fiscal 1986 budget called for phasing out federal subsidies for crop insurance by 1990. A Senate Republican budget compromise that the White House has accepted also would phase out the program, but over eight years.
The fight, however, has drawn new attention to the Agriculture Department's Federal Crop Insurance Corp., and raised questions about its handling of the program that was expanded in 1980 to replace the traditional disaster payment programs that cost the government billions of dollars.
* A recent confidential FCIC audit suggested that millions of dollars in premiums may have been paid to west Texas cotton farmers for crop losses last year that were not documented by the companies acting as agents for the FCIC. The study also suggested that the companies may have been overly generous in handing out federal money as a way of attracting new business.
Merritt Sprague, FCIC administrator, said in an interview that he determined after an inspection trip that the crop losses were "legitimate." But he conceded that his agency has "quality control" concerns and is providing "stronger oversight" of the companies.
* Although official documents indicate that the FCIC had intended to do business next year with the Master Marketers Association of America -- the agents who are fighting the budget cuts -- the agency's board took steps last month to do all its business with a rival group of insurance firms.
* Other FCIC documents indicate that some of the firms have canceled policies or refused to handle business in high-risk areas, moves that enhanced their profitability and added to FCIC costs. Other agency documents show a pattern of the FCIC giving the companies exclusive sales rights in some areas, removing the smaller agents from competition.
* In a move that the master marketers argue will force farmers out of the insurance program, the FCIC's directors also voted to tighten its rules in a way that would make it more difficult for farmers to collect when they suffer losses.
Sprague said the decision was made to reduce FCIC losses, but Arlo Jones of Sidney, Neb., president of the master marketers, said it would push farmers out of the program and further justify the administration's effort to cut federal spending.
* The FCIC sent more than 40 officials, most from the agency's Washington and Kansas City offices, to a five-day "contingency" conference at a remote Arizona dude ranch last month. Sprague could provide no cost figures, but he defended the choice of the ranch as "the best site available in a short time frame." He said the "isolated environment" was needed to discuss a proposed restructuring of his agency.
The administration's moves to alter the shape of the FCIC stem largely from the costs of the program: it pays out about $1.50 for each $1 it takes in. Most experts agree that the budget cuts will mean higher premium rates for farmers, and that in all likelihood participation will decline.
"We can't continue to have the losses we've had the last five years," Sprague said. "We have tried to set rates to losses."
Although Congress expanded the insurance program in 1980, the FCIC's costs have skyrocketed while covered acreage has remained fairly static: 44.5 million acres insured in 1981, 43 million last year. But administrative costs went from $92 million in 1981 to $177 million in 1984; premium subsidies rose from $47 million in 1982 to $61 million last year.
Sprague said the administration believes that a revamped program can be "more efficient," and that "farmers ultimately can bear the full cost of insurance." He noted that agriculture is the only industry covered by federally subsidized insurance.
"The corporation's book is shifting dramatically," Sprague said. "We're becoming more of a reinsurance company, rather than writing insurance on federal paper . . . . The objections are from a small group, . . . an association that doesn't represent all of the agents."
Under the administration's proposal, the FCIC would end its present direct insurance program and instead underwrite policies sold by commercial companies. The proposal, published in March in the Federal Register, has stirred a storm on Capitol Hill and brought calls for investigative hearings.
Leading the charge against the administration plan is the Master Marketers Association of America, mostly small independent agents who act as direct sales agents for the FCIC. The proposed changes would cut them out of the business.
On the other side is the American Association of Crop Insurers, made up mostly of insurance companies, which calls the Reagan plan "a dream come true." It has mounted a major lobbying effort on behalf of the administration's plan to "privatize" the insurance program -- that is, to remove the master marketers from the business.
An AACI strategy memo in March said, "If FCIC goes ahead with the proposed termination, it means less government and less government expense. If FCIC does not, it will be due to the amount of negative comments received and pressure from Congress. The administration can say it tried, but obviously the reinsured companies were not prepared to handle the job."
AACI Washington representative Mike McLeod said the master marketers' role "is one issue," and, even though his group would like to see the competition eliminated, it thinks some federal crop insurance subsidy is needed.
"To us, the subsidy question is more important," he said. "We think termination of the subsidy would make the premium costs so high that the average farmer could not afford the insurance. We're not in favor of terminating any subsidy with the agricultural economy being what it is."
Sprague noted that some of the same AACI companies in 1980 opposed expanding the federal insurance program. He said, " 'Dream come true' means a chance for them to do what they do best without competition."