The CHAIRMAN. You mean you do not think the record indicates that your premiums are too high?

Mr. GEISSLER. No; I do not.

Mr. WORLEY. You say you made a net profit of $5,200,000?

Mr. GEISSLER. In 1948. I think it is well for all of us to realize that under crop insurance we are going to have years when we will build up premium reserves. Likewise, there will be years when we are going to pay out more than we collect. Our objective solely, as we have seen it in the Crop Insurance Corporation, is to bring about a proper correlation between the kind of crops we have nationally and the kind of experience we have under our insurance program. In other words, when we have a crop like we had nationally in 1948 we should have good experience.

The CHAIRMAN. Can you give us an analysis of your 1948 operations also?

Mr. GEISSLER. Yes, sir. I might add here that in 1948 every commodity program shows a surplus.

(The information requested follows:)

Summary of premiums and indemnities for crop year 1948, as of Feb. 28, 1949

1 Includes unapproved loss claims estimated at $988,000.

Mr. WORLEY. For the record, is it not a fact that only one crop lost money under the general program prior to 1947, namely, cotton? Mr. GEISSLER. Cotton lost most of it, but we did have some deficits in the others, too, Mr. Worley.

For 1949, our program is, of course, substantially a continuation of the 1948 program, as we are operating under the limitations set up by Public Law 320. We did have some expansion in corn to bring it up to the full 50 counties, and we did increase our number of counties in the bean and multiple-crop programs.

Mr. ANDRESEN. Have you taken out any additional commodities for 1949?

Mr. GEISSLER. No, except that some additional commodities are included in the multiple-crops program, and I will explain that a little later, Mr. Andresen.

PROGRAM IMPROVEMENTS

I would like to point out for the information of this committee, Mr. Chairman, some of the policies that we have adopted which we feel are quite important in the successful operation of a crop-insurance program. One thing is that we have tried to develop our program more on the basis of the needs for the various areas for a certain kind of program. By that I mean that in the high plains area, that

Mr. Hill is very familiar with, we have established a low-coverage type of program which reimburses the wheat producer in that area for his out-of-pocket costs in the production of a wheat crop. That seems to be the kind of insurance they want out there.

Under the former high-coverage policy, we had very little participation out there. Now, under this low coverage, which of course carries with it a low premium, we are having very substantial support and participation in that area.

Then for the more stable area, where the risk is not so great, they want a somewhat higher coverage and they want to come closer to covering the entire investment they have in the crop. For the Corn Belt area, and the more low-risk areas of the Pacific Northwest, we are going up to about 60 percent of the normal yield with our policies, and that seems to suit those areas.

Then for the diversified areas where no one crop represents the major income on the farm, we have developed what we call a multiplecrop-insurance program and under that we insure four or five crops on one farm.

I would like to explain the multiple-crops program a little more. We started that program last year in two counties. One of them was Goodhue County, Minn., and the other was Gratiot County, Mich. In those two counties we picked the four major crops that were being produced in the county.

In Goodhue County they happened to be flax, wheat, corn and oats, I believe.

Mr. MURRAY. Mr. Chairman, will the gentleman yield at that point for a question?

The CHAIRMAN. Yes, I think so.

Mr. MURRAY. Have you ever insured any crop except the soildepleting crops?

Mr. GEISSLER. No.

Under this multiple-crops policy we then established a farm coverage which is based upon so much coverage per acre for each of the crops included, and from that we arrived at a farm coverage of about $2,000 to $3,000, we will say. If the combined production of the four crops covered equals that coverage, then of course we pay no loss. If the combined production of those four crops is less than that coverage, of course we do pay a loss.

I might say that from the standpoint of the Corporation, it is a very low-risk policy and, of course, a low permium goes with it. But it does assure this farmer in the diversified area that under this kind of policy he will recover the expenses that are incurred in growing that crop. He is guaranteed those expenses.

I might also say that the program seems to be very popular. This year we have extended it to about 7 counties, and in South Dakota where we have only 1 county they have asked for at least 10 more next year. In Minnesota where we have 3 counties this year, they have asked for 25 next year. We moved into a new area with it this year with Perquimans County, N. C., and they seem to be very interested in it down in that area.

Another thing that we have adopted as a policy with all of our programs that have had more than 2 or 3 years of experience, is a continuous contract. We sell a contract that has no termination date.

It is a continuous contract. However, it does have a provision that either the Corporation or the farmer can cancel that contract providing they cancel it before a certain date, and that date is midway between the two crop years. We feel that by doing this we can save quite a bit of administrative money in selling policies annually. We can eliminate some selectivity by having continuity of business, and all in all we feel that it will build up a sounder program.

Mr. ANDRESEN. That is all contingent upon paying a premium, though, is it not?

Mr. GEISSLER. Yes, sir. If he does not have his premium paid by the time cancellation date comes, we cancel it.

Mr. ANDRESEN. So that is no different from any other contract? Mr. GEISSLER. That is right. Prior to this time, you remember, we used to sell an annual contract that definitely terminated every year, and then had to go back and resell.

The CHAIRMAN. That saves you the necessity of having to solicit the man and sell him all over again?

Mr. GEISSLER. That is right. Under continuous contracts we, of course, have some cancellations, but if we have 50-percent participation and 6- or 7-percent cancellations, that means that we start out the year with 43 percent of them insured and concentrate our sales efforts on those who are not insured.

Mr. ANDRESEN. Do you make any reduction in the premium because of the continuous contracts? If you take a 5-year contract with an insurance company you get a reduction in the premium, as against a 1- or a 3-year contract. Your rate runs the same through the contracts as if they were insured for 1 year?

Mr. GEISSLER. That is right.

