Escolar Documentos
Profissional Documentos
Cultura Documentos
Part II
Department of
Agriculture
Federal Crop Insurance Corporation
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41822 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
DEPARTMENT OF AGRICULTURE Unfunded Mandates Reform Act of part 3015, subpart V, published at 48 FR
1995 29115, June 24, 1983.
Federal Crop Insurance Corporation
Title II of the Unfunded Mandates Executive Order 12988
Reform Act of 1995 (UMRA) establishes This rule has been reviewed in
7 CFR Part 400
requirements for Federal agencies to accordance with Executive Order 12988
RIN 0563–AB95 assess the effects of their regulatory on civil justice reform. The provisions
actions on State, local, and tribal of this rule will not have a retroactive
General Administrative Regulations, governments and the private sector.
Subpart V—Submission of Policies, effect. The provisions of this rule will
This rule contains no Federal mandates preempt State and local laws to the
Provisions of Policies, Rates of (under the regulatory provisions of title
Premium, and Premium Reduction extent such State and local laws are
II of the UMRA) for State, local, and inconsistent herewith, unless otherwise
Plans tribal governments or the private sector. specified in the rule. The appeals
AGENCY: Federal Crop Insurance Therefore, this rule is not subject to the procedures at 7 CFR 400.169 and 7 CFR
Corporation, USDA. requirements of sections 202 and 205 of part 24 must be exhausted before any
UMRA. action against FCIC for judicial review
ACTION: Interim rule.
Executive Order 13132 may be brought.
SUMMARY: The Federal Crop Insurance
Corporation (FCIC) amends the General It has been determined under section Environmental Evaluation
Administrative Regulations to include 1(a) of Executive Order 13132, This action is not expected to have a
provisions regarding the requests by Federalism, that this rule does not have significant economic impact on the
approved insurance providers to sufficient implications to warrant quality of the human environment,
implement the premium reduction plan consultation with the states. The health, and safety. Therefore, neither an
authorized under section 508(e)(3) of provisions contained in this rule will Environmental Assessment nor an
the Federal Crop Insurance Act (Act) not have a substantial direct effect on Environmental Impact Statement is
and the approval of the amount of a states, on the relationship between the needed.
premium discount to be provided to national government and the states, or
on the distribution of power and Background
farmers under the premium reduction
plan. responsibilities among the various On February 24, 2005, FCIC published
levels of government. a notice of proposed rulemaking in the
DATES: Effective June 30, 2005. Federal Register at 70 FR 9001–9013 to
FOR FURTHER INFORMATION CONTACT: For Regulatory Flexibility Act
revise 7 CFR part 400, subpart V,
further information, contact Lee Ziegler, FCIC certifies that this regulation will Submission of Policies, Provisions of
Economist, Reinsurance Services not have a significant economic impact Policies, Rates of Premium, and
Division, Risk Management Agency, on a substantial number of small Premium Reduction Plans. Following
United States Department of entities. This action does not increase publication of the proposed rule, the
Agriculture, 1400 Independence the burden on any entity because it public was afforded 60 days to submit
Avenue, Room 6739–S, Washington, DC merely clarifies the process to submit written comments and opinions.
20250; telephone number (202) 720– premium reduction plans to the FCIC Approximately 1,900 comments were
0191, e-mail address: Board of Directors for approval. The received from approved insurance
lee.ziegler@rma.usda.gov. current requirements of the Standard providers, farmers, agents and other
SUPPLEMENTARY INFORMATION: Reinsurance Agreement (SRA) and interested parties.
procedures for premium reduction plans After consideration of all the
Executive Order 12866 approved by the Board contain comments and the concerns expressed,
This rule has been determined to be provisions to ensure that small entities FCIC realizes it needs to proceed
not significant for the purposes of have access to policies and plans of cautiously to ensure the continued
Executive Order 12866. insurance, including premium access of farmers to crop insurance and
reduction plans. The requirement to stability of the delivery system for the
Paperwork Reduction Act of 1995 apply for a premium reduction plan is federal crop insurance program. Not
In accordance with the Paperwork the same for small entities as it is for publishing a rule is not an option
Reduction Act of 1995 (44 U.S.C. large entities. A Regulatory Flexibility because section 508(e)(3) of the Act
Chapter 35), RMA’s request for Analysis has not been prepared since states that FCIC shall consider all
emergency approval on a new this regulation does not have an impact applications of the approved insurance
information collection, Premium on small entities, and, therefore, this providers to participate in the premium
Reduction Plan, was approved under regulation is exempt from the provisions reduction plan. To allow such
OMB control number 0563–0079. of the Regulatory Flexibility Act (5 application without ensuring that
U.S.C. 605). premium reduction plans are fair and
Government Paperwork Elimination
equitable and do not endanger the
Act (GPEA) Compliance Federal Assistance Program
delivery system would jeopardize the
In its efforts to comply with GPEA, This program is listed in the Catalog program far more than implementing a
FCIC requires all approved insurance of Federal Domestic Assistance under rule intended to protect these
providers delivering the crop insurance No. 10.450. principles.
program to make all insurance However, to allow itself the maximum
documents available electronically and Executive Order 12372 flexibility in quickly making changes to
to permit producers to transact business This program is not subject to the the rule, should they become necessary,
electronically. Further, to the maximum provisions of Executive Order 12372, FCIC has elected to publish this rule as
extent practicable, FCIC transacts its which require intergovernmental an interim rule. All the comments
business with approved insurance consultation with State and local provided in response to the proposed
providers electronically. officials. See the Notice related to 7 CFR rule were considered when developing
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41823
the interim rule. The Risk Management assume RMA would resolve any rebate its attraction to farmers if it is not
Agency (RMA), on behalf of FCIC, issue before implementation. guaranteed up front. However, at least
intends to operate the premium Response: Whether the premium farmers will be guaranteed a stable
reduction plan program for the 2006 reduction plan may be a form of delivery system with the possibility of
reinsurance year under the interim rule. rebating that is prohibited under most a premium discount, which if not
This will allow time to determine how state laws is not material. Under section available to purchase additional
effectively the premium reduction plan 506(l) of the Act, any state law that is coverage for the current year, could be
program is operating. After sufficient in conflict with the Act or any used to increase coverage in subsequent
time to experience the operation of the regulation promulgated by FCIC is crop years. Under the proposed system,
program, RMA will publish a separate preempted. Section 508(e)(3) of the Act if the commenters are correct, there
notice soliciting comments. Such expressly authorizes approved could be instability introduced into the
comments will then be considered when insurance providers to pay premium delivery system. RMA does agree that
making the rule final. discounts to farmers without reference the premium discount should be
When FCIC published the proposed to state law. This is in contrast to available regardless of whether the
rule, it specifically sought comments on section 508(b)(5)(B) of the Act that farmer suffers a loss and this is included
certain provisions and proposals and authorizes cooperative and trade in the interim rule.
sought comments on the proposed rule associations to pay all or a portion of the Comment: Several agents, farmers,
in general. The comments and responses administrative fee on behalf of the approved insurance providers and
have been categorized in accordance farmer or provide a rebate as long as interested parties commented that
with the specific and general requests such rebate is permitted by the laws of farmers take enough risk with planting
for comment. Further, RMA has used the state. Since section 508(e)(3) of the crops and hoping for a good crop year,
the term ‘‘few’’ to mean two Act does not waive federal preemption, so why should approved insurance
commenters, ‘‘several’’ to mean three to the fact that such discounts may be providers who are experts at risk
nineteen commenters, and ‘‘many’’ to considered a prohibited rebate under management, not be able to offer savings
mean 20 or more commenters. These state law or provided to farmers in a to farmers guaranteed upfront if they
terms do not reflect the number of manner similar to dividends that are have the ability and option to do so. A
commenters in each category listed but regulated by the state does not override commenter also stated that providing
the total for all categories. the express authority in section only the chance for discounts based on
508(e)(3) of the Act. The application of profitability will only confuse the
A. Preamble Federal preemption is consistent with farmers and open approved insurance
1. Alternative Proposal section II.A.4. of the 2005 SRA and the providers to potential accounting
approved procedures, which make it irregularities to limit profits in order to
In the preamble to the proposed rule, clear that state law only applies to avoid paying dividends.
RMA suggested an alternative proposal rebating issues involving section Response: RMA disagrees with the
that would require the approved 508(b)(5)(B) of the Act and that Federal commenter that approved insurance
insurance providers to base any preemption applies to all other aspects providers are more likely to engage in
premium discount on actual cost of rebating, including section 508(e)(3) accounting irregularities under the
savings for the reinsurance year instead of the Act. alternative. First, the payment of a
of projected savings. The proposal Comment: Several agents, farmers, premium discount is not conditioned
would operate similar to a dividend approved insurance providers and upon profitability of the approved
program with premium discounts interested parties commented that any insurance provider. It is conditioned
provided after the costs savings were discount should be guaranteed up front upon the approved insurance provider
determined, which would be after the and should be available to farmers reducing its cost to deliver the program
end of the crop year. This meant farmers whether or not the crop year is a good to an amount below the amount of
would be required to pay the full one or a bad one. Commenters state that administrative and operating (A&O)
premium when due and receive the if the discount is not guaranteed, subsidy paid by RMA. Second, the
premium discount at a later time. RMA farmers will not enter the program and requirement that the approved
was particularly interested in comments farmers will not take the opportunity to insurance provider must have an
that addressed the benefits of using increase coverage. independent professional audit and
actual versus projected costs, impacts Response: RMA understands the certify actual cost efficiencies provides
on the workload of the approved position of the commenters and took less opportunity for accounting
insurance providers and RMA, market that position in the proposed rule. irregularities than the use of projected
conduct oversight requirements that However, as expressed more fully cost efficiencies, as established under
may be required, impacts on below, it has considered the other the proposed rule. RMA also
competition, the delay in the comments and its own concerns understands there may be concerns that
reimbursements to farmers, whether regarding the complexity and burdens the alternative may lead to confusion for
such reimbursements create any income on approved insurance providers and some farmers regarding whether they
tax issues, or any other substantial RMA of having to establish and evaluate will receive a premium discount. To
adverse or positive effect of this projected savings, and the impact on the prevent such confusion, the interim rule
approach in contrast to the approach program if such savings are not realized places specific restrictions on the
included in the proposed rule. The and determined that the difficulties in advertising or promotion of the
comments received and FCIC’s administering the program outweigh the premium reduction plan to prevent
responses are as follows: effect on farmers of not having the approved insurance providers or agents
Comment: An agent commented that premium discount guaranteed up front from making promises regarding the
in a state that has a significant number and, therefore, has elected to adopt the payment of premium discounts that the
of rebate laws, the alternate approach alternative proposal in the interim rule. approved insurance provider may not be
offered by RMA may raise issues about In adopting the alternative proposal, able to keep. While recognizing that the
rebating. The commenter asks how this RMA understands that the premium alternative approach does not have the
would affect implementation and reduction plan will likely lose some of guaranteed benefits that the proposed
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41824 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
approach had, RMA had to weigh the premium discount program is totally the same need does not exist under the
potential problems with basing voluntary based on whether the alternative proposal. RMA will be
premium discounts on projected costs approved insurance provider looking at the cost savings after they
instead of actual costs. determines it makes sound business have been realized. Further, it is up to
Comment: An approved insurance sense. RMA cannot structure the the approved insurance provider with
provider commented that using program to provide an incentive for respect to whether its operation will
appropriate business tools, approved approved insurance providers to support cost cutting measures sufficient
insurance providers can accurately participate if there is a possibility that to allow the payment of a premium
forecast (and demonstrate to the RMA) such incentive would prove detrimental discount. However, approved insurance
the amount of savings necessary to offer in the long run. Further, as stated above, providers that offer a premium discount
a premium reduction plan, and should farmers will still be receiving a benefit plan but fail to deliver any premium
be required to pass those savings—up- if the approved insurance provider discounts would likely find themselves
front—on to farmers. A commenter attains the necessary savings, which can losing business to approved insurance
states that under the current structure, still provide an inducement to purchase providers who do pay premium
another core benefit to farmers is that insurance with a specific approved discounts. Therefore, there is still an
competing approved insurance insurance provider so approved incentive to implement the cost-saving
providers will market their various insurance providers still have an measures.
programs with specific discount incentive to participate in the premium Comment: An agent commented that
information, thereby permitting farmers reduction plan. In addition, approved agents and approved insurance
to make informed insurance purchasing insurance providers will be able to providers should not be given discretion
decisions. The commenter states that advertise premium discounts paid in the over discounts. The commenter stated
the alternative approach eliminates this previous reinsurance year to give that other lines of insurance allow
benefit. farmers an indication of what premium agents and approved insurance
Response: RMA agrees that the discount they may be able to expect, providers to price business based on the
alternative approach does not have the although such advertising will be ‘‘merits’’ of the business. The
full benefit of allowing farmers know accompanied by appropriate commenter stated that pricing flexibility
what their premium discount will be up disclaimers. RMA believes that the is not based on the merit of an account
front. However, RMA is not as confident advantages of the alternative proposal but used as a marketing tool. Once
as the commenter that approved outweigh the disadvantages. consumers make this discovery, then
insurance providers can accurately With respect to not publishing the agents are pitted against each other from
forecast their savings each year. Certain interim rule, section 508(e)(3) of the Act year to year when delivering proposals.
costs are fixed but other costs, such as requires RMA to accept any request by The commenter stated this is not
loss adjustment expense, are not. In an approved insurance provider to something likely to happen as it does
order to qualify to pay a premium participate in the premium reduction not provide a documentable reason for
discount, the approved insurance plan. Not publishing the interim rule the discount.
provider has to be operating below A&O would mean that the premium Response: RMA agrees that the ability
subsidy. In unusually bad loss years, it reduction plan would continue under of an agent to use a projected premium
is possible that some or all projected the existing RMA procedures— discount, rather than a premium
savings could be spent on additional procedures that the FCIC Board of discount based on actual cost savings,
loss adjustment expenses. To require Directors (Board) has determined to be raises a cause for concern with respect
approved insurance providers to pay unsatisfactory—or revised procedures. to the marketing of the agent’s services.
premium discounts in such years could RMA disagrees with the commenter that Under the alternative proposal adopted
financially weaken the crop insurance the interim rule would undermine the in the interim rule, agents would not be
delivery system. delivery of crop insurance and universal able to promise a premium discount.
Comment: An interested party access. As outlined in RMA’s responses The agent could provide policyholders
commented that there are problems with to the other comments, the interim rule with a history of actual premium
the alternative approach. The includes provisions that ensure discount payments that have been
commenter states that farmers face too universal access and protect the documented by the approved insurance
many other uncertainties and not delivery of crop insurance. provider, but would be strictly
knowing the savings until after the end Comment: An approved insurance prohibited from inferring that
of the end of the crop year just poses provider commented that a core benefit policyholders would, in fact, receive a
another one. The commenter also to the current structure is that it requires premium discount in the future.
suggests that approved insurance participating approved insurance Comment: An approved insurance
providers would be reluctant to providers to focus on administrative provider commented that the alternative
participate in the premium reduction costs up front, to demonstrate savings proposal was conceptually interesting,
plan because it could not use a specific that can be achieved, and to impose the but inconsistent with prospective rating
discount when competing in the necessary mechanisms to achieve them. methods used for virtually all other
marketplace. The commenter suggested The commenter states that the insurance products. It would only be
that RMA not publish the rule rather alternative structure eliminates this modestly easier to validate and assign a
than risk the premium reduction plan incentive and discourages providers dollar value to efficiencies post-policy
undermining the delivery of the crop from identifying, designing and period as opposed to prior to it. The
insurance program and fundamental implementing necessary cost-saving commenter stated that the plan would
principle of universal access. mechanisms and practices before the probably invite intimations during sales
Response: RMA shares the concerns savings can be realized. process of anticipated efficiencies at
of these commenters with respect to the Response: While it may have been least as great as any other approved
alternative proposal—that farmers will beneficial for RMA to know how insurance provider—and if so would
face yet another uncertainty and that an approved insurance providers were cause confusion to the farmer.
uncertain discount will reduce cutting their costs when the premium Response: As an initial matter, the
marketing opportunities. However, the discounts were based on projected costs, premium reduction plan has nothing to
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41825
do with the rating methodology. The RMA agrees with the comments that insurance, the premium reduction plan
dollar amount of premium to cover the false promises and potentially deceptive is not a dividend plan. The premium
risk of loss and a reasonable reserve marketing practices are more likely to reduction plan is a plan that offers a
remains unchanged. The only thing that emerge from the alternative structure premium discount to farmers based on
may change is that portion of the outlined in the interim rule than from the efficiencies attained by the approved
premium paid by the farmer. Under the the structure outlined in the proposed insurance provider. Further, under the
alternative adopted in the interim rule, rule. As stated above, to address this, alternative approach, approved
the farmer would pay the entire amount the interim rule incorporates specific insurance providers are placed in a
of the farmer paid portion and later marketing prohibitions. The interim rule more equal position because they will
receive a discount from the approved also indicates that state insurance not have to prove up front that they can
insurance provider. Further, it would be departments will be enlisted to play a deliver the program for less than their
much simpler to validate the savings role in the enforcement of market A&O subsidy. This means that all
after they have been achieved. First, the conduct. These departments currently approved insurance providers can
total A&O costs reported on the Expense have structured market conduct request to participate in the premium
Exhibits to the SRA is compared with standards and enforcement arms, and reduction plan although only those
the amount of A&O subsidy received to can ensure that deceptive practices are approved insurance providers that
determine whether the approved identified, investigated, and penalties attain sufficient savings can provide a
insurance provider is eligible to pay a assessed to those who engage in them. premium discount under such a plan. In
premium discount. This would permit Comment: An agent asked if RMA is addition, under either approach, service
approved insurance providers whose going to require all approved insurance and training cannot be reduced below
current A&O costs exceed the A&O providers to form into a mutual what is necessary to meet the
subsidy to still request to participate in approved insurance provider so the requirements in the SRA regarding
the premium reduction plan because the insureds can receive the dividend. service, which are generally contained
payment of a premium discount is Minnesota has this requirement that for in procedures such as the Crop
contingent upon the approved insurance an insurance customer to qualify for a Insurance Handbook and the Loss
provider sufficiently reducing its costs. dividend they must be part of a mutual Adjustment Manual, and training
This cost accounting is simple and approved insurance provider. The requirements that are generally
avoids the need to demonstrate up front commenter stated that most approved contained in Appendix IV to the SRA.
that the approved insurance provider insurance providers in the MPCI market This is the minimum level of service
will reduce costs sufficiently to be able place now are private approved that RMA determines is necessary to
to pay a premium discount. insurance providers and it is unlikely properly deliver the crop insurance
Second, the interim rule contains they would want to change to a mutual program. To the extent that service
mechanisms to place all costs into one approved insurance provider. currently exceeds these standards, RMA
of three categories. Based on the Response: Neither the interim rule nor
cannot take any action against any
category, the costs are allocated any other provision in section 508(e)(3)
approved insurance providers who do
proportionally to the net book premium of the Act requires that approved
not participate in the premium
in the state or are reported in the insurance providers become mutual
reduction plan and who reduce such
Expense Exhibits by state. This process insurance companies to qualify for the
service to the level required to comply
provides a simple transparent means to premium reduction plan. Although state
with the SRA and approved procedures.
