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. Brakel, who manages two offices of Security Insurance Agency, as well as the securities department of Hannaford, N.D.-based Security State Bank, which is owned by the same people who own the insurance agency. The only revenue the bank gets from its insurance affiliate is rent.

Mr. Brakel said a bank-affiliated agency can better sense its farm customers' total financial and operational situation and objectives.

"A bank is in a better position to assess how to attain those goals and to provide options to manage risk and to provide products to transfer that risk," he said. "A lot of times if you just go to an independent agency, you are an insurance customer - period. They may not know how it ties into the total financial picture."

But bankers stress that "tying" of products and services in this area, such as the bank requiring the farmer to have crop insurance - and to buy it from the insurance affiliate - is not an issue.

"Bankers are so aware of that allegation and complaint that they go out of their way to make sure that they can require crop insurance ... but they don't require that it be bought there," Mr. Connealy said.

Insurance agents, including bank affiliates, have some new options to consider.

A pilot program in Nebraska and Iowa for corn and soybean producers, which guarantees revenue as well as yield, is expected to expand into other commodities and states - and could supplant multiperil crop insurance for some agriculture producers, said Arthur Barnaby, an agricultural economics professor at Kansas State University.

Further, in addition to the traditional coverage they offer against hail damage, more insurers are offering "named peril" insurance to protect farmers from specific problems, such as a tendency toward crop-threatening frosts.

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