And the other thing that we have given a great deal of attention to is our actuarial policy and procedure for setting up the actuarial basis for insurance in the county. We are giving much more intensive study and analysis to the insurance risks within a county by areas, and are trying to sell at rates which more nearly reflect those variations between areas. We have also gone a long way in trying to screen out land that probably should not be farmed with that particular crop, and we declare that kind of land, when we find it, as noninsurable. Such land is probably river bottom land subject to flood almost continually or probably high land that cannot produce that crop, or it is not good farming practice to produce that kind of crop on that land.

In addition, we have also adopted a policy of screening out what we call high-risk producers. Two kinds of people would fall in this category. Some of them would be farmers who are simply just not good farmers, and the rest of the farmers in the county do not want to pay the premium rate for carrying that risk. Then we do have, unfortu nately, a few individuals who are moral hazards who will not pay their premiums, and, of course, we screen them out.

I might say that on our operation in some 400 counties last year under this policy in our actuarial work, we have eliminated about 5 percent of the land in those 400 counties as noninsurable under the crop insurance policy. We have also classified about 6,000 producers as ineligible for insurance because they were considered as being excep tionally high risks that the rest of the producers did not want to pay the premiums for.

PROGRAM ADMINISTRATION

Probably one of our biggest problems that we thought we had with us 2 years ago when we appeared before this committee, and one that will always be with us, is the matter of getting the kind of administration, particularly at the local level, that will make for a sound program. Prior to the time we were up here 2 years ago, and since then, we have given a great deal of attention to correcting administrative weaknesses where we might find them, and we have certainly come to the realization that a great many of our losses in the past were not so much because of program weaknesses as they were sometimes weaknesses in the way the program was administered.

We have also come to the conclusion that it is impossible to set up an administrative organization from the Washington level that can police and supervise the program, such as the Federal Crop Insurance program, on every farm in all the areas in which we might insure, and that it is necessary for us to set the program up in such a way that it becomes of interest to the local people themselves to operate a farm program.

In order to implement that sort of interest on the part of the local people, not only the administrative people but the insured farmers, we have injected what we call the mutual idea of insurance in each county. To put some meaning into that, we have adopted a policy that the premium rates for each county will be adjusted on the basis of the loss experience of that county without relationship to what happens any place else. In other words, we are pointing out to them that they are going to have to pay their own bill and, if over a long period of years they run a good program, their bill is going to be at a low level. If they start paying off losses that they should not, or insuring producers that they should not, or otherwise poorly administering the program, their bill will be higher.

Mr. ANDRESEN. In other words, you are trying to run it on a basis so that the insurance program will carry itself and succeed, rather than give coverage in areas where they should not have cheap coverage?

Mr. GEISSLER. That is right.

Further than that, we have to get that same idea instilled into the farmers and the administrative people. When they see that their own performance out there is going to determine the rates they are going to have to pay in the future, they commence to take a real interest in seeing that a good sound program is being operated.

Mr. ANDRESEN. Who are the local people who administer this program?

Mr. GEISSLER. For the most part, we have cooperative arrangements with the local county PMA committees. In some few counties we operate our own organizations.

Mr. ANDRESEN. You have your own agents?

Mr. GEISSLER. When I say we operate cooperatively with the local PMA committees, I mean in connection with selling and servicing of the contracts. The Corporation maintains its own organization for loss adjustments directly out of our State office.

Mr. HOEVEN. Is that arrangement working out to your satisfaction?

90428-49-ser. H- 4

Mr. GEISSLER. I would say generally, yes. Under the arrangement that we are operating under now, I think you will remember that language was put into the act in 1947 which says that any local organization which administers the crop insurance program shall be responsible directly to the Corporation. Under that arrangement we do not now work out a lump-sum transfer of funds at the Washington level, but enter into agreements between the Corporation and the State office and the Corporation and the county offices of the PMA organization where we feel that they will do a satisfactory job, and where they are willing to take on the job.

Mr. HILL. As I recall, when we were working this out it caused us considerable uneasiness, how to give you the authority to make the proper connections at the level of the producer.

Mr. GEISSLER. I remember that.

Mr. HILL. We thought when we wrote this bill out that we were keeping in mind that you could have the power at the top to make your connections at the farm level as you felt would work out to the best interest of the insurance program.

Mr. GEISSLER. I believe the language in the act did give us that opportunity and it is certainly working out much better than it did previous to that time.

Mr. POAGE. Mr. Chairman, I do not understand about that State office.

Do you maintain an office in every State?

Mr. GEISSLER. We maintain an office in most States. In some of the States where we have just a few counties we have combined several States into one regional office, which corresponds to a State office.

Mr. POAGE. I thought you only had one branch office and that was in Chicago.

Mr. GEISSLER. No, the branch office is an entirely different set-up Mr. Poage. The branch office performs our auditing and accounting functions, pays claims and computes and receives premiums. But our State offices are the administrative organizations which put across the sales campaign in cooperation with the counties where we have agreements. They are the ones who see that premiums are collected when they should be. They are the ones who run the loss adjustment crews that actually make adjustments in the field.

Mr. POAGE. Where is your office in Texas?

Mr. GEISSLER. College Station.

Mr. HOEVEN. How many employees do you have at the present time in the Crop Insurance Corporation?

Mr. GEISSLER. Just slightly in excess of 400 permanent employees. That means the Washington office, the Chicago branch office, and the various State offices.

Mr. HOEVEN. Can you break it down as to just how they are distributed?

Mr. FRETTS. Permanent employees, 423. All other employees, 474, at the present time.

Mr. HOEVEN. You are not including the members of the PMA who do the local work?

Mr. FRETTS. No; they are not included.

Mr. HOEVEN. Do you give the PMA workers a per diem, or how do you pay them?