allocate costs and determine the amount law may require insurance companies to
There is no difference under the
of premium discount that can be paid in be mutual insurance companies to be
premium reduction plan. RMA will be
each state. able to distribute dividends, the
Third, as stated above, the interim premium discount plan authorizes the looking at whether approved insurance
rule contains restrictions on the manner payment of premium discounts, not providers are violating the standards of
in which the premium reduction plan dividends, even though they may be service required by the SRA. If such a
can be promoted or advertised. paid at a similar time as a dividend. violation occurs, RMA can withdraw its
Approved insurance providers will only Further, section 508(e)(3) of the Act determination that an approved
be able to advertise actual premium provides RMA with the authority to insurance provider is eligible to
discounts paid in the past reinsurance allow approved insurance providers to participate in the premium reduction
year and even those must be offer premium discounts without being plan or approval of a premium discount,
accompanied by a disclaimer that there a mutual insurance company and such or take such other action as authorized
is no guarantee such premium discount authority will preempt state law in under the SRA.
will be paid in the future. accordance with section 506(l) of the Comment: Several interested parties
Comment: Several interested parties Act. commented that while the dividend
commented that the alternative had too Comment: An interested party plan approach is more workable than
many loopholes, there were no controls commented that dividend plans may the up-front premium discount
over false promises or deceptive have an adverse impact on approved approach, both approaches suffer from
marketing practices, and there were no insurance provider participation if the some of the same difficulties. A
penalties for such conduct. procedures established by RMA enable commenter states that the same issues
Response: RMA disagrees with the one or more approved insurance with recordkeeping, accounting
comment that the alternative has too providers to obtain a competitive practices, and monitoring issues still
many loopholes. By requiring that advantage over the other approved exist with the alternative. A commenter
premium discounts come from realized insurance providers. Dividend plans stated that after further review, the
and certified cost efficiencies, the may also adversely affect customer dividend plan approach should not be
alternative in the interim rule is less service if the efficiencies are achieved pursued at this time, and that RMA
subject to loopholes that the program through reductions in training or other should conduct additional study to
outlined in the proposed rule, which service related functions. more carefully evaluate whether these
permits premium discounts based on Response: Although similar to a difficulties can be resolved through
forecasts that might not be realized. dividend plan in other lines of careful design of any procedures used to
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41826 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
implement the premium reduction reduction plan is not a dividend plan. a reasonable reserve and premium
language in the Act. Approved insurance providers will be discounts allowed under the Act are
Response: As stated above, while offering premium discounts. RMA based on the reduction in costs below
similar to a dividend plan, the premium believes that a rule based on actual cost the amount of A&O subsidy paid by
reduction plan is not a dividend plan. efficiencies has both advantages and RMA. RMA understands the concerns of
Approved insurance providers will be disadvantages over the current premium the commenter that the alternative
offering premium discounts. Further, reduction plan based on projected proposal would not allow the farmer to
the interim rule simplifies many of the savings that must be later confirmed plan or budget for the premium
recordkeeping and accounting practices with actual costs. As stated more fully discount. However, as stated above,
that would have been required under above, RMA agrees with the RMA believes that the advantages of
the approach included in the proposed commenters that the interim rule should using the projected cost approach are
rule. Savings and the amount of any be based on actual rather than, as it is more than offset by the disadvantages.
premium discount will be determined currently operating, projected savings. RMA also agrees that the alternative
using the Expense Exhibits provided RMA also agrees that the alternative will proposal will reduce the ability of
with the SRA each reinsurance year. reduce the chance that approved approved insurance providers and
Further, the procedures accompanying insurance providers will not meet their agents to discriminate against small,
the interim rule contains specific projections and cause market disruption limited resource, women or minority
allocation requirements for certain costs and that the delay in approving the farmers because they cannot offer a
that will simplify the determination of premium discount would give RMA guaranteed premium discount as an
whether a premium discount can be time to determine that all requirements inducement to large farmers to purchase
paid. There still will be monitoring in the rule were satisfied and to evaluate insurance. Further, the interim rule
requirements but the accounting and the financial condition of the approved specifically requires that the approved
recordkeeping burdens are greatly insurance provider. RMA agrees that by insurance provider develop a separate
reduced. RMA intends to test this using actual rather the projected costs, marketing plan demonstrating how it
concept out through the interim rule the verification burden placed on RMA will reach such farmers in addition to
and then seek additional comments to would be reduced; that the potential for the efforts of its agents.
determine if further refinement is accounting manipulations would be Comment: Several interested parties
required. reduced; and that the program would be and approved insurance providers
Comment: Several agents, approved simplified and more stable. However, commented that dividends would not
insurance providers and interested RMA is uncertain whether using actual need changes to accounting rules. A
parties commented that an approach rather than projected costs would commenter stated that marketing of
using ‘‘projected savings’’ should not be necessarily even the playing field or historical performance of efficiency
implemented. Approved insurance eliminate unfair discrimination. Under efforts would also be more
providers that want to participate in a either approach RMA would have to straightforward and provide an
premium reduction plan should be monitor the performance of approved incentive for approved insurance
required to ‘‘show’’ rather than insurance providers to ensure that all providers to maintain the efficiencies
‘‘project’’ they can achieve cost savings farmers in the states in which the over time, instead of focusing on
while maintaining necessary service premium reduction plan will be made marketing efficiencies it may expect to
levels. A commenter stated that a available have access to the plan. achieve in the future. A commenter
dividend plan approach would have no Comment: Several interested parties stated this also encourages farmer
effect on data collection, reporting, or and approved insurance providers interest in using and supporting the
reinsurance payments. Commenters suggested that the alternative approach automation approved insurance
stated that using actual costs evens the is similar to a dividend plan, which is providers will need to implement for
playing field, simplifies the program, common in the insurance industry. A further savings in the costs of signup
eliminates unfair discrimination and commenter stated that distributing costs and claim settlement processes. A
stabilizes the program. A commenter savings at the beginning of the policy commenter asks if purchasing a policy
stated that it is unlikely any approved year adds elements of uncertainty into under such a plan gives part ownership.
insurance provider can accurately the rate setting process because it is Response: As stated above, while
project costs. A commenter stated the impossible for an approved insurance similar to a dividend plan, the premium
alternative proposal will reduce the provider to know in advance what its reduction plan is not a dividend plan.
chance that approved insurance actual costs savings will be and the Approved insurance providers will be
providers will not meet their projections alternative eliminates the uncertainty. A offering premium discounts. While the
and cause market disruption. A commenter stated this should not be alternative proposal would not require
commenter stated that by delaying the allowed because farmers could not plan complex accounting rules, some rules
payment until the full year results for or budget for the discount. A commenter will still need to be developed in order
the approved insurance provider were stated that any pre-advertised premium to allocate actual costs reported on a
known, RMA could evaluate a proposal reduction plan which is based upon national basis to a state basis. RMA has
to pay dividends based on the financial projected cost savings will lead to unfair elected to base such allocation on the
condition of the approved insurance discrimination by approved insurance percentage of net book premium for the
provider. For instance, RMA could elect providers, agencies, and agents. state. For example, if the total net book
to deny all dividend payments unless Response: As stated above, while premium for the approved insurance
the approved insurance provider was similar to a dividend plan, the premium provider is $100 million and the net
profitable on an aggregate basis. A reduction plan is not a dividend plan. book premium in state A is $15 million,
commenter stated that use of projected Approved insurance providers will be 15 percent of the total costs reported on
costs will open RMA up to the offering premium discounts. Further, a national basis would be allocated to
overestimation of savings that can be RMA does not agree that basing the State A. The same allocation will be
used to cherry pick farmers. premium reduction plan on projected used to determine the amount of
Response: As stated above, while costs would unsettle rate setting because premium discounts allowed in the state
similar to a dividend plan, the premium rates are based on expected losses and in order to ensure compliance with the
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41827
corresponding requirement in section following year, even though it has no audits by RMA would be performed a
508(e)(3) of the Act. RMA agrees that intention of implementing the necessary long time after the fact.
marketing should be limited to the measures to achieve them in that year. Response: RMA agrees that making
historical premium discount payments Response: As stated above, while false promises of a premium discount
made, with appropriate disclaimers, to similar to a dividend plan, the premium would be detrimental to the crop
ensure that there is no impression reduction plan is not a dividend plan. insurance program so, as stated above,
provided that premium discounts are Approved insurance providers will be it has placed limitations on any
guaranteed. RMA agrees that the offering premium discounts. RMA advertising or promotion of the
alternative proposal may provide a shares the concerns of the commenters premium reduction plan. RMA also
greater incentive for approved insurance that under the interim rule, farmers agrees that there is unlikely to be a
providers to institutionalize the cost might be mislead by the promise of a reduction in service because RMA
saving measures to achieve the cost premium discount that might not be would be in a position to discover an
savings each year instead of projecting realized and that complaints of infraction of FCIC service requirements
costs up front and then trying to misconduct might increase. To address before approving any premium discount
implement cost saving measures to meet these concerns, the interim rule and it is unlikely that approved
the projections each year. Although it is incorporates specific marketing insurance providers would jeopardize
unclear how the alternative proposal prohibitions that limit advertising or their SRAs by failing to comply with the
might encourage farmer interest in promotions to actual premium service requirements contained in the
supporting information technology, discounts paid in the past reinsurance SRA and approved procedures.
RMA would agree that such a result year, and requires a clear disclaimer, the With respect to RMA audits, RMA
would be desirable. wording of which contained in the does not anticipate conducting audits
In response to the question on part interim rule or must be approved by under the alternative proposal. Audits
ownership, the alternative proposal RMA in advance, that past results do of the approved insurance providers and
provided for in the interim rule would not guarantee a future payment. As their cost efficiencies would be
not include legal ownership rights in conducted and certified by independent
stated above, states will also be involved
the approved insurance provider. The certified public accountants with
in the enforcement of market conduct.
premium reduction plan is not creating experience in the insurance accounting
The commenter is correct that some at the expense of the approved
mutual insurance companies and the
approved insurance providers may elect insurance provider. RMA would verify
approved insurance providers are
to eligible to participate in the premium that these audits met the standards
paying premium discounts, not
reduction plan even though it is established under the interim rule.
dividends. The premium discount is
unlikely that they will achieve the Clearly RMA could not evaluate the
simply a benefit provided by the
necessary savings to provide a premium Expense Exhibits, audit and proposed
approved insurance provider in the
discount or they do not intend to take premium discount until such
event it can deliver the crop insurance
any costs saving measures. RMA cannot information is provided after the annual
program for less than the A&O subsidy.
Comment: Several approved prevent such conduct. However, the settlement, as required in the interim
insurance providers, interested parties market itself should eliminate such rule. RMA will review the documents
and agents commented that to allow behavior because farmers are not likely and approve or disapprove any
approved insurance providers under the to remain with an approved insurance premium discount as expeditiously as
alternative proposal to refer to historical provider that claims it is eligible to offer possible after receiving these
reimbursements in their marketing is a premium discount plan but never pays documents.
also problematic. Commenters asked a premium discount. Comment: A few agents and
how RMA and approved insurance Comment: Several approved interested parties commented that RMA
providers could be assured that farmers insurance providers, interested parties should adopt a dividend program
would not be misled into the perception and agents commented that the because: farmers will benefit by
that a dividend or a return in premium subsequent failure of the approved increased competition because
was likely to occur if they transferred insurance provider to deliver upon approved insurance providers and the
their coverage to approved insurance promises made will bring about agent force will seek out cost savings on
provider X, when in fact, it was very financial hardship for the approved their own in order to stay profitable and
unlikely. Commenters stated that if an insurance provider itself, a market also seek to provide the best dividend
approved insurance provider has disruption due to an unfair trade track record to farmers. A commenter
historically been unable to operate practice, and a black-eye for the entire also stated that: (1) Farmers will benefit
within the expense reimbursement, crop insurance delivery system by added value because farmers will
there should be no rational expectation including RMA. A commenter stated benefit directly by dividends
the approved insurance provider will be that this approach reduces the proportionate to their size and also from
able to operate below the expense likelihood of reduced services to the their ability to select from a variety of
reimbursement level into the future. A farmer because if that is the approach benefits; (2) there will emerge a broad
commenter states that historical used to secure the premium range of approved insurance provider-
reimbursement levels are not reimbursement then the farmer will not agent combinations offering various
necessarily a strong indication of what select that insurer in the future. A mixes of service and dividends to
a farmer will receive in the form of a commenter stated that capping the farmers; (3) the crop insurance delivery
discount in the upcoming year. Market approved insurance provider for the system will not be damaged because
conditions change from year to year, following year or perhaps even the next approved insurance providers and the
and an approved insurance provider three years as a penalty would help to agent force will not be directly
that achieves savings in one year might discourage this practice, but it would penalized for providing highly skilled
not achieve them in the next year. It not necessarily remedy in the meantime and personal service to the insured
would also allow an approved insurance the harm caused to reputable farmer; (4) benefits that are of no value
provider who achieves savings one year competitors. A commenter also to the insured farmers will be purged in
to market based on those savings the expressed concerns about whether the order to maintain profitability and also
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41828 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
maximize potential dividends (The most certified accountant will also reduce the will be able to advertise that they are
capable of attaining the proper benefits burden on RMA. RMA has determined participating in the premium reduction
mix to insured farmers will benefit from that it is possible to evaluate such costs plan and the amount of any premium
added business); and (5) competition on a state basis and will provide simple discount paid by the approved
could be further fostered because by allocation procedures to accompany the insurance provider in previous
moderately increasing the A&O levels to interim rule. Evaluation of the reinsurance years, accompanied by the
approximately 23–24%, new entrants efficiencies at a crop, plan, and coverage appropriate disclaimers. However,
into the shrinking list of approved level would require relatively more approved insurance providers and
insurance providers would be promoted complex accounting and cost allocation agents will be prohibited from stating
(If approved insurance provider rules. that any premium discount will be
innovators are allowed into the crop Comment: Several approved provided or promising any amount of
insurance delivery system, eventual cost insurance providers, agents and premium discount. RMA agrees that
cutting spurred by dividend interested parties commented that a enforcement is important and it will
competition will again benefit farmers dividend plan approach would also monitor the conduct of the approved
with added dividends). have the advantage of eliminating the insurance providers and agents and will
Response: As stated above, while need for the financial reserve plan as collaborate with states that also regulate
similar to a dividend plan, the premium described in the proposed rule. such market conduct issues.
reduction plan is not a dividend plan. Response: As stated above, while Comment: An approved insurance
Approved insurance providers will be similar to a dividend plan, the premium provider commented that, in response to
offering premium discounts. RMA reduction plan is not a dividend plan. the RMA’s specific question as to
agrees with the commenter that the Approved insurance providers will be provider workload, the workload to
alternative proposal has significant offering premium discounts. RMA demonstrate savings up front is not
potential advantages. The potential agrees that basing a premium discount materially greater than the workload to
advantages listed by this commenter, as on the actual cost savings achieved by demonstrate savings after the fact. A
well as other advantages identified by the approved insurance provider commenter stated that dividend plans
other commenters, have prompted RMA eliminates the need for a financial would still need to be reviewed for
to incorporate that alternative proposal reserve plan and this requirement has reasonableness, and approved insurance
into the interim rule. been removed from the rule. provider requests to make dividend
Comment: Several approved Comment: An approved insurance payments would need to be carefully
insurance providers, agents and provider commented that RMA has also scrutinized prior to approval. RMA
interested parties commented that the stated that the approved insurance would also need to develop extensive
burdens placed on RMA would be providers would not be able to market procedures to evaluate the proposals
reduced by a system that is based on the premium reduction plan ‘‘based on and to establish standards for
actual cost savings because RMA would a guaranteed amount of premium acceptability. Concerns regarding
not be compelled to evaluate the reimbursement.’’ It is unclear whether adverse market behavior would still
credibility of projections and the RMA is contemplating a prohibition exist under a dividend approach. A
predictions which, as the proposed rule against any marketing, even of potential commenter stated that these should not
acknowledges, ‘‘may not be realized.’’ savings, or only guaranteed savings. The be considered to be insignificant issues.
Commenters stated that a mechanism commenter stated that if approved Response: As stated above, while
that is predicated on the existence of insurance providers are allowed to similar to a dividend plan, the premium
actual cost savings enables RMA to market potential savings, it could allow reduction plan is not a dividend plan.
analyze concrete and ‘‘easily verifiable’’ or even encourage such providers to Approved insurance providers will be
figures to determine whether an make unrealistic or exaggerated offering premium discounts. RMA
approved insurance provider realized an projections about their anticipated disagrees that the workload to
expected efficiency and diminishes the savings in order to attract or keep their demonstrate savings up front is not
likelihood of creative accounting and customers in a price competitive materially greater than the workload to
similar chicanery. A commenter stated market. Not only will this cause demonstrate savings after the fact. RMA
that the alternative proposal is easier to competitive injury to providers has revised the provisions to eliminate
administer, monitor and regulate. A attempting to compete fairly based on much of the up front reporting
commenter stated that evaluation of the real cost savings and reasonable requirements. RMA’s evaluation of the
efficiencies at a more detailed level such projections of such savings, but it will request to participate in the premium
as by state, crop, plan, and coverage inevitably harm farmers who are lured reduction plan will be based on the
level would be possible, but not with by the potential of large cost savings evaluation of the marketing plan to
the same degree of reliability. that prove to be illusory in the end. The ensure that all farmers in the states in
Response: RMA agrees that the commenter stated that even if RMA’s which the premium reduction plan will
burdens placed on it to determine an intent is to prohibit marketing of even be offered have equal access to the plan.
approved insurance provider eligible to potential savings, how could such a Since premium discounts are based on
participate in the premium reduction prohibition be enforced and whether the actual savings, RMA does need to know
plan are greatly reduced from the RMA has or is willing to commit the the specifics of how the approved
burdens under the proposed rule. RMA kind of resources necessary to enforce insurance provider intends to achieve
also agrees that it will be easier to this market conduct requirement. In the the savings. RMA agrees that there
analyze the actual costs and that it absence of strict enforcement, needs to be careful scrutiny of the cost
reduces the possibility of creative unscrupulous approved insurance accounting by the approved insurance
accounting, especially since RMA will providers will inevitably boast providers on their Expense Exhibits.
be using the actual Expense Exhibits exaggerated, illusory savings in order to However, cost allocation procedures
provided with the SRA to approve or attract market share. will be included in procedures to
disapprove any premium discount. Response: RMA is not precluding any accompany the interim rule and are
Having such Expense Exhibits audited marketing of the premium reduction simple. Further, a certification by an
and certified by an independent plan. Approved insurance providers independent certified public accountant
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41829
will add credibility to the amounts not. RMA has added provisions to the showed discrimination of some type, it
reported. As stated more fully above, interim rule to prevent such conduct. seems likely that RMA would be very
RMA has added provisions regarding RMA agrees with, and the interim rule vulnerable to negative reactions.
