Magazine article American Banker

Crop Insurance Ripe for Banks as It Gains Ground with Farmers

Magazine article American Banker

Crop Insurance Ripe for Banks as It Gains Ground with Farmers

Article excerpt

Crop insurance is being touted as the answer to the federal government's shrinking agriculture safety net - and farm lenders see it as an opportunity.

In many small towns, a bank with an insurance agent is practically the norm. And these banks are likely to see crop insurance business increase as farmers attempt to hedge against unforeseen crop troubles.

"For the ag lender who's got an insurance operation, we would project the ability to grow crop insurance revenue in the 10%, 15%, 20% range in the next few years," said Michael Connealy, president of Rural Community Insurance Services, a Norwest Corp. subsidiary based in Sioux Falls, S.D.

"If (a farmer) requires a risk-management product, he is going to have to buy crop insurance," he said. "That's opened the door from a sales standpoint."

Plenty of bank companies have insurance affiliates, but their powers vary by state. Rural banks with national charters can sell insurance if they are in towns of 5,000 people or fewer. In addition, wild card statutes in 27 states allow state-chartered banks in small communities to sell insurance as well.

"We believe that lenders will continue to rely heavily on crop insurance to support the loan because it is the only standing risk-management tool that the government is providing," said Mr. Connealy, whose company has issued policies in 44 states through local agents including community banks' insurance affiliates.

The main type of overall coverage, multiperil crop insurance is subsidized in large part by the federal government, which also sets the premium rates.

Is there a difference for the farmer between agencies affiliated with banks as opposed to nonbank agencies? Mark Brakel, who has worked at both types, says yes.

"I think a bank-affiliated agency does a better job of risk management than an independent agency," said Mr. …

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