The Feasibility of Crop Insurance Agency Acquisitions
Bill Davis, Omaha, Neb., defended his thesis, “The Feasibility of Crop Insurance Agency Acquisitions,” on Thursday, April 15, 2010. Davis is a Senior Vice President - Chief Credit Officer with Farm Credit Services of America (FCSAmerica) in Omaha. He will graduate from Kansas State University in May with a Master’s in Agribusiness (MAB).
As federal subsidies to producers decline, crop insurance is becoming an increasingly important risk management tool for crop producers. There are many forms of insurance, including multi-peril, crop revenue coverage, revenue assurance and traditional crop hail insurances. Crop insurance is one of the core products of FCSAmerica, a cooperative financial services provider to over 75,000 farmers, ranchers, and rural residents in the states of Iowa, Nebraska, South Dakota, and Wyoming.
“Crop insurance has displaced commodity program payments as the most important safety net for net farm income. The industry faces uncertainty regarding the future level of federal subsidies and profitability levels for the insurance industry,” Davis said.
Davis was interested in determining if acquiring crop insurance policies written by other agencies made economic sense.
“This thesis project examined a wide range of assumptions for future economic and political support scenarios. In spite of the uncertainty, an acquisition strategy can be feasible with reduced commissions, if priced appropriately,” he said.
Given the uncertainty surrounding subsidies and insurance profitability, Davis’s work does provide some guidance in making decisions on whether to make acquisitions.
“Bill does a nice job building an economic model that will allow his organization to price acquisition opportunities under different economic and policy scenarios,” said Allen Featherstone, Professor of Agricultural Economics and Davis’s thesis advisor. “One of the conclusions that can be drawn from this work is that under current policy proposals related to crop insurance, we will likely see a reduction in the number of insurance providers.”
The full thesis publication can be found online on K-State’s Research Exchange at http://hdl.handle.net/2097/14043.