market conduct and will enlist the allows, an approved insurance provider Response: RMA agrees that specific
assistance of the states to ensure proper to notify existing and prospective deadlines be imposed on RMA for
conduct by agents and approved policyholders that it is participating in determining whether an approved
insurance providers. the premium reduction plan. RMA insurance provider is eligible to
Comment: An approved insurance agrees that sanctions should accompany participate in the premium reduction
provider commented that market violations of advertising prohibitions. plan. However, a deadline cannot be
conduct oversight may be required, One potential sanction is to disqualify imposed on the evaluation of the
especially with respect to monitoring an approved insurance provider or agent Expense Exhibits to determine whether
competitor assertions of projected from participating in the premium to approve a premium discount. RMA
savings, impacts on competition, and reduction plan for a duration must have the time to properly evaluate
income tax issues, which presumably commensurate with the offense. such Exhibits and it is impossible at this
would simply reduce ‘‘insurance Comment: An agent suggests dividend time to determine the requisite amount
expense’’ on farmer’s income statement. restrictions include: (1) Requiring of time. When finalizing the rule, RMA
Response: RMA agrees that market approved insurance providers to post will determine whether such a deadline
conduct oversight is required and will March 15 business accounting and is appropriate. However, RMA will
enlist the assistance of the states to analysis for the prior crop year netting expedite its review of the Expense
ensure proper conduct by agents and total actual A&O costs versus annual Exhibits. Disputed claims should not
approved insurance providers. Further, revenue, which would be approved require adjusting the approval of a
since premium discounts are now based annually by RMA for each approved premium discount since they involve
on actual savings and the type of insurance provider; (2) requiring each the cost of delivery not the amount of
assertions that can be made are so approved insurance provider to be claims, unless the resolution of such
limited, the burden on such monitoring responsible for their annual audit; (3) claims will increase the cost of delivery.
should be reduced. RMA setting an annual industry cap on To avoid having to adjust a premium
Comment: A few interested parties percentage of dividends payable; and (4) discount, approved insurance providers
and approved insurance providers not having the dividends contingent on could hold back some savings achieved
recommend that if RMA chooses to a farmer continuing a policy into the to cover such contingent costs.
implement the premium reduction plan next crop year (as in policy loss Assuming that the commenter is
using a dividend concept, it should payments). referring to the cost efficiency audit in
prohibit insurers or insurance producers Response: As stated above, while the alternative proposal, it is unclear to
from marketing dividends by similar to a dividend plan, the premium RMA how such a purely financial audit
guaranteeing them in advance. RMA reduction plan is not a dividend plan. would reveal discrimination. RMA
should also prohibit insurers from using Approved insurance providers will be agrees, however, that routine reviews or
policy renewal as a condition for offering premium discounts. RMA specific investigations of an approved
receiving a dividend for a prior policy agrees that approved insurance insurance provider by RMA may reveal
year. A commenter stated it does not providers should be responsible for the discrimination which would require
object to an approved insurance annual audit, there should be a cap on action by RMA and may produce
provider notifying insureds (and the percentage of premium discounts negative reactions from some quarters.
potential insureds) that it has applied that can be paid by any approved Comment: An approved insurance
for a premium reduction plan. A insurance provider, and that premium provider commented that although an
commenter stated that any approved discounts must not be contingent upon alternative delivery mechanism would
insurance provider that violates the renewal of the policy and has revised be a departure from the proposed rule,
restrictions on advertising should be the rule accordingly. However, with FCIC does not have to publish a
barred from submitting a premium respect to the accounting used to proposed rule describing this
reduction plan for a period of two determine a premium discount, RMA mechanism. In this regard, the proposed
reinsurance years. will be using the Expense Exhibits rule provides notice that a change is
Response: As stated above, while provided with the Plan of Operations, possible, and the public ‘‘reasonably
similar to a dividend plan, the premium including an estimate of outstanding should have filed their comments on the
reduction plan is not a dividend plan. costs. subject during the notice-and-comment
Approved insurance providers will be Comment: A few approved insurance period.’’
offering premium discounts. RMA providers commented that although the Response: RMA agrees with the
agrees that approved insurance determination of whether an approved commenter.
providers and their agents should be insurance provider realized any cost Comment: An approved insurance
prohibited from marketing practices savings will not occur until after the end provider commented that the alternative
such as guaranteeing or projecting an of the reinsurance year and may take proposal warrants further consideration
amount of the premium discount to several months to occur, a deadline but requires an indefinite extension of
farmers in advance of the determination must be imposed on RMA for rendering the comment period and rulemaking
of the actual premium discount. As such determination. Unlike the procedure since no rules have been
stated above, provisions have been compliance process, the period afforded proposed.
added that regulate such market RMA to evaluate the premium reduction Response: RMA disagrees that an
conduct. RMA also agrees that premium plan submissions cannot be limitless. A indefinite extension of the comment
discounts should not be tied to policy commenter stated that even if RMA was period is warranted. RMA specifically
renewals because they are based on the timely, it takes months and even years sought comments on the alternative
cost savings attained for the current after the crop season to close proposal and informed the public it was
reinsurance year in which the farmer is controversial or disputed claims to considering including the alternative in
a policyholder, not the subsequent determine year-end results. The the final rule. Therefore, RMA has
reinsurance year when the farmer may commenter also stated that if the audit complied with the notice and comment
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41830 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
rulemaking requirements. However, feasible for the approved insurance discount that an approved insurance
RMA acknowledges that the alternative provider to operate in such states. provider would be able to offer in a state
presents a significant change and it Another concern of these commenters before the start of the reinsurance year.
would like an opportunity to test this was that there was significant variability The approved discount would be based
proposal and give the public another in program delivery costs between states on projected cost savings that may be
opportunity to comment before and that a one size premium discount unreasonable or unattainable. Even
finalizing the rule. That is one reason would not fit all. Commenters were slight differences in the approved
RMA has elected to make this rule an concerned that service in certain states premium discount for different
interim rule. could be jeopardized if the approved approved insurance providers in a state
insurance provider was required to could result in significant marketing
2. State Variability reduce costs in those states in order to advantages or disadvantages possibly
In the preamble to the proposed rule, qualify for offering a premium discount. create conditions that would be harmful
RMA stated that the majority of RMA has carefully reviewed these to market competition. Since approval
approved insurance providers that had comments, especially within the context was based on projections, it would be
submitted premium reduction plans for of other changes made to the proposed impossible for RMA to know the actual
2005 had planned to offer the premium rule as a result of comments being savings that could be realistically
reduction plan only in certain states and sought. From this review, RMA has achieved and it might encourage some
had included variability in the amount determined that the concerns identified approved insurance providers to project
of premium discount between states as in its original analysis can be adequately more drastic cost saving measures than
prominent features. RMA further addressed and that both the selection of their operations could handle in an
indicated that it had several major and variability of premium discounts attempt to gain a marketing advantage.
concerns regarding these proposals. between states can be incorporated into However, this problem is eliminated
Specifically, RMA identified the the interim rule without jeopardizing under the interim rule. Because
potential for competitive harm; the integrity of the crop insurance premium discounts are based on actual
difficulty in administration; and the program. cost savings in a state, approved
The most important factor insurance providers would not be
potential for variability in service and
contributing to this determination is, as allowed to offer a guaranteed premium
treatment of farmers as potential
explained more fully above, that RMA discount at the time of sale. Further, the
problems if approved insurance
has elected to adopt the alternative interim rule severely limits the
providers were permitted to select states
proposal in the interim rule. Compared promotion or advertising of a premium
in which to offer the premium reduction
to the operation of the premium discount to prevent approved insurance
plan and to vary the amount of
reduction plan described in the providers or agents from making any
discounts by state.
proposed rule, which required that representations about the payment or
Consequently, the proposed rule specific premium discounts be amount of a premium discount. Under
required that the same premium guaranteed up front and approved the interim rule, approved insurance
discount be offered in all states in insurance providers would make providers can only state the actual
which the approved insurance provider adjustments to their operation in an amount of the premium discounts that
did business. However, RMA also attempt to achieve the necessary cost have been paid in all previous
indicated that it was seeking comments savings, the alternative proposal reinsurance years. However, these
on its analysis of the above stated requires that premium discounts be statements must be accompanied by a
potential problems and whether provided to farmers only after actual prominent disclaimer that past results
procedures could be developed that cost savings have been achieved and do not guarantee future payments.
would be consistent with the principles verified. This means that any marketing
that allowing approved insurance This alternative method of operating advantage that an approved insurance
providers to select states and vary the the premium reduction plan provider might gain in a state through
premium discount between states, significantly reduces the administrative premium discounts would occur only
would not cause competitive harm, requirements of both the approved after a performance record of premium
would be relatively simple to insurance provider and RMA and the discounts based on actual savings has
administer, and would ensure that likely impact on service and business been established over several years.
service would not be reduced. practices of approved insurance Furthermore, even when an approved
RMA received comments that providers. These changes, in turn, insurance provider has an established
supported the proposed rule and its significantly reduce the potential for premium discount performance record,
requirements to offer the same premium problems that might arise from either it cannot promise or guarantee that
discount to all farmers and in all states state selection or variation of premium premium discounts will continue in the
in which the approved insurance discounts, as outlined below: future. As compared to the proposed
provider does business. However, a. The concern that state variability rule, this marketing feature of the
comments were also provided in favor might cause competitive harm in the interim rule significantly diminishes the
of allowing the selection of states and marketplace. In the proposed rule, RMA possibility that allowing approved
variability of premium discounts was concerned that any procedure it insurance providers to select states or
between states. The key reason most devised to accommodate state selection vary the percentage of premium
often cited for allowing approved or variability of premium discounts discount between states will lead to
insurance providers to select states was might inadvertently give certain competitively harmful situations.
that not allowing such selection could approved insurance providers unfair b. The concern that state variability in
cause some approved insurance marketing advantages in certain states. premium discounts would be difficult to
providers to leave certain high-risk or Therefore, it would be difficult to administer by the approved insurance
low volume states rather than being establish a ‘‘level playing field’’ for all provider and to be verified by RMA. The
required to provide a premium discount approved insurance providers. This is proposed rule required that approved
in such states. The reason given was mostly because, under the proposed insurance providers submit rather
that it would no longer be economically rule, RMA would approve the premium detailed expense projections when they
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41831
applied for approval to offer premium the cost and savings projections and at percentage of premium discount paid
discounts. RMA was to have verified the end of the year, RMA would between states.
these projections as being reasonable compare the projected savings with the c. The concern that state variability
before granting approval. In the past actual savings achieved for the would disrupt service in certain states
several years, approved insurance reinsurance year using the actual costs and have unintended effects on business
providers have submitted actual costs contained on the Expense Exhibits filed practices of approved insurance
on the Expense Exhibits provided with for the next reinsurance year. In the providers. Under the proposed rule,
their Plan of Operations that interim rule, RMA will only need to RMA was concerned that if variability of
significantly exceeded the amount of review the actual costs obtained from the premium discount was allowed then
A&O subsidy paid by RMA. This means the Expense Exhibits provided with the an approved insurance provider might
that approved insurance providers Plan of Operations. This will also look exclusively to agent’s commissions
would likely face some difficulty in reduce the burden on RMA and the for its cost efficiencies and make drastic
demonstrating the reasonableness of approved insurance providers. cuts in order to allow it to pay higher
projected savings, even if approved In addition, in the preparation of premium discounts. The fear was that
insurance providers were not permitted these Exhibits, RMA has previously this could result in agents going out of
to vary the percentage of premium provided instructions on how to allocate business in certain states where the
discounts between states. costs from the statutory accounting commissions were already lower than
Under the proposed rule, if RMA statements, which are reported on a other states, or failure to comply with
allowed approved insurance providers calendar year basis, to a reinsurance the service requirements of the SRA and
to vary the percentage of premium year basis. Therefore, these statutory approved procedures because the
discount between states, the A&O costs accounting statements provide a basis to commission paid for such policy was so
and projected savings would have to be verify the reported actual costs. Further, much less than the costs to service the
determined on a state basis. The task of RMA is requiring that the Expense policy. RMA was also concerned that
demonstrating the reasonableness of Exhibits be audited and certified by a state variability in premium discounts
state-level expense projections would public accountant experienced in would have unintentionally favored one
have been even more formidable than insurance as to the accuracy and type of approved insurance provider
doing so at the approved insurance completeness of the costs reported and over another depending on whether the
provider level. RMA was highly compliance with the SRA. Therefore, provider employed its own full time
concerned that some approved there is a sound basis to verify that the agents or contracted with independent
insurance providers, if permitted to vary actual costs reported are accurate and agents.
premium discounts by state, would complete. However, the alternative proposal
inflate cost efficiency projections in To solve the problem with the adopted in the interim rule can
certain states to qualify to offer a large potential to shift costs between states, accommodate state variability of
premium discount in that state and, RMA has developed a formula that will premium discounts with much less risk
thereby, gain a significant marketing be provided to approved insurance of potential problems. For instance, the
advantage over those competitors that providers through procedures that RMA immediate competitive pressures of an
submitted more realistic projections to will provide to the approved insurance approved insurance provider to reduce
RMA. providers, and publish on its Web site expenses in a certain state through agent
RMA was also concerned because at http://www.rma.usda.gov, not later commission reductions would not be
certain costs can only be verified on a than 5 days after publication of the nearly as intense under the interim rule
whole book basis, not a state basis. This interim rule. The formula takes the as under the proposed rule because
means that approved insurance information reported on the Expense approved insurance providers and
providers would have had to allocate Exhibits and allows RMA and the agents will not be allowed to promote,
these costs between states. RMA was approved insurance provider to advertise or guarantee a specific
concerned because this could have determine the amount of efficiency, and premium discount in advance.
provided a means to shift costs and corresponding premium discount, Further, the ability to select states also
artificially create savings in certain which can be paid in any state. The reduces the financial burden on agents
states. formula allocates certain costs to each and decreases the likelihood of reduced
However, adoption of the alternative state based on the premium volume for service because approved insurance
proposal and other changes to the that state. While the actual costs may providers can elect not to participate in
interim rule eliminates these problems. vary slightly, this formula approach the premium reduction plan in those
Under the alternative proposal, the allows flexibility within any approved states where the profit margins of agents
approved insurance provider is not insurance providers operation but it also could not withstand a cut in agent
required to submit any expense sets a single standard that will be commissions. While RMA has
information before the reinsurance year applicable to all approved insurance numerous means at its disposal to
to be eligible for the opportunity to offer providers. This eliminates the concerns enforce the service requirements of the
a premium discount. Only the actual regarding the different cost accounting SRA and the approved procedures, the
costs reported at the end of the methods that can be used by approved goal is to reduce the incentives that
reinsurance year will be used. insurance providers or the shifting of could result in non-compliance with
Therefore, the burden on RMA and the such costs. such requirements. RMA believes the
approved insurance provider is greatly This means the interim rule is much interim rule attains this goal.
reduced and there is no opportunity for simpler for RMA and the approved Selection of states and variability of
approved insurance providers to insurance provider to administer and premium discounts between states
overestimate projected savings in contains specific cost accounting under the alternative proposal can also
certain states. requirements that are easily verified. accommodate the business practices of
Further, under the proposed rule, the Therefore, there is no longer any basis the full range of approved insurance
approved insurance provider was to preclude approved insurance providers. Under the proposed rule,
required to file revised Expense Exhibits providers from selecting states or because cost savings had to be
to the Plan of Operations that contained allowing variation between the reasonable and verifiable, RMA was
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41832 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
concerned that approved insurance field. Commenters state that price the reality is that section 508(e)(3) of the
providers would focus on agent competition will lead to an un-level Act clearly mandates that crop
commissions because approved playing field confusion, erode farmer’s insurance be allowed to be competitive
insurance providers provided their confidence in the product, and reduce with respect to price and that RMA is
commission schedules by state, which the perceived value of the protection to to establish the limits and procedures
would make costs savings more easily a ‘‘cheapest price’’ commodity.’’ Several needed to facilitate this price
determined and verified. RMA was commenters stated that the only competition. RMA agrees that approved
concerned that this would not easily competition should come through insurance providers that are eligible to
permit approved insurance providers ‘‘service’’ to the farmer not who can pay participate in the premium reduction
with captive agents to participate, the best commission to the agent. plan have a competitive price advantage
because such agents may be salaried or Farmers can then choose which agent to those that do not. The whole premise
receive lower commissions than offers the best level and quality of of price competition is to be able to
contracted agents, or would discourage personal service. A commenter states provide the same product or service for
cost savings from other parts of the that value is something other than price. less money.
approved insurance provider’s It’s having agents that can help in the However, the interim rule allows any
operation. needs analysis, and then matching up approved insurance provider, and its
The interim rule solves this issue products offered at a reasonable cost to affiliated agents, to be able to participate
because all costs used in the formula, to provide the proper risk management in the premium reduction plan if the
be provided in the approved procedures tool for the farmer. approved insurance provider’s
and issued not later than 5 days after Response: While the premise of the marketing plan is adequate. Whether a
publication of the interim rule, are crop insurance program is that all premium discount can be paid depends
placed in one of three categories: agent farmers pay the same premium, on whether the approved insurance
compensation, loss adjustment expense, legislative history shows that section provider can deliver the crop insurance
or overhead. Agent compensation and 508(e)(3) of the Act was included for the program more efficiently than the A&O
loss adjustment expense are both specific purpose of fostering price subsidy. Further, as some commenters
reported on the Expense Exhibit and competition. There is no way to have discussed, farmers also value
overhead is determined by subtracting implement section 508(e)(3) of the Act service and even if agents and approved
agent compensation and loss adjustment without creating price competition insurance providers do participate in
expense from the total costs. Since agent because participation in the program is the premium reduction plan, they can
compensation and loss adjustment voluntary and the amount of any still compete by offering superior
expense are reported on a state basis, no premium discount is based on the service, which some farmers may find to
additional allocation rules are amount of savings an individual be more valuable than a potential
necessary. Further, because the formula approved insurance provider can attain. premium discount.
to be published in the procedure RMA has no choice but to implement Comment: An interested party
provides a set means to allocate section 508(e)(3) as enacted. commented that the premium reduction
RMA would agree that the value plan is expected to exacerbate
overhead between the states, approved
perceived by some farmers is something competition in the low-risk states while
insurance providers can reduce their
other than, or at least something in in and of itself providing no direct
costs from any aspect of their delivery
addition to, price. Many farmers will incentive for approved insurance
of the crop insurance program. In
likely consider a range of factors, providers to consider nationwide
addition, the formula to be published in
including the examples of extra service expansion.
the procedure can calculate savings that Response: RMA disagrees with the
offered by the commenters, in making a
were previously achieved. This assumption that the premium reduction
choice of agent and approved insurance
procedure was developed to plan is expected to exacerbate
provider. For those farmers that place
accommodate a range of approved competition in low-risk states while not
more value on service, approved
insurance provider business structures insurance providers or agents that do encouraging approved insurance
without favoring any particular not offer premium discount plans, and providers to consider expanding to
structure. those that do, can still compete by high-risk states. Evidence from the
With respect to the issue variability of offering superior service. It is up to the operation of the premium reduction
premium discounts by state, the farmer to determine which it values the plan to date, though limited, suggests
comments received and FCIC’s most. This is the foundation of that approved insurance providers that
responses are as follows: competition—the market determines the offer the premium reduction plan are
a. Competitive Harm in the Marketplace value of the product or service. not fearful to enter high-risk states; the
Comment: Several agents, approved approved insurance provider that is
i. Competitive Disadvantage insurance providers, and interested currently authorized expanded
Comment: Many agents, farmers, parties commented that the federal crop significantly into Texas in 2004, a state
approved insurance providers and insurance program should NOT be a that has one of the worst historical loss
interested parties commented that the competitive program. The commenter ratios. Further, it is clear that all states
whole premise of the crop insurance states that the premium reduction plan have some potential for profit or
program is that all farmers pay the same discount gives the qualifying approved approved insurance providers would
price, regardless of the farm size. Price insurance provider an advantage over not be doing business in such states.
competition is not a factor. Commenters the approved insurance providers that However, some commenters and
stated that at a time when the USDA is do not qualify. This advantage filters expert reviews suggested that not
trying to encourage more participation down to the agents and no approved requiring approved insurance providers
in the crop insurance program and get insurance provider or agent should have to offer their premium reduction plan in
away from the yearly disaster programs, a price advantage. all states in which they do business, as
it is important that all good agents and Response: Although the commenters required in the proposed rule would
approved insurance providers be able to clearly do not wish for Federal crop adversely affect national approved
compete for business on a level playing insurance to be a competitive program, insurance providers. RMA has
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41833
reconsidered this issue and now allows developing the overall protection for the crop insurance program. On the
approved insurance providers to select farmer. Therefore, farmers need to also contrary, one could argue that these
the states in which to participate in the focus on crop insurance to ensure that characteristics are specifically
premium reduction plan. their risks are adequately protected. considered by the requirement that
Comment: Several agents and RMA also disagrees that the premium price competition be confined to a
interested parties commented that the reduction plan will drive premiums single component of an approved
impact of the premium reduction plan lower. The total amount of premium insurance providers total revenue and
combined with the proposed budget remains unchanged regardless of cost stream—delivery costs compared to
reductions to the crop delivery system whether the premium reduction plan is the A&O subsidy. It is this requirement
will reduce margins and in the long run offered or not. All that could be reduced that prevents price competition from
lead to less competition, fewer agents, is the amount of premium paid by the being influenced by the underwriting
and diminished service to the farmer. farmer because the premium discount component of an approved insurance
Competition is a great means to reduce paid by the approved insurance provider and thereby affecting the
fraud. A commenter stated that the provider could be viewed as an solvency of that approved insurance
premium reduction plan will drive additional subsidy. However, under the provider and jeopardizing the financial
premiums lower. A commenter states alternative adopted in the interim rule, stability of the program. Further, since
that the premium reduction plan issue because the premium discount will not premium discounts are not approved
should not be about agents or agent be known until after the premium is until after the end of the reinsurance
commissions but about maintaining a due, farmers will still pay the same year, RMA can now evaluate the
crop insurance program that is working amount of premium. financial condition of the approved
and providing stability in our nation’s Comment: A few interested parties insurance provider before approving
rural economy and America’s farmers. commented that the premium reduction any discount. The interim rule has been
The farmers are to be focusing on plan ‘‘concept’’ does not fit the business revised to allow RMA to disapprove a
producing good crops and managing model of the crop insurance program. In premium discount if the payment of
their business and not worrying about conventional lines of insurance, carriers such discount could jeopardize the
their crop insurance and the rules and independently file premium rates, financial solvency of the approved
regulations of the policy. establish underwriting criteria, and insurance provider.
Response: Participating in the develop policy language subject to state Comment: An interested party
premium reduction plan is strictly insurance department oversight. In this commented that the entity offering the
voluntary and approved insurance setting, the existence of a premium premium reduction plan is to
providers have to make the business discount mechanism is consistent with demonstrate that the ‘‘discount to be
decision whether it is in their and their the approved insurance provider’s extended to the farmer comes directly
policyholder’s best interests to ability to set its own rates, select its own from demonstrated internal cost savings
participate. Further, approved insurance mix of insurance products, and of that entity as directly derived from
providers have to be sure they can underwrite against undesirable risks. In their developed premium reduction
participate in the premium reduction contrast, federal crop insurance is a plan model.’’ The commenter stated that
plan and still be in compliance with all national program intended to provide a in this regard it is the same as an insurer
the FCIC approved policy and financial safety net for American needing to demonstrate that a group
procedures pertaining to the delivery of farmers. The commenter stated that the discount is developed from the expense
the program. Approved insurance premium reduction plan concept and cost-savings of the specific group
providers are not going to risk violations disregards these unique characteristics itself, and not from the insurer offsetting
of their SRA because the consequences of the federal crop insurance program group expenses across other lines to
could be much greater than simply and proposes a questionable rationale gain a competitive advantage in a select
withdrawing eligibility to participate in for downward premium adjustments or preferred marketplace.
the premium reduction plan. based on only a single component of the Response: RMA acknowledges that
The expert reviewers generally agree total gain or loss of the approved the requirement that premium discounts
with the commenters that the number of insurance provider. A commenter stated come from A&O cost savings may be
agents will decline. However, they that by segregating the gains and losses based on a similar principle as that
generally see the premium reduction on A&O subsidy component from the which guides approved insurance
plan as improving the overall quality of gains and losses on the underwriting providers in determining whether a
remaining agents, the financial health component of the business, the specific group discount derived from
and stability of the industry, and at least premium reduction plan can encourage internal cost savings within that group
one reviewer predicted less fraud. But behavior that has an adverse impact on is justified. The commenter is correct
based on the comments received it approved insurance providers and on that this principle and the requirement
appears that many believe that the the program as a whole. that premium discounts correspond to
premium reduction plan could Response: RMA acknowledges that the cost savings allow approved
stimulate competition. price competition, as allowed for under insurance providers to compete on a
RMA disagrees that farmers should be 508(e)(3) of the Act, is not directly level playing field and precludes
concerned only with production and comparable to price competition for offsetting expenses from other lines of
management decisions and not with conventional, private insurance insurance to gain a competitive
their crop insurance policies or its rules products. This is because RMA advantage. This is one of the reasons
or regulations. Farmers are legally separates out the risk premium from the that the Expense Exhibits to the SRA are
required and presumed to know the A&O subsidy. In other lines of used because the costs included on such
contents and requirements of their insurance, expenses and profit are Exhibits are limited to the costs
policies and agents are required to usually built into the premium. associated with the crop insurance
ensure that they do. Further, risk However, RMA would disagree with program and not other lines of
management is one of the major the view that price competition under insurance. RMA can compare past
management issues confronting farmers the premium reduction plan disregards Expense Exhibits to determine whether
and crop insurance is a key tool in the unique characteristics of the Federal there are radical differences and
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41834 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
whether the claimed changes in the A&O subsidies and premium rates that and make a sound business decision
operations of the approved insurance are not subject to free market forces. with respect to whether it would
provider can account for the changes or These non-competitive revenue streams participate in the premium reduction
there is a likelihood of improper cost to the approved insurance provider have plan. That assumption continues to be
allocations. the potential of creating what true under the interim rule. Even if the
Comment: An approved insurance economists call ‘‘economic rents.’’ commenter is correct that many or all of
provider commented that commission Economic rents can persist over long the approved insurance providers feel
reductions distort the original intent of periods and can sometimes not be compelled to participate in the premium
premium reduction plans as they do not reduced by the operation of free market reduction plan, the interim rule has
represent true operating ‘‘efficiencies.’’ forces because they are established by provisions that attempt to minimize the
The commenter stated that the manner law or decree. Academic research has negative impact of potentially
in which sales entities are rewarded is identified economic rents in Federal destabilizing forces while allowing the
already subject to free market forces. crop insurance that stem from these and price competition that is required in the
Barriers to entry do not preclude new other aspects of the Federal program Act to operate. Under the alternative
agents from entering the program. A and have indicated that portions of proposal, RMA can determine whether
market exhibiting ‘‘excess’’ agency these rents have been shared between a premium discount would put any
profits will attract new agents, approved insurance providers and approved insurance provider into
competition from which tends to shrink agents through the competition for financial difficulties before approving
agent profit margins. The commenter agents identified by the commenter. If payment of any premium discount. The
stated that by creating a system where such economic rents exist, as research interim rule has been revised to allow
agent commissions are the most indicates, the premium reduction plan RMA to disapprove a premium discount
convenient and verifiable efficiency, if would foster price competition that if the payment of such discount could
marginal agent revenues are artificially would extract at least a portion of these jeopardize the financial condition of the
driven below marginal agent costs (i.e., rents for the benefit of farmers. approved insurance provider.
premium reduction plans based on As to the comment regarding Comment: A few agents and
commission reductions), customer deteriorating service if agent interested parties commented that if an
service will suffer, competitive harm commission reductions are permitted, as approved insurance provider is able to
will ensue by repelling new entrants. stated above, an approved insurance operate at a higher profit level than
The commenter stated that the ability provider seeking cost efficiencies to other approved insurance providers
and quest for ever-increasing qualify to pay a premium discount must through its ingenuity, technology, and
efficiencies is already a natural motive make sure that it can maintain all entrepreneurial skills why should they
in a market driven to maximize profits. requirements for service under the SRA be forced to pass on these profits to their
The market already competes vigorously and approved procedures. An approved insureds. The commenter states that
on a non-rate basis and profit- insurance provider that would allow its technically they may not have to offer
maximization objectives already drive service to decline below these the premium reduction plan, but if other
efficient delivery. requirements would jeopardize its approved insurance providers choose to
Response: The commenter makes the eligibility to participate in the premium offer such a plan, then in order to
economic argument that, in the long reduction plan, pay a premium remain competitive that approved
run, forces of supply and demand will discount, and operate under the SRA. insurance provider will be forced to also
operate to achieve an equilibrium in RMA is confident that such a powerful offer the premium reduction plan. The
agent’s commissions in which deterrent, as well as vigilant monitoring commenter asks what incentive will
commissions become, by definition, by RMA and continued competition there be for an approved insurance
fully efficient—i.e. incorporating no among approved insurance providers provider to improve their business if
excess profits. The commenter’s and agents, will ensure that any more of the profits will be given away.
conclusion appears to be that, because potential agent commission reductions The commenter asked if the premium
agent commissions demonstrate this will not adversely impact service to reduction plan is able to generate a cost
tendency, their reduction should not be policyholders. savings why these savings should be
considered as a possible cost efficiency. Comment: An agent commented that passed on to the insured and not the
Several economic arguments could be perhaps Congress and even the RMA American taxpayer who already foots
advanced, however, that justify imagined a day where there would be the bill for most of the current program.
considering reductions in agent one or two ‘‘premium reduction plan Response: RMA agrees that, if an
commissions as an efficiency. First, the players’’ in the market and other approved insurance provider can
market for agents is dynamic and approved insurance providers would operate within the A&O subsidy, it is
seldom if ever in long run equilibrium. run their programs in the traditional not required to participate in the
An approved insurance provider should manner. Unfortunately, the free market premium reduction plan and can elect
be able to identify instances where agent system has a way of encouraging and to keep these profits. RMA also agrees
commissions (or more broadly for any then eliminating competition. The that competitive forces may move such
other cost input) include excess profits commenter states that, as the RMA an approved insurance provider to
and seek to reduce those excess profits found out last year, current SRA holders request to participate in the premium
for the purpose of achieving cost are simply not going to set back and let reduction plan. The potential to gain
efficiencies. An approved insurance someone take business away from them. market share and thereby achieve
provider’s ability to claim some or all of Response: RMA has never had any underwriting gains on the additional
an agent’s possible excess profits would preconceived notions regarding how business is a possible reason why an
be determined in a free market many approved insurance providers approved insurance provider would be
negotiation between the approved would elect to offer the premium motivated to find cost efficiencies even
insurance provider and the agent. reduction plan. RMA has always if the approved insurance provider must
Second, without the premium assumed that each approved insurance inevitably return such savings to
reduction plan, the delivery of Federal provider would examine its operations farmers in the form of a premium
crop insurance includes established and the interests of its policyholders discount. Although the commenter is
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41835
correct that taxpayers are paying a determining whether to approve a that is eligible to participate in the
significant portion of the costs of the premium discount. As stated above, premium reduction plan must meet
crop insurance program, section under the alternative proposal adopted those standards. An approved insurance
508(e)(3) of the Act makes it very clear in the interim rule, RMA has the ability provider that becomes overwhelmed by
that policyholders are the sole to determine the financial condition of the task of entering new policy data or
recipients of these savings. the approved insurance provider before whose data loses its integrity would risk
Comment: Several interested parties any premium discount is approved and losing the eligibility to participate in the
and agents commented that they can deny such approval if there would premium reduction plan or to operate
thought such discounts were against the be an adverse impact. under the SRA. RMA is confident that
law in some states, which may mean Comment: Several interested parties, its data system could handle increased
that discounted products may not be agents, and approved insurance policy turnover so that an additional
made available to all farmers. A providers commented that premium system is not needed. RMA is also
commenter stated that the premium reduction plans will result in a high confident that its systems can
reduction plan does not provide savings degree of policyholder turnover or adequately monitor existing service
because the funds are returned to the ‘‘churning’’ of the book of business standards under the SRA.
farmer as a rebate. A commenter states causing more paperwork, data lost, and Comment: An interested party
the premium reduction plan is a rebate data reentered incorrectly. Commenters commented that approved insurance
because the savings come from one stated that data simply cannot be providers provide thousands of jobs
source, agent commission, approved switched around over and over with out across the country and asks if the U.S.
insurance providers have no control losing its integrity. Commenters state government should be in the business of
over rate making, and the discount is this turnover could overwhelm the jeopardizing private jobs and
conditioned upon the purchase of operational and financial capacity of substituting them with government
insurance. approved insurance providers. employees.
Response: Whether the premium Commenters stated that the cost to Response: RMA would agree with the
reduction plan may be a form of regulate this type of turnover and the commenter that approved insurance
rebating that is prohibited under most risks associated with the premium providers are responsible, either
state laws is not material. As stated reduction plan will far outweigh the through direct hires or contracts, for the
above, under section 506(l) of the Act, small benefits offered to farmers through creation of thousands of U.S. jobs and
any state law that is in conflict with the the proposed premium reduction plan that it is possible that jobs may be
Act or any regulation promulgated by rule. A commenter asked whether a affected by the premium reduction plan.
FCIC is preempted. As stated above, system cannot be developed that would However, neither the Act nor RMA
since section 508(e)(3) of the Act permit better flow of information. A dictate the manner in which approved
expressly allows premium discounts to commenter asked how RMA will insurance providers obtain their savings
be provided and does not state that such monitor the capacity and what under the premium reduction plan and
authority is subject to state law, whether safeguards are in place to assure the RMA has sought to provide greater
the savings come from one source or farmer that the needed infrastructure is flexibility in the interim rule for
multiple sources, approved insurance available to handle fair, fast claims approved insurance providers to attain
providers have no control over rate service and timely indemnity payment. such savings. Market forces determined
making, or the discount is conditioned Response: RMA agrees that expanded by competition among the approved
upon the purchase of insurance does not participation in the premium reduction insurance providers will determine how
override this express authority. Since plan could result in switching of and to what degree savings are obtained.
state law is preempted, premium policies between agents and approved Comment: Several agents commented
reduction plans can be made available insurance providers, as policyholders that with increasing expenses farmers
in all states. gain increased consumer awareness. are looking for ways to cut costs such
Comment: An interested party However, the impact may be mitigated as crop insurance and the premium
commented that the premium reduction by the fact that premium discounts are reduction plan will make it worse. A
plan concept suffers from a fundamental no longer guaranteed up front in the commenter stated that approved
design flaw, whether the payment is interim rule. Because farmers will no insurance providers offering premium
made up-front or on a delayed basis, in longer know whether they will receive reduction plans will just be taking
that the payment is based on only a a premium discount, or the amount, advantage of their previous hard work
single component of the approved there will likely be less ‘‘churning’’ of helping and educating farmers. A
insurance provider’s income. Approved the book of business. commenter stated that many larger
insurance providers would be Further, any approved insurance farmers will move to the approved
encouraged to provide premium provider requesting the opportunity to insurance provider offering the larger
discounts for any savings achieved on offer a premium discount would need to discount.
the expense component of the business account for any data processing costs Response: RMA would agree that
even if the approved insurance provider associated with acquiring new policies farmers are looking for ways to reduce
loses money on the underwriting as it evaluated cost efficiencies. The costs, but is unsure of how the premium
component of the program. approved insurance provider would also reduction plan will thereby worsen a
Response: RMA disagrees that the need to ensure that its infrastructure farmer’s condition. RMA would agree
premium reduction plan is flawed was sufficient to handle claims. With that a farmer that has been helped in the
because it considers only the delivery respect to regulating such turnover and past by a dedicated and hard-working
expense component of an approved claims servicing, RMA would continue agent might decide to abandon that
insurance providers financial to hold approved insurance providers agent for one offering a price reduction
statements. Under section 508(e)(3) of accountable under the standards and that larger farmers might be
the Act, these are the only costs that can established by the SRA. For data particularly attracted to premium
be used to finance a premium discount. processing, for instance, those standards discounts because of their size of
However, this does not have to be the are contained in Appendix III of the operations. These outcomes are all
only factor RMA considers when SRA. Any approved insurance provider possible under the existing program
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41836 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
since farmers are free to choose their status of approved insurance providers in a profit maximizing environment.
agents and approved insurance that the agent does not represent. As The commenter stated that commissions
providers. While it may be argued that stated above, market forces will are already subject to market forces and
the proposed rule exacerbated this generally handle the situation where an changes in commission rates are already
problem, the interim rule has been agent attempts to place all large farmers driven by the market. Further, rate
revised to no longer allow approved with the approved insurance provider reductions built on commission
insurance providers to guarantee the participating in the premium reduction reductions, as opposed to true operating
premium discount up front, limit plan and all small farmers with the one efficiencies, would compel other
advertising or other promotions, and that does not. Lastly, approved approved insurance providers or agents
require approved insurance providers to insurance providers are required to to either follow or withdraw from the
specifically market the premium independently market the premium market, and if the latter, would
reduction plan to small, limited reduction plan to all farmers including potentially create under-served areas.
resource, women and minority farmers small, limited resource, women and Response: RMA agrees that an
in the states where it is available. minority farmers and no agent can approved insurance provider’s choice of
Further, as some commenters have refuse to insure any such farmer who using captive or contracted agents is one
pointed out, farmers also value service requests coverage. to be determined in the context of a free
and may chose superior service and Comment: An approved insurance market. Further, RMA agrees that
knowledge of their agent over the provider commented that RMA has commission rates for agents are already
discount offered by another agent espoused a principle and taken an driven by market forces. However, in
participating in the premium reduction action that is contrary. RMA states that structuring the interim rule, RMA
plan when determining the best value to ‘‘[d]ecisions on the use of independent desires to avoid imposing provisions
the farmer. versus salaried agents should be based that would unnecessarily favor those
Comment: An approved insurance on competitive market forces * * *’’ approved insurance providers that had
provider commented that decisions on However, RMA has crafted regulation elected to operate with a captive agent
the use of independent versus salaried that, by FCIC’s admission, is intended to structure or, alternatively those
agents should be based on competitive protect a specific business plan (salaried approved insurance providers with a
market forces and service or ‘‘captive’’ agents) from the contracted agent structure.
considerations, not a government vicissitudes of the market. The commenter implies that there is
regulation intended to provide a benefit Response: RMA agrees that a difference between a reduction in
to farmers. The commenter stated the competition should be based on market commissions and a true operating
program needs to allow for individual forces. The principle espoused in the efficiency. Under the law, a reduction in
approved insurance providers to deliver interim rule is that the approved either commission costs or other
the program independent of government insurance provider should, wherever operating costs would be deemed an
rules on how the agents are possible, have flexibility in identifying efficiency as long as the ability of the
compensated. The commenter asked if cost efficiencies and be able to act to approved insurance provider to
the approved insurance provider is achieve those possibilities under maintain service standards under the
operating through independent agents, competitive market forces. The SRA was not adversely affected.
whether the agent is also required to reference to protecting a specific Nevertheless, RMA shares the concern
offer the premium reduction plan to all business plan may have been confusing. of the commenter that a reduction in
of his customers. If not, the agent may What was meant was that, where compensation in certain geographical
only offer the premium discount to the specific requirements must be imposed areas as a result of the premium
larger customers due to commission to ensure that the objectives of the Act reduction plan may cause agents or,
considerations. are met, those requirements should not ultimately, an approved insurance
Response: RMA agrees that an create a clear or obvious advantage for provider to withdraw from those areas.
approved insurance provider’s decision one type of business plan over another. The provisions of the interim rule
on the types of agents it uses should be RMA believes that it is not inconsistent reflect measures designed to mitigate
one based on market forces. In the for a regulator to encourage competitive this potential, including allowing the
interim rule, RMA has attempted to be market forces whenever possible and, at approved insurance provider to select
sensitive to the different delivery the same time, impose regulations that the states in which to participate in the
structures of current approved attempt to balance the interests of premium reduction plan.
insurance providers and allow approved approved insurance providers with
ii. Approved Insurance Providers
insurance providers maximum freedom different types of business plans. RMA
for such decisions. With respect to the wanted to create a neutral framework Comment: Many interested parties,
question of whether an independent and it believes that the framework agents, farmers, and approved insurance
agent is required to offer premium developed would permit all approved providers have commented that the
reduction plan to all of his or her insurance providers to have equal proposed premium reduction plan rules
customers, all policyholders of an access regardless of the manner in will also force many approved
approved insurance provider that which it delivers the program. insurance providers out of the industry,
participates in the premium discount Comment: An approved insurance while new participants will not enter,
plan will automatically receive any provider commented that choosing thus reducing competition by driving
premium discount paid by the approved varying delivery mechanisms is a approved insurance providers out of the
insurance provider. If the agent normal function of free market choices market and forcing agencies into
represents more than one approved and does not, therefore, unfairly bias financial disaster and decreasing the
insurance provider, the agent is required qualification rules, unless they opted to competitive force that drives the private
to notify all customers of other affect the manner in which they deliver sector. A commenter stated this will
approved insurance providers it or account for delivery of product. The increase premiums. Other commenters
represents that participate in the commenter stated that the competitive claim crop insurance has experienced
premium reduction plan, but is not advantage, or disadvantage, of using high levels of budget cuts and regulation
required to notify the customer of the captive agents is already contemplated changes in the last several years which
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41837
have placed some approved insurance premium discounts will not be reduction plan on the industry, RMA
providers on the edge of financial approved until after the cost savings has attempted to address possible
disaster. A commenter stated that it have been proven and RMA determines negative industry impacts of the
looks like a lot of tracking and reporting that the approved insurance provider is premium reduction plan such as
needs to be done by the approved in a sound financial position to pay the allowing approved insurance providers
insurance providers and this added premium discount. Also, an approved to select those states in which it wants
expense may be too much for smaller insurance provider can elect not to to participate in the premium reduction
approved insurance providers. request approval to pay a premium plan and reducing the reporting burdens
Commenters stated that this industry discount if it is concerned about its on approved insurance providers
needs more providers, not less, and that financial condition. electing to participate.
competition increases service to The adoption of the alternative Comment: An agent commented that
farmers. A commenter states that proposal has also significantly reduced RMA will require that approved
farmers need options and this rule will the paperwork burden on approved insurance providers not reduce its
remove several approved insurance insurance providers, especially up front. service to their insureds. The
providers as viable options and that it Determinations of premium discounts commenter asked how RMA would
is not good for the system if only a few will now be based on the Expense entice approved insurance providers to
approved insurance providers remain— Exhibits that are already provided for continue in this line of insurance. If the
giving them leverage over the system. the SRA. Further, as stated above, the profitability is not there due to the
Another commenter stated that if the interim rule now contemplates a premium reduction plan and tighter
number of approved insurance simplified procedure to determine the regulations, it would obviously have an
providers is reduced, the approved amounts of premium discounts. impact on the overall financial strength
insurance providers remaining will have RMA agrees that it would be desirable of the industry.
to take on their business, thus slowing to have additional approved insurance Response: As stated above, service
down the time a claim can be serviced. providers. New ones are being approved cannot be reduced below the standards
Response: RMA does not agree with each year, even though the premium required by the SRA. If an approved
the commenters’ basic assumption and reduction plan has been available. There insurance provider does not think that
resulting predictions that price is no indication that this will change it could provide this level of service at
competition will necessarily result in under this rule. To the contrary, RMA a cost below the A&O reimbursement, it
fewer approved insurance providers, continues to receive inquiries and does not have to participate in the
less competitive approved insurance applications from new approved premium reduction plan. It is approved
providers, and higher premiums insurance providers to enter the insurance providers that are in the best
(prices). One could point to many program. Further, nothing in the interim position to determine whether they have
instances of government regulated rule precludes competition based on the ability to participate in the premium
industries where price competition has service. As stated above, commenters reduction plan and, as stated above,
been introduced, such as the have pointed out that some farmers will approved insurance providers that do
telecommunications and commercial value service more than the discount not participate can still compete
airlines industries, where precisely the and likely elect to remain with agents because there are farmers that will value
opposite has occurred. that do not participate in the premium service more than the premium
RMA also disagrees that competition reduction plan. Others will choose a discount.
will increase premiums. As stated mix of service and price. These are With respect to the question of
above, premiums are determined by the choices that American consumers make attracting new approved insurance
expected losses and a reasonable reserve every day. providers, the recent increase in the
and are independent from any efficiency Comment: An agent commented that number of approved insurance
related premium discount. Therefore, if RMA allows one approved insurance providers entering the program
the amount of premium is unaffected by provider to offer a premium reduction demonstrates that there are still
the premium reduction plan. plan, many other approved insurance attractive business opportunities in the
RMA further disagrees with the providers will most likely be motivated crop insurance program. Further, it is
assumption that regulations and budget to do the same thing. If that proves true, not evident that the commenter’s
cuts have placed some approved RMA will end up with fewer approved assumption that the premium reduction
insurance providers on the edge of insurance providers involved and those plan would necessarily lead to lower
financial disaster. Each reinsurance year with economies of size will have the profitability for approved insurance
RMA evaluates the financial conditions advantage. providers. Some of the expert reviewers
of the approved insurance providers. Response: RMA would agree with the predicted that the industry would
This evaluation has been strengthened comment that once one approved become financially healthier under an
considerably since the failure of insurance provider is able to compete expanded the premium reduction plan
American Growers Insurance Company on the basis of price, other approved because of increased efficiencies. In
(American Growers). The most recent insurance providers will likely want to addition, as stated above, the interim
evaluation shows no deterioration in the respond. However, RMA does not agree rule contains provisions that allow RMA
financial health of approved insurance that the result of price competition is to determine the financial condition of
providers. However, RMA agrees that necessarily fewer, larger approved an approved insurance provider before
such budget cuts can impact approved insurance providers. One could point to approving a premium discount.
insurance providers. For this reason, the other instances of government regulated Comment: An interested party and
election to participate in the premium industries where price competition has agent commented that a premium
reduction plan is totally voluntary. been introduced, such as reduction plan will allow new,
Approved insurance providers are in the telecommunications and commercial unproven approved insurance providers
best position to determine whether they airlines, where the precise opposite has to enter a marketplace where they may
can participate in the premium occurred. not belong. This could result in more
reduction plan. In addition, with the Regardless of differing views about approved insurance providers going
adoption of the alternative proposal, the possible impact of the premium broke and farmers being left with
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41838 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
unpaid claims for extended periods of commissions. Commenters state that may be a premium discount at some
time. This could in turn cause many lower commission will mean higher point in the future.
farmers to go broke. A commenter stated volume will be necessary to survive. A It is possible that reduced
that sometimes the purchase of ‘‘cheap’’ commenter stated the premium commissions will require an increase in
insurance results in the failure of the reduction plan would lower the the amount of business for the agent to
products to perform at the time of participation in the program and return remain financially viable. However, as
claims. farmers to depending on disaster stated above, there will be a balance
Response: To qualify to participate in programs as in years past. Another between any reduction in commission
the premium reduction plan, an commenter stated that the crop and the point at which the agent elects
approved insurance provider must first insurance program has succeeded over to take its business to another approved
be able to meet all requirements under the years with the basic idea of a large insurance provider. Both the agent and
the SRA, including financial health and number of agents and approved the approved insurance provider have
solvency standards. Thus, a new insurance providers selling crop an incentive to retain the book so this
approved insurance provider entering insurance policies and the premium will be another opportunity for market
the program wanting to participate in reduction plan will end this. The result forces to control. Further, approved
the premium reduction plan would be would be fewer choices of approved insurance providers are not going to risk
no more likely to fail than an existing insurance providers for insureds. A reducing commissions to the point that
approved insurance provider electing commenter stated that the larger the agents can no longer comply with the
not to participate in the premium agent, the lower the service. A service requirements in the SRA.
reduction plan. In addition, under the commenter stated that the premium The commenters fail to explain why
alternative proposal adopted, RMA can reduction plan favors large agencies and the premium discount will result in
now re-evaluate the financial strength of approved insurance providers who will lower participation in the program and
the approved insurance provider before not provide the personal service of reliance on ad hoc disaster programs.
approving a premium discount based on existing community agents. Most of the experts agree that there is
the actual financial condition of the likely to be a modest increase in
Response: Most of the expert
approved insurance provider. participation and increased buy up at
reviewers commissioned by RMA
Further, the commenter’s fear about higher coverage levels, not a decrease.
predicted that, if participation in the
the delay of the payment of claims is Further, the ability of a farmer to receive
premium reduction plan is increased,
unfounded. As RMA demonstrated an additional benefit is not likely to
the agent workforce would consolidate
through American Growers, it has the result in the farmer abandoning the
with higher average numbers of policies
commitment and ability to ensure that program providing the benefit. Even if
per agent and less personal contact agents do consolidate, farmers must still
farmer’s claims are paid timely.
between agent and policyholder, views receive the level of service required by
iii. Agents that are consistent with the commenters. the SRA.
Comment: Several agents commented However, this is unlikely to happen to Comment: Many agents, farmers,
that if approved insurance providers a degree that it harms the program approved insurance providers and other
create their efficiency by slashing agent because, as stated above, if service is interested parties commented that
commissions, agents may be forced to reduced to the point that it no longer widespread cuts in agent commissions
shift business to other approved complies with the requirements of the under these plans would likely force
insurance providers for economic SRA, approved insurance providers many independent agents to stop
reasons. would risk their ability to participate in delivering crop insurance. Commenters
Response: If an approved insurance the crop insurance program. state that commissions will not be
provider cuts commission too deeply, The commenters assume that enough to cover the time and expense
its agents may elect to shift their availability of the premium reduction to properly deliver federal crop
business to another approved insurance plan will automatically result in farmers insurance, which involves more E&O
provider. However, since approved leaving their agents to go with those that exposure. Commenters stated that the
insurance providers have an incentive participate in the premium reduction agent’s time can be spent more
to keep their business, this is an issue plan. However, the competition between effectively in other areas of insurance
between the agent and approved the large and small agents currently with a lot less responsibility. Some
insurance provider. The contract exists as a result of economies of scale commenters state agents will not be able
between an agent and an approved and levels of service. Further, to continue their excellent service to the
insurance provider is freely determined commenters state that small agents stay customer and more farmers will fall
in a competitive market and RMA in business because of the superior through the cracks or result in poor risk
would agree that the premium reduction service they provide. As other management decisions being made by
plan may result in a reassessment by commenters have pointed out, some the farmer. A commenter wonders
approved insurance providers and farmers will still value the service from whether there will be enough agents left
agents of the terms of those agreements. their existing agent more than the to service the business. Commenters
Comment: Many agents, farmers and premium discount that may be available state that farmers will suffer the biggest
other interested parties commented that through another agent. This superior loss in experience and quality. A
the proposed rules will create super service should still permit small agents commenter stated that the statement
agencies and consolidate the bulk of to compete. In addition, because the that agents receive 70% of the A&O
crop insurance business with a couple premium discount is no longer subsidy in the program is flawed. A
of approved insurance providers who guaranteed, the switching of agents will commenter stated the unemployment
are not familiar with the farmer’s likely be mitigated because some rate will go up and asks what has been
operation. Commenters stated that the farmers will likely choose to remain accomplished. A commenter stated that
industry can ill afford to become with an agent that knows their operation without agents, it would be a nightmare
smaller. The premium reduction plan and risk management needs rather than for approved insurance providers to
will help the large agent eliminate the move to a new agent that is not familiar obtain the necessary information from
small agent because of the reduced with the operation on the chance there farmers.
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41839
Response: It would not be in an the opinions of the expert reviewers addition, if the agent’s client base
approved insurance provider’s interest commissioned by RMA to examine the increased as a result of attracting clients
to seek large commission reductions premium reduction plan and RMA seeking premium discounts, the agent
from agents if such an action would procedures because the commenters might actually gain in dollar terms.
deplete its agent force to a level where have not provided specific information However, the commenters are
it could not properly service that would refute any of the incorrect that they will only be able to
policyholders under the SRA because observations, conclusions, or analyses of offer premium discounts to their large
that would mean that the approved the reviewers. The expert reviews were farmers. Further, agents cannot drop
insurance providers eligibility to helpful in the development of a existing policyholders or not offer
participate in the premium reduction proposed rule and RMA has taken into insurance to new applicants without
plan and operate under the SRA could consideration the comments regarding violating the SRA and subjecting the
be withdrawn. Thus, it would be in an such expert reviews in drafting its approved insurance provider to
approved insurance provider’s interest interim rule. However, even if such sanctions. If the approved insurance
to implement only those cost expert reviews are disregarded, it does provider and agent participate in the
efficiencies that would avoid the not change RMA’s obligation to operate premium reduction plan in a state, and
situation where agents could no longer the premium reduction plan in the approved insurance provider is
stay in business or elect to shift their accordance with section 508(e)(3) of the approved to pay a premium discount,
efforts to other lines of business that are Act. As stated above, RMA has all policyholders insured with the
more attractive. Further, it is not in the attempted to draft a rule that will approved insurance provider in the state
best interest of approved insurance mitigate the concerns of the commenters must receive the premium discount.
providers for their agents to have more regarding the potential adverse impact One assumes that these factors will
E&O exposure or farmers to make poor on agents and allow all agents to probably be taken into consideration
risk management choices because of continue to participate in the crop when the approved insurance provider
poor service from the inexperienced and insurance program. determines where to cut expenses,
poor quality agents that remain. Both Comment: Many agents and interested including any reductions in
situations would negatively impact the parties commented that removal of large compensation.
ability of the approved insurance farmers from its book of business would Comment: Several agents and
provider to reduce costs and the force agents out of the crop insurance interested parties claim that with fewer
profitability of the approved insurance business. Commenters state that already agents the service the farmers deserve
provider. a large portion of the policies they would be dramatically reduced and it
While the commenter may question service generate the commission do not would have a negative impact on the
the statement that agents receive 70 cover expenses. A commenter stated economy of rural communities,
percent of A&O subsidy, approved that to retain its largest accounts, the including loss of employers, taxes,
insurance providers prepare detailed agency would be forced to offer them a donations, etc.
Expense Exhibits each year in their Plan discount, one which it could not afford Response: As stated more fully above,
of Operations to qualify to participate in to pass on to its smaller farmers who are approved insurance providers are
the delivery of crop insurance for the already serviced at a loss. A commenter required to comply with all
next reinsurance year. Although the states it may have to drop them as requirements of the SRA regarding the
figures vary by approved insurance customers all together, a thought which servicing of policies. Failure to comply
provider, total compensation to agents it cannot even consider from a legal and with these requirements could lead to
approximates 70 percent of total ethical perspective. sanctions under the SRA. Therefore,
expenses. Response: RMA recognizes that, even in the number of agents does
RMA would agree that agents play a because servicing a policy by an agent become reduced, which as stated above
vital role in the delivery of Federal crop entails a relatively large fixed cost, is not as likely under the revisions made
insurance to farmers and that it cannot certain small policies must currently be to the proposed rule, approved
operate without them. However, market serviced at a loss to the agent and the insurance providers are still required to
forces discussed above, and revisions to approved insurance provider. RMA also ensure that policyholders receive the
the proposed rule to require premium agrees that the larger policies tend to required service. With respect to a
discounts be based on actual cost subsidize these small policies. This negative impact on rural economies,
savings and allowing approved condition is not the result of the RMA is not sure why this would occur
insurance providers to select states in premium reduction plan. However, the since farmers would be receiving an
which to participate in the premium commenters indicate that the condition economic benefit and, as discussed
reduction plan should mitigate the that small policies are serviced at a loss above, revisions have been made to the
commenter’s claimed adverse impacts. might worsen if participating under the rule to mitigate the adverse impacts on
Comment: Many agents, farmers, premium reduction plan were agents.
approved insurance providers and other increased, presumably because the Comment: Many agents and interested
interested parties commented that they agent’s commission would be reduced parties commented that reductions in
disagree with the reviewers’ under the premium reduction plan. agent commissions should come from
observations about agent compensation, While this is certainly possible, as other efficiencies associated with the
profit levels, and displacement of agents stated above, it is unlikely that any premium reduction plan delivery, NOT
by a reduction in compensation because approved insurance provider would cut from approved insurance providers
they are made without any viable commissions to the extent that agents applying to participate in the premium
proven facts and should be disregarded. could not cover their costs for the book reduction plan.
A commenter stated that when the of business. Even with the premium Response: The proposed rule has been
numbers of agents decrease, the amount reduction plan, approved insurance revised to allow greater flexibility in
of business for approved insurance providers still have an incentive to attaining cost savings. Further, the rule
providers will also decrease. retain their agents and ensure that specifically states that not all savings
Response: RMA cannot address issues policyholders are receiving the level of can come from a reduction in agent
that the commenters might have with service required by the SRA. In commissions. If and how much agent
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41840 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
commissions are reduced is a matter insurance providers would want to states in which they will pay premium
between the approved insurance avoid either outcome because it could discounts and the amounts. Further,
provider and agent. However, as result in the reduced potential for RMA will have the opportunity to
discussed above, approved insurance underwriting gains or potential determine the financial condition of the
providers have the incentive to retain sanctions under the SRA. approved insurance provider before any
agents, which means ensuring that they Comment: Many agents and interested premium discount is approved. Many of
make sufficient income to cover the parties commented that the premium the expert reviewers commissioned by
expenses in servicing their book of reduction plan is funded 100% on the RMA to study the premium reduction
business. RMA has determined that backs of agent’s commission, the very plan issues concluded that the crop
approved insurance providers should be group that is the most critical to crop insurance industry would become
allowed to consider a full range of insurance being delivered. Commenters financially healthier with price
potential cost efficiencies to participate stated that the agent’s income would be competition.
in the premium reduction plan, as long severely reduced even when expenses Comment: A few agents and
as the implementation of those cost are increasing. Commenters state that interested parties commented that the
efficiencies does not cause service to fall the premium reduction plan approved premium reduction plan will severely
below SRA standards. insurance provider contributes nothing affect insurance agents that concentrate
Comment: Several agents commented to the farmer or to any of the discounted and specialize in crop insurance only.
that the premium reduction plan would premium and they are not in the Response: Only one of the expert
affect the agent’s ability to even communities dealing with the farmers reviewers commissioned by RMA to
continue living in small towns and on a day-to-day basis as current agents study the premium reduction plan
would at the very least force the agent do. They state they cannot take another addressed the issue of the impact on
to find a job in the bigger towns and reduction in income because the agents that specialized. That reviewer
take the agent away from being an active discount will be passed on to the agent, concluded that the premium reduction
member of the community. With a who still has bills to pay and families plan would impact such agents
smaller income would come less ability to support. Commenters state that the positively, with more of the existing
to give to the local charities/churches/ premium reduction plan will make crop book of business shifting to them from
schools and less expendable income for insurance unprofitable. part time agents. Moreover, the reviewer
the local businesses, hurting many other Response: Nothing in section
predicted that this trend would lead to
businesses along down the line. 508(e)(3) of the Act or the interim rule
less fraud and better service to farmers
Response: Nothing in the interim rule specifies where approved insurance
because the agent workforce would
limits agents’ free market decisions as to providers can look to find cost
become increasingly more
where to establish or maintain their efficiencies, including agents’
businesses. RMA acknowledges that the commissions. RMA would agree knowledgeable and professional through
commenters are likely assuming that the generally with the commenters that specialization.
premium reduction plan will lead to a agents play a vital role in the delivery Notwithstanding the expert reviewer’s
reduction in agents’ commissions and of Federal crop insurance to farmers and opinion, the changes to the premium
will force some agents to abandon small that the program cannot operate without reduction plan previously discussed
rural communities. The expert reviews competent and professional agents to should mitigate any adverse effect on all
commissioned by RMA indicate that service the risk management needs of agents, including those that specialize
some commission reductions and the farmer. Market forces and in crop insurance. Further, as discussed
consolidation may happen. However, limitations in the interim rule ensure above, approved insurance providers
none of the reviews identified that it would not be in an approved have an incentive to avoid imposing
commission reductions or consolidation insurance provider’s interest to seek hardships on their agents because
as producing a significant negative large commission reductions from approved insurance providers may be
impact on rural economies. agents if such an action would deplete left without agents to service the
Nevertheless, the interim rule includes its agent force to a level that would business in areas, lose business to other
provisions, such as the four percent endanger, or otherwise lose its capacity approved insurance providers as agents
limit on premium discounts and the to properly service policyholders under move their book of business, or face the
requirement that not all efficiencies can the SRA. However, as stated above, the possibility of reductions in services to
be achieved through reductions in interim rule also contains provisions farmers, which can result in sanctions
compensation, which would ensure that that should mitigate adverse impacts on under the interim rule and SRA.
the crop insurance delivery system, agents. Now approved insurance Comment: Many agents and interested
including approved insurance providers providers can select the states in which parties commented that RMA’s core
and their affiliated agents, is not it wants to participate in the premium assumption that ‘‘efficiencies’’
destabilized if the premium reduction reduction plan. automatically result from lowering agent
plan were to expand dramatically. With respect to the comment that the compensation is only true if agents are
Further, as discussed above, market premium reduction plan will make crop making excessive profits. The
forces will generally dictate any insurance unprofitable, RMA disagrees. commenters state this assumption is
reduction in agent commissions because The choice of an approved insurance based on no empirical evidence or
approved insurance providers have the provider to qualify for and offer a expert testimony. A commenter stated
incentive to retain their agents and too premium discount is strictly voluntary. that people only spend extra time
large a reduction in agent compensation An approved insurance provider will working and servicing programs when
would likely result in agents leaving not choose to offer premium discounts rewarded monetarily and that agents
crop insurance, which could prevent the if it is unprofitable to do so. Moreover, must receive fair compensation for their
approved insurance provider from the most profitable aspect of the crop services. The commenter stated that
adequately serving farmers, or agents insurance business, underwriting gains, crop insurance is in rural areas of
moving to other approved insurance is not directly impacted by the premium America, and to meet the rising costs of
providers and taking their books of reduction plan. In addition, approved travel, communication, and education
business with them. Approved insurance providers can now select the in rural areas agents and approved
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41841
insurance providers need to be Response: The commenters’ assume premiums may be higher with crop
reimbursed fairly. that E&O exposure will increase but the insurance than other lines of insurance.
Response: Nowhere in the proposed commenters do not explain why they With respect to the comment that the
rule did RMA assume cost efficiencies believe that it will. The commenters premium reduction plan would
claimed by an approved insurance apparently assume that reductions in ‘‘compound the problem,’’ the context
provider must automatically result from commissions would result in reductions of the comment would suggest that the
lower commissions. Further, nowhere in in service, leaving agents more exposed commenter assumes that a premium
the proposed rule did RMA make the to E&O claims. Under the interim rule, discount would add to the paperwork or
claim or imply that agents are receiving as stated above, approved insurance administrative costs incurred by the
excess profits. Approved insurance providers wanting to offer the premium agent. RMA disagrees with this
providers are free to assess their discount will be required to maintain assumption. Although an agent would
business structure to determine where it the same service standards as required need to be aware of new market conduct
can achieve savings. Further, the by the SRA. This is the same standard rules added to the interim rule regarding
contract between an approved insurance under which E&O would be based for how a premium discount could be
provider and an agent is determined in the premium reduction plan. Approved represented verbally and through
a competitive market, which will not insurance providers would not have an marketing materials, nothing in the
change under the premium reduction incentive to implement cost efficiencies interim rule would require additional
plan. As stated above, approved if the cost savings resulting from such paperwork by an agent that represents
insurance providers have the incentive actions were to result in increased an approved insurance provider
to retain agents and, therefore, would litigative exposure, thereby increasing authorized to offer a premium discount.
have to be judicious in their evaluation costs. Further, as stated above, approved Further, these new market conduct rules
of whether to cut agents commissions insurance providers would not have an were necessary to ensure that farmers
and the amount of such cuts to avoid incentive to cut commissions so low are not mislead into thinking that they
losing business, suffer a reduction in that agents, who are needed to service will receive premium discount or the
service below SRA required levels, etc. their business, would have no choice amount of any such discount. Under the
RMA agrees that agents deserve fair but to reduce service, move their book alternative proposal adopted, approved
compensation. However, whether under of business, or leave the crop insurance insurance providers and agents will not
the existing crop insurance program or business. know at the time of sales whether a
the premium reduction plan, it is the Comment: Many agents and interested premium discount will be approved.
parties commented that multi-peril To the extent that commenters are
market that determines what is fair.
insurance is also the most labor assuming that agent commissions will
Nothing in the interim rule would
intensive and time-consuming line of be reduced to the point that selling crop
change this.
business that insurance agents write and insurance is no longer profitable, as
Comment: An agent commented that stated above, it would not be in the best
with the lowering of commissions it
there should be clear documentation interests of approved insurance
would make it more difficult to
and rationalization how agent costs will providers to make such reductions. As
continue writing this line of business at
be reduced before any premium a profitable level. A commenter states stated above, approved insurance
reduction plan depending on a that agents do considerable work to providers have the incentive to retain
reduction in agent compensation be make sure the farmer is adequately agents and their books of business to
considered. covered. A commenter states that their maximize their potential for gains and
Response: The interim rule requires expense ratio with crop insurance is ensure that their policyholders are
that an approved insurance provider higher. A commenter stated that the served in accordance with RMA’s
certify that any cost efficiencies approved insurance providers have requirements.
considered for a premium discount, already transferred a majority of the With respect to uncertainty created in
including reductions in agent paperwork and administration onto the the marketplace from a potential
commissions, will not result in a agents to reduce their expenses so the expansion of the premium reduction
reduction in service below the premium reduction plan will compound plan, RMA would agree that price
requirements in the SRA and approved the problem. A commenter also stated competition would add another factor
procedures. Further, now that premium that with the premium reduction plan an agent or approved insurance provider
discounts are paid after all costs saving lingering in the background, it cannot would need to consider in business
measures have been implemented and make long-term business plans because planning. The whole premise of price
the impact of such measures are known, of the uncertainty of projected income. competition is to be able to provide the
RMA may determine whether there has A commenter stated that crop insurance same product or service for less money.
been any violation of the interim rule, is very complicated and it takes an However, most businesses in the U.S.
SRA or approved procedures and take enormous amount of education to be economy must consider price
the appropriate action before any able to deliver the products to farmers uncertainty in the normal course of
premium discount is approved or paid. that best meets their needs. business planning. Further, as other
Comment: Many agents and interested Response: RMA agrees that the commenters have suggested, price is not
parties commented that crop insurance delivery of crop insurance is labor the only benefit that stirs competition.
is the largest E & O exposure they have. intensive and requires substantial Commenters state, and RMA agrees that
A commenter stated that there will be a paperwork, that agents play a vital role there will be some farmers who value
lot more E & O claims and that already in the delivery of Federal crop the service provided by their agents
is an issue with E & O companies that insurance to farmers, that substantial more than the premium discount they
either do not want to write crop education is required to ensure that a may be receive at a future date. This is
insurance agents or have placed high farmer’s risk management needs are what occurs with personal lines
deductibles on their policies for crop met, that the program cannot operate insurance that currently allows rate
insurance claims. The commenter asked without competent and professional competition and there is no reason to
if the government is going to get into the agents that can service policyholders, believe it would any different with crop
E & O business. and that the ratio of expenses to insurance.
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41842 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
Comment: Many agents and interested approximates 70 percent of total With respect to the comment that,
parties commented that agents receive delivery expenses. under the premium reduction plan, it
fair compensation for their services and The comment suggesting that RMA will be impossible to maintain the level
earn the commissions they receive. has not conducted a study to show the of service that policyholders expect, the
Commenters stated that they do not effects of a reduction of agents’ interim rule requires that any approved
understand how RMA could believe that commissions on service assumes that insurance provider maintain the level of
agents make too much commission. the purpose of the rule is to attain service required by the SRA and
Commenters stated they would not be efficiencies through the reduction in approved procedures. RMA admits that
interested in servicing crop insurance commissions. According to section these required standards may be below
for less than the current commission. A 508(e)(3) of the Act, an efficiency occurs the level of service provided by some
commenter stated it was not fair to when the approved insurance provider’s agents. However, RMA cannot require
expect agents to reduce profits when the delivery costs are less than the A&O that a higher level of service be
profit margin is so small. subsidy it receives. The approved maintained than is currently required by
Response: RMA did not take a insurance provider can attain this the SRA and approved procedures. It
position in the proposed rule with efficiency in any manner that best suits can only enforce requirements of the
respect to the fairness or possible its business structure. A study is not SRA and approved procedures. Further,
excessiveness of the current level of necessary because, as stated above, as commenters have stated, this higher
agents’ commissions. RMA assumes that approved insurance providers will not level of service that may be provided by
it is solely between the approved reduce commissions to the point that some agents is a source of competition
insurance provider and agent to they can no longer provide the required and that some farmers value this high
determine what is fair compensation level of service. Further, as stated above, level of service over any premium
and that this would continue under the approved insurance providers have the discount they may receive at some
premium reduction plan. Further, in incentive to retain agents. Therefore, it future date.
those states where commissions cannot would be unlikely they would cut Lastly, neither RMA nor the approved
be cut without jeopardizing the agent commissions to the point that agents insurance providers wants to harm the
force, under the interim rule, approved would move their books of business to economy of any rural community. Such
insurance providers now can elect not other approved insurance providers. As a consequence would defeat the purpose
to offer premium discounts in such has always occurred in the program, the of crop insurance, which is to stabilize
states. As stated above, the amount of market determines fair compensation. the economies of rural communities. As
commission is between the agent and Finally, since the premium discount a result, RMA has added provisions to
approved insurance provider and will be paid at the end of the process the interim rule that allow approved
approved insurance providers have an and is not guaranteed, approved insurance providers to select the states
incentive to retain their agents and insurance providers will be able to in which they will participate in the
ensure that service to policyholders ensure that discounts actually paid will premium reduction plan. Further,
meet the standards required by the SRA not be so large as to jeopardize the approved insurance providers have an
and approved procedures. providers’ financial position or its incentive to ensure that their actions do
Comment: Many agents and interested relationship with its agents. not adversely impact rural communities
parties commented that FCIC Comment: Many agents and interested because such action would only result
inaccurately estimates the percentage of parties commented that the premium in fewer customers, which would
administrative expenses attributable to reduction plan will hurt the small town adversely affect their business.
agent compensation. The commenter agencies that will not be able to handle Comment: Several agents commented
stated that there is no empirical the reduction and they will be forced that the premium reduction plan could
evidence in the rulemaking record to out of servicing crop insurance. result in crop insurance being delivered
show that agent compensation is Commenters stated that this will leave by FSA and asked if that was the
excessive and, worse, there is no areas without service and will pave the purpose of the premium reduction plan.
evidence to show what the effect of a way for more errors, and, consequently A commenter stated that RMA tried to
cut in compensation would be on the more fraud, waste and abuse. use FSA to deliver the program before
agent workforce or level of service. Commenters state that these are the and they couldn’t do it.
Without such empirical record agents who are serving the small family Response: The commenters assume
evidence, FCIC and RMA cannot farms. Commenters also claim it will be that there will be insufficient agents left
rationally conclude that a reduction in impossible to maintain the level of to deliver the crop insurance program so
compensation would yield ‘‘efficiency’’ service the insureds currently that RMA will have to deliver the
within the meaning of the Act. experience. Commenters state this will program through FSA. However, as
Response: With respect to the harm rural communities. stated above, RMA does not believe that
comment that FCIC inaccurately Response: The interim rule does not agents will be impacted to the extent
estimates the percentage of limit agents’ free market decisions as to that they will exodus the crop insurance
administrative expenses attributable to where to establish or maintain their program. This conclusion was
agent compensation, the commenter businesses. The expert reviews supported by one of the expert
does not explain why the estimate is commissioned by RMA indicate that reviewers that studied the impact on
inaccurate. Approved insurance commission reductions and premium discounts on agents. As stated
providers prepare detailed expense consolidation are likely. However, none above, it would not be in the best
reports each year in their Plans of of the reviews identified commission interest of approved insurance providers
Operation to qualify for participation reductions or consolidation as to cut commissions so much that this
under the SRA for the next reinsurance producing a significant negative impact would occur. The more likely outcome
year. Although the figures vary by on rural economies. And, contrary to the is that agents and approved insurance
approved insurance provider and year, predictions of the commenters, one providers will negotiate a commission
total compensation to agents for the reviewer suggested that such that is fair to both parties and if any
industry, based on information reported consolidation would result in agents savings are achieved, they can be used
by approved insurance providers, that would provide better service. to pay a premium discount. However, it
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41843
is the market that will determine what moving its book of business to another servicing crop insurance who are very
reductions, if any, will be made. approved insurance provider if there is efficient, as well as the larger agents.
Comment: An agent asked what RMA no agreement on a fair commission. The commenter states that to make the
will do to protect the smaller agents. Comment: An agent commented that assumption that these agents will
Response: RMA is concerned with if farmers thought agents were making become more efficient simply by
any possible negative effects that the too much money and wanted to reduce reducing agent compensation is simply
premium reduction plan might have on their salaries and spread the wealth, it not correct.
the crop insurance delivery system. would require them and RMA Response: The commenter incorrectly
Certain provisions of the interim rule, employees to take on other work to assumes that the purpose of the
such as the four percent premium make up for the lost income. The premium reduction plan is to reduce
discount maximum and the requirement commenter also suggested it was agent commissions and this is not
that not all efficiencies can come from unlikely the savings would be passed to correct. The purpose of the premium
reduced compensation, seek to ensure the farmer and more likely the savings reduction plan is to implement the
that any changes resulting from would remain with the approved intent of Congress to permit approved
expanded price competition are not so insurance provider. insurance providers to compete on price
excessive that the industry or RMA Response: Neither in the proposed by evaluating their own business
cannot adjust quickly enough. With rule nor in this interim rule has RMA operations to determine whether they
respect to protection for smaller agents, suggested that agent commissions are can deliver the program more
the fact that an approved insurance too high. It is not RMA’s position that efficiently. It must be remembered that
provider must still meet the standard of agent commissions are too high or too participation in the premium reduction
service required by the SRA and low. RMA is not responsible for the plan is entirely voluntary and it is the
approved procedures for all farmers or regulation of agent commissions. The approved insurance providers that
risk sanctions under the SRA would approved insurance provider and agent determine where they can cut costs and
tend to protect all agents, including are the only parties that can determine they cannot cut agent commissions
smaller ones. For instance, if a smaller what is a fair commission. With respect without the consent of the agents. If
agent is providing the required service to whether savings would be passed to agents are already efficient and there is
to his or her policyholders at an the farmer, the interim rule does not no room for negotiation of lower
efficient cost, then an approved require that any savings attained by the commissions, it is presumed that the
insurance provider could not reduce approved insurance provider be passed approved insurance provider will look
that agent’s commissions without the on to the farmer. The market forces will to other avenues to attain savings.
risk of losing that agent, along with that determine whether premium discounts Further, under the interim rule,
agent’s policyholders, to another are paid. However, approved insurance approved insurance providers no longer
approved insurance provider. providers have an incentive to pay have to report how and from where
Comment: An agent commented that premium discounts because their savings are to be attained. Since
the savings to the insured do not appear advertising is limited to past amounts premium discounts are paid on actual
to be that significant but the loss to the that were paid and the year they were savings, not projected, RMA will simply
agent adds up to several dollars. paid. Many farmers are not likely to be reviewing the actual costs reported to
Response: If the commenter is correct change approved insurance providers or determine whether there has been
and that the policyholder does not agents to sign on with an approved savings and the amount of premium
perceive much benefit from the insurance provider that does not pay discount that can be paid in each state
premium discount relative to the impact premium discounts. in accordance with a formula, which
of a commission reduction to the agent, Comment: Several agents commented will be provided in procedures, that
then a free, competitive market would that they have already been adversely looks at the approved insurance
suggest that the policyholder would not affected by the premium reduction plan provider’s entire crop insurance
be attracted to a premium discount and because they’ve lost customers and that operation.
the policyholder’s agent could affiliate it would have an impact on their state. Comment: Several agents and
with an approved insurance provider Response: RMA acknowledges that interested parties commented that for a
that does not offer premium discounts under the current premium reduction large percentage of policies, the
without the risk of losing customers. plan, where the premium discount was expenses exceed the amount of
Nothing in the interim rule would guaranteed up front in a fixed amount, commission earned and for many others
prevent such free market choices by there was a strong incentive for the agent barely breaks even. A
agents or policyholders. policyholders to shift approved commenter states the part of the book
Comment: An agent commented that insurance providers and agents. This that is earning a profit must subsidize
the commissions for other types of behavior may continue under the the rest of the policies. A commenter
property and casualty insurance are interim rule but changes to the premium stated that it actually loses money
very similar to the commission levels reduction plan will allow for a longer providing insurance for some small
for crop insurance. term transition and make it less likely. farmers.
Response: RMA has no direct First, the premium discount can no Response: RMA acknowledges that,
information to be able to respond to this longer be guaranteed or an amount because servicing a policy by an agent
commenter’s assessment. Moreover, if promised at the time of sale. Second, entails a relatively large fixed cost,
such rates are consistent with a long- farmers that are satisfied with the certain small policies currently may
term equilibrium, then approved service they receive from their current have to be serviced at a loss to the agent
insurance providers would not be able agent are less likely to switch to other and the approved insurance provider
to reduce commissions to achieve agents, even if there is a chance that a and that larger accounts tend to
efficiencies. Commission reductions can premium discount may be paid at some subsidize these small accounts. This is
only be attained if both the agent and point in the future. a condition that exists notwithstanding
the approved insurance provider agree Comment: An interested party whether there is a premium reduction
to such reductions and, as stated above, commented that there are many small plan in existence. Further, when RMA
the agent always has the recourse of and mid-sized agents selling and determines whether there is an
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41844 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
efficiency, it is looking at the book of tying arrangements. A commenter policyholders as one who failed to meet
business and the determination of the suggests that these entities could harm such requirement. Further, many agents
amount of premium discount is done on existing agents and that RMA should today derive only a portion of their
a state basis. Approved insurance require that businesses derive at least income from selling crop insurance.
providers determine how any savings 80–90% of their income from insurance Therefore, RMA does not think such a
are attained and, if reductions in agent to market crop insurance. requirement would be in the best
commissions may be a tool, it can Response: As stated above, all interests of farmers or the delivery
decide what commissions are cut. There approved insurance providers and system.
is nothing in the interim rule that would agents must comply with the same Comment: Several agents and
preclude an approved insurance requirements of the SRA and approved interested parties commented that as
provider from only cutting the procedures regarding service. Further, income is drastically reduced, staff
commissions of policies with premiums approved insurance providers and would have to be let go even though the
that exceed a certain threshold and agents must comply with state licensing workload is the same or has greatly
leaving the medium and small policies requirements for agents. If all of these increased. A commenter stated that, due
untouched. As RMA has stated above, requirements are met, RMA cannot to drought, changes in the program, and
the determination of what constitutes a preclude any agent from participating in added paperwork, it takes a great deal
fair commission is a matter between the the program, regardless of what other more time to service the needs of
agent and the approved insurance business it may be affiliated with. farmers. A commenter states this
provider. Further, farmers will determine if they additional work would cut into the time
Commenter: Several agents and are happy with the level of service they spent with farmers. A commenter stated
interested parties commented that each receive. As commenters have stated, it may have to find other sources of
year it has to battle retaining the bigger farmers may be more interested in the income. Commenters state that farmers
accounts because of outfits like the local level of service they receive than the will suffer.
Farm Credit Service, which have possibility of receiving a premium Response: RMA does not agree with
enticed some insured’s away by offering discount. Therefore, no change is made the commenters’ initial assumption that
operating loans at 1⁄2% less interest if as a result of this comment. the premium reduction plan will be the
they also carry the client’s crop With respect to the potential for catalyst for such a chain of events. As
insurance coverage. A commenter states conditioning the sale of crop insurance stated above, commissions will only
that banks and lending institutions on whether a farmer purchases other decrease in an amount the market can
should not be able to force farmers to products, such practice is prohibited bear. Further, approved insurance
insure with them as a condition of under the SRA and if RMA determines providers have incentives not to
getting loans. that such practices are taking place, financially stress agents to the point that
Response: The commenter is referring there are sanctions available under the they must let staff go and find other
to an issue that is not directly related to SRA and, if such actions occur under sources of income. Approved insurance
the proposed rule. However, the the premium reduction plan, RMA has providers do not want to risk that their
conduct complained of may constitute added sanctions to the interim rule that agents would be unable to service their
an impermissible rebate. Only would allow it to withdraw eligibility policyholders in accordance with the
cooperatives and trade associations that for the opportunity to offer a premium requirements in the SRA and approved
sell crop insurance approved by RMA discount, withdraw approval of all or a procedures.
may take all or a portion of the A&O portion of the payment of a premium Comment: An agent commented that
subsidy they receive and pay a portion discount, effectively disqualify an the premium reduction plan will
of their policyholders’ administrative approved insurance provider or agent increase regulation in the crop
fees or premium. However, there is no from participating in the premium insurance industry and the delivery of
authority for any bank or lending reduction plan, or taking remedial the crop insurance program, thus
institution to offer a reduced loan rate measures to correct the problem. The negatively impacting farmers.
conditioned upon the purchase of threat of an agent’s farmers not receiving Response: RMA disagrees with the
insurance. If the commenter has specific a premium discount even though commenter’s assessment on several
information, it should report it to RMA. farmers with other agents of the grounds. First, participation in the
Comment: Several interested parties approved insurance provider receive the premium reduction plan is voluntary
and agents commented that reduced premium discount or of ineligibility to and only those approved insurance
agent compensation could increase participate in the premium reduction providers that wish to participate will
instances of novice agents, such as plan should pose a substantial deterrent need to subject themselves to the added
agribusiness firms that sell seeds and to, or sanction for, any such prohibited requirements of the interim rule.
equipment, easily entering the business activity. If these remedies are Second, the requirements in the interim
of crop insurance in some states. The insufficient, RMA can take action under rule have been drastically reduced from
commenter stated that these firms have the SRA. If anyone knows of such those in the current program or the
sources of profit other than agent conduct, they should be reporting it to proposed rule. These changes should
commissions and could thereby help RMA. substantially reduce the administrative
approved insurance providers offer crop With respect to the suggestion of burdens on approved insurance
insurance for lower premiums by requiring that some minimum providers and RMA to carry out this
servicing policies for less compensation percentage of an agent’s revenues come regulation. Specifically, RMA has
than the current agent workforce. from insurance to qualify as a crop removed the requirements that
However, these firms lack the insurance agent, such a qualification approved insurance providers state how
experience and skill of agents in the would likely be extremely burdensome they will attain the efficiencies, estimate
current delivery system and have on agents, approved insurance the amount of such efficiency, provide
incentives to bundle lower premiums providers, and RMA and would not documentation to support such
with other goods and services. necessarily ensure that an agent that met estimates, and determine the amount of
Commenter states that this could result such a requirement would be better the premium discount because these
in practices such as illegal rebating and qualified to serve crop insurance requirements are no longer necessary
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41845
now that premium discounts will be Many of the requirements under this provided to RMA by approved
paid based on the actual cost savings of rule are the same requirements that exist insurance providers, which show both
the approved insurance provider. Now under the SRA. Further, requiring that total commission dollars paid to agents
all approved insurance providers must any premium discount be paid after cost and dollars commissions per policy
provide is the name of the person savings have been realized will mitigate rising sharply since 2000.
responsible for implementing the or eliminate any potential dramatic Comment: Several agents commented
premium reduction plan, the states in changes to the program. RMA should strongly simplify this
which the approved insurance provider Comment: Many agents and interested program, and then and only then should
is seeking the opportunity to offer a parties commented that commissions they consider any reduction in
premium discount, a credible marketing have been reduced drastically in the premiums to the agents that are working
plan to ensure that all farmers, past few years and the premium hard to provide this coverage in a timely
including small, limited resource, reduction plan will further reduce and efficient manner. A commenter
women, and minority farmers have commissions but not the workload. A stated that there would have been
access to a premium discount, and a commenter stated that costs are premium savings to farmers, but all at
certification that service will not fall increasing. A commenter stated that the expense of the agent. For example,
below that required by the SRA and agents are doing twice the work that CRC and RA could be combined, unit
approved procedures by any cost saving they used to do in the past because of structures could be simplified, and the
measures implemented by the approved all the different products that have been time between releasing of Revenue
insurance provider. The burden on the introduced and also that they do most, Assurance Base Prices and pricing
back end is also reduced because the if not all of the inputting of information factors and sales closing date could be
determination of efficiencies and the that used to be completed at the expanded.
amount of premium discounts will now approved insurance provider level. Response: RMA has been striving to
be based on the Expense Exhibits Commenters stated that agents are simply the crop insurance program.
provided with the Plan of Operations required to attend classes for updates to However, it must do so while still
and a formula that RMA will provide in stay on top of the changes and maintaining program integrity.
procedures. Further, many of the other accurately explain the coverage options Therefore, some of the commenters
requirements, such as no reduction in to the farmer and agents have been very suggestions are under consideration,
service, having the operational and patient with the constant changes and such as the combination of CRC and RA.
financial capacity, etc., currently exist additional requirement that have been However, others depend on whether
in the SRA and are only reiterated in the placed upon them. A commenter stated
adopting such changes would introduce
rule to remind participants of their agents also put on workshops and hire
program vulnerabilities. Even without
obligations under the crop insurance quality speakers to inform clients of the
simplification, RMA would still be
program. values of having MPCI insurance, and
obligated to make available the
Comment: An interested party have the increased cost of software and
premium reduction plan because it is
comments that the agent is the backbone computer updating.
Response: RMA admits that the crop based on whether approved insurance
of the growth and success of this
insurance program has steadily grown providers can operate the program for
program, and agents are receiving little
more complex with more and varied less than their A&O subsidy. If the costs
compensation for the amount of work
policies available to farmers. RMA are too high under the current program,
that they do on behalf of the farmers of
America. The commenter states that as admits that agents must be trained each then approved insurance providers
more and more regulations and year to stay abreast of program changes would not be able to participate.
penalties are being placed on the and explain such changes to their However, the intent of section 508(e)(3)
system, the need for qualified agents to policyholders. However, the sharing of of the Act is to provide the approved
deliver this product becomes a more the workload involved in the inputting insurance providers with the
necessary part of the plan. of information is an issue between the opportunity to enter into price
Response: RMA agrees that agents agent and the approved insurance competition.
play a vital role in the delivery of provider. RMA does not dictate who With respect to the commenters’
Federal crop insurance to farmers and inputs this information. prediction that premium discounts to
that it cannot operate without them. Further, because commission rates are farmers will inevitably come at the
RMA cannot pass judgment on the a private matter negotiated between expense of agents, nothing in the
amount or fairness of the compensation agents and approved insurance premium reduction plan requires this
the agents’ receive to perform this providers, RMA cannot comment with conclusion. Approved insurance
service but the level of compensation is respect to whether these commissions providers have to assess their business
a result of a voluntary agreement have been reduced drastically in recent operations to determine the most
between an approved insurance years. However, RMA does know that in appropriate place for savings. Further,
provider and the agent. If compensation the last few years, premium volume has commission is freely negotiated between
were too little, then the agent would not increased significantly as farmers the agent and approved insurance
choose to enter into the agreement and purchase revenue policies and increased provider. This means agents still have a
if too much, then approved insurance their coverage levels following the voice because if they do not like the
providers would choose not to. increase in premium subsidies in 2001. commission they are offered, they are
RMA also agrees that with the Since agent commissions are generally free to move their book of business to
growing complexity of the crop based on the percentage of premium, other approved insurance providers.
insurance program, and RMA’s this means that although an agent’s The market will determine what, if any,
vigilance in ensuring that program commission rate may have fallen reductions in commissions there will
requirements are complied with, there is through this period, any decline in be.
a need for knowledgeable, qualified commission rates may have been more Comment: A few agents commented
agents. However, RMA does not believe than offset by the dramatic increase in that if the workload were reduced, the
that this interim rule will negatively average premium per policy. This is premium reduction plan would be
affect the knowledge or skill of agents. confirmed by expense statements tolerated.
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41846 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
Response: The only workload mistakes made on crop policies and the management needs. Further, RMA has
required of agents by RMA are those whole crop insurance system will suffer, not suggested that farmers be required to
contained in the SRA and approved including lower or no indemnity use the internet to purchase crop
procedures. RMA continually reviews payments. A commenter stated that the insurance. Approved insurance
these procedures to ensure that they are time that goes into learning all of the providers are still required to ensure
meaningful and necessary. As regulations is very high and if an agent that their policyholders get the service
procedures no longer become necessary, does not take this time, the mistakes can mandated by the SRA and approved
they will be removed. However, RMA is be very costly. Another commenter procedures. Further, even if approved
unable to reduce the workload any stated that one reason the independent insurance providers elect to offer crop
further than that. Further, RMA is agencies are getting out of the business insurance via the internet, certain
unable to change any workload that may is the increased complexity of the functions are still required to be
be imposed on the agent by the program and the potential lawsuits that performed by licensed agents and the
approved insurance provider. That is may be filed because of the penalties use of the internet does not abrogate this
negotiated between the agent and being applied for honest mistakes. A requirement.
approved insurance provider. commenter stated that agents take the RMA does anticipate that information
Further, it is the agent’s choice time to know their farmers operations. technology will likely become
whether to write for approved insurance Response: As stated above, the increasingly important in all aspects of
providers that are eligible for the premium reduction plan is unlikely to the delivery of crop insurance. To the
opportunity to offer a premium result in reductions in staff if such extent that an approved insurance
discount. As commenters have stated, reductions are likely to result in more provider can harness that technology for
there are farmers that will value mistakes. First, the litigation costs cost efficiencies for delivery of crop
superior service over the potential for a associated with such mistakes are likely insurance, RMA is obligated to consider
premium discount and who will remain to result in little if any savings upon such cost efficiencies in the context of
with the agent even if the agent elects which to pay a premium discount. qualifying for the payment of a premium
not to participate in the premium Further, approved insurance providers discount.
reduction plan. As RMA has continually have an incentive to ensure there is no Comment: An agent commented that
stated, the purpose of section 508(e)(3) reduction in service beyond that since a farmer’s premium fluctuates as
of the Act was to create competition so required in the SRA and approved high as 10–20% every year because the
the interim rule allows the market, to procedures and the imposition of prices and rates of each crop change
the maximum extent practicable, to sanctions under the SRA would make it annually, the farmer would not even
dictate who will participate and who untenable to allow such a condition to notice he was getting a discount.
will not. exist. Response: There are price and
Comment: A few interested parties Further, the commenter implies that premium rate fluctuations and coverage
commented that every year there are the time an agent takes to know their choices by the farmer each year that
more demands placed on the approved policyholders’ operations now might affect premiums. However, this does not
insurance providers for training, not happen under the premium mean the farmer would not notice a
auditing and reviewing, verifying data reduction plan. However, under the premium discount, especially when,
certified by the insureds, etc. That interim rule, the payment of a premium under the alternative proposal adopted
means that every year the approved discount is no longer guaranteed up in the interim rule, such premium
insurance providers’ costs go up. The front and the farmer will know whether discount is likely to be in the form of
commenter asks how RMA can expect the agent is providing the level of a specific payment in the future. But
the approved insurance provider to act service he requires, which may exceed even assuming the commenter is
on all these added demands and THEN the level required by RMA, long before correct, this provides another reason
pay them less for it on a premium the farmer knows whether he will why the drastic changes that
reduction plan. receive a premium discount. Therefore, commenters claim will occur are less
Response: RMA does not require that agents have the incentive to ensure that likely. RMA has attempted to craft a
an approved insurance provider their customers risk management needs program that offers the possibility of a
participate in the premium reduction are met because they risk losing a benefit to farmers while minimizing
plan. Participation is strictly voluntary. customer, even if they have complied adverse effects to the program.
Further, no approved insurance will all required of RMA. Comment: Several interested parties
provider can pay a premium discount Comment: An interested party and agents commented that farmers will
until the approved insurance provider commented that in the event farmers are be forced to make their purchase
can prove that its A&O costs are less going to try to purchase this product on without the expertise of a local, tenured,
than the A&O subsidy. Since premium the web without the counsel of licensed qualified agent and the end result will
discounts are now based on actual cost agents, their only recourse in the event most likely be greater unpaid claims
savings, to the extent that approved that an error is made is to sue RMA for when the farmers suffer crop losses.
insurance providers are unable to damages. The commenter stated the Commenters also stated that reduction
sufficiently reduce costs, the only farmer will make mistakes, they always in the agent force will lead to many
consequence under the premium do, and when they do they want farmers being forced out of business due
reduction plan is that no premium someone to blame, RMA has placed the to inadequate coverage levels or crop
discount will be paid. However, if the agent in the forefront of that with the insurance simply not being practicably
approved insurance provider can SRA, and if RMA removes the agent, available in their area. Commenters
qualify to pay a premium discount, RMA is directly in the line of fire. stated that as many farmers become less
section 508(e)(3) of the Act obligates Response: RMA has not suggested and protected due to inadequate coverage in
RMA to provide the opportunity. nothing in the interim rule or section ensuing years, there will be greater
Comment: Several agents and 508(e)(3) of the Act suggests that the support among farmers and their farm
interested parties commented that the crop insurance agent should be removed groups for disaster aid bailouts and less
lack of agents, less agency office staff, from his or her role in helping support for a strong national crop
and service centers will result in America’s farmers with their risk insurance program.
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41847
Response: Nothing in section and would not take an action that would premium reduction plan, be shifted to
508(e)(3) of the Act or in the interim result in a lack of agents, reduction in the farmer—tasks such as filing forms,
rule would force local crop insurance service, or farmers seeking other attending update meetings, reviewing
agents out of business, thereby causing approved insurance providers. policy changes, ensuring that reporting
farmers to make uninformed, poor Further, RMA agrees with deadlines are met, screening
decisions, suffer from a lack of claims commenters that there are farmers who information, and maintaining control
servicing, or be deprived of adequate rely heavily on the agent. These are the over the quality of insurance
local crop insurance products. The farmers that are likely to value service information.
commenter’s are apparently over the potential for a premium Further, the SRA and approved
extrapolating these conclusions from an discount and are likely to remain with procedures mandate certain services be
expectation that the proposed rule will their agent, even if the agent does not provided to farmers and approved
cause agents’ commissions to be cut so offer a premium discount. Therefore, all insurance providers and agents can be
deeply that local agents will abandon agents will be able to compete, either on sanctioned for failing to provide those
their businesses in significant numbers. service or with the potential for a services.
As stated above, it will not be in an premium discount and the market will Comment: Many agents and interested
approved insurance provider’s interest determine how it will meet the greatest parties commented that farmers are not
to devastate its own agent force, and the needs of farmers. ready to use the internet to get their
service that its agent force provides, just Comment: Many agents and interested service and they need the agent’s
to be able to offer a premium discount. parties commented that this plan is expertise. A commenter stated that
It is also not in the approved insurance placing additional burdens and work on farmers will have to do the work
provider’s best interests to take any the farmers. Farmers have trouble themselves or go to large brokers who
action that could result in its customers enough getting their paperwork filed on will not offer the kind of one on one
being driven out of business. time with an agent calling and advice the local agent gives to the
Approved insurance providers are explaining things to them. Commenters farmer now. A commenter stated that
also not likely to take any action that state that the average farmer does not having a computer and access to the
could result in an inability to service understand their crop insurance policy internet does not make a farmer a crop
policies as required by the SRA and as well as they should. Commenters insurance expert.
approved procedures. In addition, as state that with the premium reduction Response: As stated above, nothing in
stated above, the payment of any plan, farmers would be expected to the proposed or interim rule requires
premium discount will occur long after understand and file their own crop that a farmer use the internet to
the farmer’s policy has been serviced insurance forms and complete the purchase crop insurance, do the
and a claim paid. If the farmer is not necessary requirements and very few administrative work associated with
satisfied with such service or loss would be able to do this as needed and obtaining a policy, or abandon the
adjustment, the farmer is likely to move required by the policy. They state that services provided by a traditional agent.
on to another agent or approved farmers would not be willing to attend Approved insurance providers still have
insurance provider. Therefore, under meetings, updates, and review policy the incentive to ensure their customers
the interim rule, approved insurance changes from year to year and with are satisfied or risk losing their
providers have added incentives to paperwork not being completed as business, which affects the approved
ensure the proper service of farmers, necessary, many farmers could be left insurance provider’s profitability. In
which includes a skilled, out in the cold come claim time. addition, the level of service required by
knowledgeable agent force. Under the Commenters stated that farmers have the SRA and approved procedures must
premium reduction plan contained in come to rely on agents for assistance still be provided or the approved
the interim rule, there is no reason why with reporting deadlines, screening insurance provider or agent risks
the crop insurance program, approved information and quality control. A sanctions imposed by RMA.
insurance providers, agents, and farmers commenter stated that requiring farmers Comment: Several agents commented
will not continue to thrive. to do their own work could result in that if farmers do not have the small
Comment: An agent commented that increased fraud, waste, and abuse. A town agency that they have been using
the premium reduction plan will reduce commenter asked if farmers will be they will have to go to the larger
the availability of crop insurance to our required to obtain E&O insurance. agencies which are not always close to
rural farmers. The commenter claims Response: There is nothing in the where the farmers live. Any savings in
that many elder landowners rely on the proposed or interim rule that will premium could be eaten up in travel
agent’s expertise to enable them to increase burdens on farmers or require and long distance phone calls to service
properly choose coverage levels, meet them to do their own work. Approved their crop insurance.
RMA deadlines, and inform them of insurance providers have to evaluate Response: The commenters assume
new products. their business operation to determine that the premium reduction plan will
Response: There is no reason to where it can attain savings while still result in the elimination of the small
assume that crop insurance will not be maintaining its agent and customer base town agency. However, as stated above,
available to any farmer that wants it. As because the latter is where the approved this is not likely to be the case. The
stated above, the interim rule now insurance provider makes its profit. approved insurance providers have an
allows approved insurance providers to Approved insurance providers are also incentive to maintain their agent bases
select states in which it wants to not going to take actions that will result to ensure the required level of service is
participate in the premium reduction in farmers not understanding their provided and enable them to maximize
plan to avoid situations where approved coverage, missing deadlines, etc. It is in their profitability. Therefore, the agents
insurance providers may pull out of a the approved insurance provider’s best and approved insurance providers will
state to avoid having to provide a interest to keep their customers satisfied determine the fair commission to allow
premium discount in that state. Further, or risk losing their customers to a such agents to stay in business, provide
approved insurance providers have an competitor. Therefore it is unlikely that the required service, and, if possible,
incentive to maintain their customer the tasks currently being performed by allow the approved insurance provider
base in order to realize potential gains an agents would somehow, under the to achieve some savings.
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41848 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
Comment: An agent commented that Further, although premium discounts discounts is conditioned upon the
it has seen how the discount can help can be used to purchase additional existence of actual cost savings and the
farmers. The commenter states that coverage, there is no requirement that approved insurance provider’s
many farmers chose to use the discount they do so. The purpose of section compliance with the SRA, including
so that they could purchase additional 508(e)(3) of the Act is to allow farmers being in an acceptable financial
coverage, and many farmers have seen to benefit from price competition, which condition. Since approval of the
the ads talking about the discount and is what the interim rule does. payment of an amount of premium
purchased crop insurance for the first Comment: A farmer commented that discount will not occur until after the
time in many years. The commenter the premium reduction plan will result end of the reinsurance year, RMA
stated that the premium discount is not in farmers being left without coverage should be in a good position to ensure
going to be used by every farmer and service needed to protect their that the payment of a premium discount
because many farmers are happy with crops. will not jeopardize the financial
their current coverage and agents. Response: It is unclear from the condition of an approved insurance
However, there are many farmers who comment why the commenter would provider.
do like to use the discount plan. predict that farmers would be left Further, because the approval of the
Response: Under the proposed rule, without coverage as a result of the payment of premium discounts is based
premium discounts were likely to premium reduction plan. If the on actual cost savings and is made after
increase coverage levels because they commenter is concerned that agent the financial condition of the approved
resulted in a direct decrease in the commissions will be reduced to the insurance provider is known, there is no
amount of premium owed, which would point that there will no longer be agents need to add requirements to those
allow farmers to increase coverage and in the area to serve the farmers, as stated provided for in the SRA regarding the
pay the same amount as they would above, this is not likely to occur. The partnering of approved insurance
under the lower coverage level. It is not approved insurance provider has too providers with strong reinsurers and the
clear whether the interim rule will have much incentive to maintain its makeup and turnover of the
the same effect because farmers will not customers and agents to cut management teams. The requirements in
receive their premium discount until commissions to the point that either or the SRA should be sufficient to ensure
long after premiums have been paid. both may go to another approved the continued financial stability of the
While hope and the intent is that insurance provider. Further, approved approved insurance providers.
farmers would use the discount to insurance providers are required to With respect to loss adjusters, the loss
purchase additional coverage in future provide service to farmers as required adjustment process under the premium
years, farmers are free to use the by the SRA and approved procedures. reduction plan is no different than
discount in any manner they choose. Approved insurance providers are not under the current policies and approved
RMA agrees that not all farmers are going to risk sanctions under the SRA procedures. Therefore, there is no need
going to elect to insure with approved by taking actions which may result in a to impose additional requirements
insurance providers that participate in reduction in this required service. regarding the availability and location of
the premium reduction plan. This is loss adjusters. Further, market forces are
b. Administration and Verification
especially true under the alternative likely to play a significant role because
proposal adopted in the interim rule. Comment: An agent suggested that if farmers’ claims are delayed, they are
Some farmers will prefer to receive RMA only allow those approved likely to move to another approved
superior service over the premium insurance providers with strong insurance provider. Therefore, the
discount. This simply allows another financial positions and a strong suggested changes have not been made.
mechanism for competition, price and management teams to participate in the Comment: Several agents and
service, and the market will determine premium reduction plan. The interested parties suggested RMA
which farmers value most. commenter suggested an approved consider a premium modification plan
Comment: An agent commented that insurance provider allowed to pay a that is based on a farmer’s good
the premium reduction plan encourages premium discount should be in a strong experience or loss history. A commenter
farmers to go for quick and easy fixes financial position (EX: At least an A–A states that this will reward the top
rather than determining which true M Bests rating), not just partnered with farmers and give incentive for quality
‘‘risk management’’ solutions may best a strong reinsurer. The commenter also farming practices by all farmers. One
fit their operations, which can lead to suggested an approved insurance commenter stated it has a hard time
less information and less proper risk provider allowed to pay a premium believing a farmer deserves a discount
management. The commenter stated that discount should have an experienced and a loss check in the same year.
purchasing additional coverage with the management team with minimal Response: There is no rational basis to
discount is not always beneficial turnover of upper management and have condition the payment of the premium
because it may not be economical and trained adjustors in EVERY state in discount on whether the farmer was
farmers may actually receive a reduced which they write business. paid a loss in a crop year or their
disaster payment. Response: To participate in the experience. Under section 508(e)(3) of
Response: Under the alternative premium reduction plan under the the Act, approved insurance providers
proposal adopted in the interim rule, no interim rule, an approved insurance can pay premium discounts to their
premium discount is guaranteed up provider must first qualify financially farmers if they can prove that their
front. Therefore, farmers have no and operationally under the SRA. After actual A&O costs were less than their
incentive to go for quick and easy fixes. the insolvency issues regarding A&O subsidy. The loss history has no
Because the premium discount payment American Growers, RMA has bearing on whether such efficiency is
is based on actual costs and may never heightened its scrutiny of the approved attained for a particular reinsurance
be paid for a reinsurance year, it is insurance providers and has required year. Further, even though in years of
unlikely farmers’ behavior will change more detailed financial information. high losses where it may be difficult for
much and it is likely that they will Further, under the alternative proposal the approved insurance provider to
continue to seek the best risk adopted in the interim rule, RMA achieve the requisite savings because of
management tools for their operation. approval for payment of premium the increased loss adjustment expense,
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41849
there is no justification to punish expectations for agents selling for more result of the costs associated with
farmers because of the vagaries of than one approved insurance provider. interpreting, maintaining and
weather or other natural disasters. If the Response: RMA agrees with the implementing the regulatory
approved insurance provider attains an commenter that the proposed rule did requirements to administer the program
efficiency, it must be permitted to pay not address expectations for agents to the greatest extent possible. The
the premium discount to all its farmers. selling for more than one approved commenter states it prides itself on its
Therefore, the suggested changes have insurance provider. However, RMA compliance with these guidelines and
not been made. agrees that there may be legitimate feels a huge responsibility to provide
Comment: An agent commented that concerns that agents that write for more financial security to the farmers in the
if RMA still thinks it needs to offer a than one approved insurance provider States where it does business. Any type
premium reduction plan, then the will direct the large policies to the of approved premium reduction plan
premium discount should be the same approved insurance provider that is must be based on a strict and
no matter which approved insurance eligible for the opportunity to offer a enforceable process with the
provider or agent the farmer buys it premium discount and the small appropriate penalties in place to ensure
from and there would need to be less farmers to its other approved insurance the approved provider is not
regulation and paperwork involved in providers. Such a practice is unlikely to compromising service to the farmer.
order for an agent to make a living persist in the long run because those Response: RMA agrees that the
selling it. approved insurance providers that write premium reduction plan does not tell
Response: RMA has no choice with only small policies through an agent are approved insurance providers how to be
respect to whether it will make the apt to either require more equality in the able to deliver the program for less than
premium reduction plan available to distribution of policies from the agent or their A&O subsidy. It would be
approved insurance providers. Section sever their contractual relationship with impossible to do so since each approved
508(e)(3) of the Act provides approved the agent. However, to ensure that no insurance provider operates differently
insurance providers with the right to unfair discrimination occurs, the and is in the best position to determine
request to be able to pay premium interim rule now requires agents to whether efficiencies can be had in its
discounts and if an efficiency is inform their insured of all approved operation. RMA also agrees that the
attained, RMA can only limit the insurance providers they write for that premium reduction plan must be based
manner in which such payments are are eligible for the opportunity to offer on a strict enforceable process with
approved to be made. Further, RMA a premium discount. appropriate penalties. To accomplish
cannot require all approved insurance Comment: An interested party this goal, RMA adopted the alternative
providers pay the same amount of commented that it should remain a proposal because it would require the
premium discount. The payment of a concern for RMA that allowing access to approved insurance provider to prove
premium discount is conditioned upon approved insurance providers that own actual costs savings instead of relying
the approved insurance provider their own reinsurance company could on projections that might not be
attaining an efficiency and the amount compromise the program. realized. There are also provisions in
must correspond to the amount of such Response: RMA agrees that if the interim rule that require that
efficiency. Since the approved commercial reinsurance market determinations of A&O costs be based
insurance providers all have different transactions are not excluded from on Expense Exhibits that are provided
compositions of their books of business consideration when determining an with the Plan of Operations and audited
and operations, it is highly unlikely that efficiency, the A&O costs may not and certified by an independent
approved insurance providers will be reflect the actual cost to deliver the certified public accountant experienced
able to attain the same amount of program. Commercial reinsurance has in insurance accounting after the
savings in the same places. Therefore nothing to do with the delivery of the reinsurance year and before any
the suggested changes have not been crop insurance policy to the farmer. It premium discount can be approved.
made. is a tool for approved insurance Further, determinations of the premium
Comment: A few agents suggested that providers to be able to manage their risk discount that can be paid in the state are
if RMA must keep the premium and each approved insurance provider based on a formula that will be provided
reduction plan, keep it the way it was handles commercial reinsurance to the approved insurance provider
planned—through the internet differently. Therefore, the interim rule through procedures. The standard of
exclusively. considers A&O costs to include only service that will be used to determine
Response: There is no rational basis to compensation paid, loss adjustment whether there has been a reduction in
restrict the premium reduction plan to expenses, and other operating expenses service are those currently contained in
the use of the internet or any other reported on the Expense Exhibits the SRA and approved procedures.
specific cost efficiency. It is the provided with the Plan of Operations These and other provisions in the
approved insurance providers who are and has revised the definitions of ‘‘A&O interim rule create a strict and
to determine whether they can deliver costs,’’ ‘‘A&O subsidy,’’ and enforceable standard that can be applied
the program for less than the A&O ‘‘efficiency,’’ to clarify that any costs to all approved insurance providers. In
subsidy. They are in the best position to incurred or commissions earned from addition, RMA has added different
determine how to attain savings based commercial reinsurance are not sanctions, such as withdrawing
on their individual operations. It would included for purposes of the premium approval for all or part of the payment
be arbitrary and capricious for RMA to reduction plan. of a premium discount and
dictate the manner in which the Comment: An approved insurance disqualifying agents or approved
efficiencies must be attained, especially provider commented that the proposed insurance providers from participating
since such a requirement could penalize rule does not assist it in lowering its in the premium reduction plan, that
farmers who do not have access to the current administrative and operating allow it to better tailor the sanction to
internet. Therefore, the suggested expenses to a level that would qualify the offense.
change has not been made. it for a premium discount. The Comment: Several approved
Comment: A few agents expressed commenter stated the inefficiencies in insurance providers, loss adjusters and
concern that nothing in the rule defines the Federal crop program are a direct interested parties commented that if the
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41850 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
proposed rules are adopted in their analyzed the expense schedules of the approved insurance providers and the
entirety and, more importantly, approved insurance provider before and crop insurance program. As a result,
followed and evenly enforced for all after the application of cost efficiencies, RMA adopted the alternative proposal
signatories by RMA, it does not appear including state level information on that, as stated above, would allow the
that any of the current approved agent commissions. What RMA found in selection of states and state variability.
insurance providers would meet the examining these documents was that the For instance, the issue raised in some
eligibility criteria. A commenter stated cost efficiencies (cost reductions) applications that allowed its agents to
that reductions in the A&O subsidy rate proposed by the approved insurance carry both the premium reduction plan
will make it impossible to reduce provider were proportionately the same and non-premium reduction plan
expenses below the A&O subsidy paid for each state and, in total, were equal policies for the same approved
by RMA. A commenter stated that it is to the single percentage amount of insurance provider is addressed in the
even more difficult to envision an premium discount sought by the interim rule by requiring agents to
approved insurance provider being able approved insurance provider to be notify their policyholders and
to provide a premium discount based on offered in all states. Therefore, the applicants of the names of all approved
delivery cost efficiency because approved insurance provider complied insurance providers that are eligible for
implementation of the Combo Policy, a with the requirement in section the opportunity to offer a premium
new DAS, and CIMS will require 508(e)(3) of the Act that premium discount. Further, the concerns about
millions of dollars to be expended by discounts must correspond to cost the ability to allocate costs and provide
RMA and the approved insurance efficiencies. The fact that a comparison cost projections for savings have been
providers, and will cause a significant of the exhibits in this particular eliminated through the adoption of the
strain on staffing resources for both application so clearly demonstrated alternative proposal.
RMA and the approved insurance correspondency is the basis for RMA Comment: An interested party
providers for several years to come. categorizing the process as ‘‘easy.’’ The comments that RMA cites an example of
Response: Under the interim rule, it is same was not true for other applications a 3 percent across the board computing
unlikely that any approved insurance that RMA received. cost efficiency. The commenter states
provider would fail to be determined However, RMA has developed a that RMA states this would warrant a
eligible for the opportunity to offer a relatively simple means to allow for single discount across an entire book of
premium discount. However, it is true state variability through the approval of business. However, if the efficiency to
that not every approved insurance premium discounts for each state discount relationship is at the plan of
provider may attain sufficient savings to selected by the approved insurance insurance level, an approved insurance
enable them to receive approval to pay provider. It developed a formula that provider should first allocate computer
a premium discount. The purpose of could be applied based on the costs across plans of insurance. The
section 508(e)(3) of the Act is not to information already submitted by the commenter states that if it costs $50 in
guarantee that all approved insurance approved insurance provider on the computer costs per policy, but each
providers will qualify to pay a premium Expense Exhibits provided with the policy generates a different amount of
discount. Section 508(e)(3) simply gives Plan of Operations. This formula works premium, then the application of an
approved insurance providers the with all business operations and equal discount, say 1% will not
opportunity to compete on service and provides an easy means of allocating correspond to the efficiency at the plan
price and farmers the opportunity to costs. of insurance level. For example, policy
receive a benefit they may not otherwise Comment: An agent commented that A generates $1,000 in premium and
receive. Because the premium discount the rule does not address the issues and costs $50 in computing costs. Policy B
is no longer guaranteed up front, there problems raised by the diverse generates $500 in premium and costs
should be no harm to approved applications received by RMA. The $50 in computing costs. A 1% discount
insurance providers if they cannot pay commenter stated that it raised the same results in $10 in savings on policy A
premium discounts because the farmers issues in 2003 and that if the premium and $5 in savings on policy B. Yet the
should not have expectations regarding reduction plan continues it will lead to efficiency is the same dollar amount for
the guaranteed receipt of such the demise of the crop insurance both policies. Clearly the discount does
discounts. program and Congress having to not correspond to the efficiency in this
Comment: An agent questioned the authorize record breaking ad hoc case.
proof for RMA’s statement that ‘‘it was disaster relief. Response: The commenter is correct
also easy to determine whether the Response: While the proposed rule that the percentage may not be the same
reduction in premium from the sought to eliminate the problems and on a plan of insurance basis. However,
efficiencies corresponded to the states issues raised by the diverse applications nothing in section 508(e)(3) of the Act
from which they were derived.’’ received from approved insurance requires that the efficiencies and
Response: The commenter is referring providers by requiring the same corresponding premium discounts be
to the background section of the premium discount be provided in all determined on a plan of insurance level.
proposed rule dealing with RMA’s states in which the approved insurance It would be impossible to administer the
experience in approving the approved provider did business, RMA realized program at such a level because
insurance provider currently authorized that such a proposal did not meet the approved insurance providers do not
to offer a premium reduction plan. The business operations of all approved report their costs on a plan of insurance
full quote is: ‘‘It was also easy to insurance providers. From comments basis. RMA would never be able to
determine whether the reduction in and analysis provided to the proposed verify such costs, it could lead to
premium from the efficiencies rule, RMA realized that allowing manipulations of cost allocations in
corresponded to the states from which approved insurance providers to select order to achieve savings.
they were derived since the same the states where they want the As other commenters have pointed
efficiencies and same reductions opportunity to provide a premium out, to properly be able to administer
applied to all states in which the discount allowing variations in the premium reduction plan RMA needs
approved insurance provider wrote premium discounts between states were to develop a rule that is clear, strict and
business.’’ In other words, RMA important to the financial stability of the enforceable. Based on the comments,
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41851
RMA determined that the proposed rule Comment: An agent commented that Response: RMA agrees that the
did not meet these criteria because they it could be difficult to impossible for proposed rule required considerable
still may have required complex discounts to be ‘‘verifiable’’. For auditing skill to determine whether the
accounting rules and did not allow example, the 2003 plan allows a projected cost savings were reasonable,
sufficient flexibility for the different reduction for the farmer reporting via were actually achieved, and the cost
business operations of the approved the internet. The documentation allocations appropriate. The interim
insurance providers. However, RMA submitted pointed to a reduction in rule reduces this burden considerably.
believes the interim rule accomplishes approved insurance provider time in First, the efficiencies are determined
these goals. The criteria for cost gathering and entering this information. based on the actual costs reported on
allocation is relatively simple, based on However, there was no mention of the the Expense Exhibits provided in the
reported and verifiable information, cost to the farmers who were too busy Plan of Operations, which RMA staff is
contained in a formula that minimizes to report the information or the already familiar with. Second, the cost
the opportunities for the manipulation possibility of the farmer entering it information can be readily verified
of cost allocations, and it allows the incorrectly because they didn’t through the annual accounting
flexibility for approved insurance understand all the rules. The result is a statements approved insurance
providers to select the states in which cost to the farmer far greater than what providers are already required to file
it wants to participate in the premium is saved. The commenter stated that and the audit, certification and
reduction plan and allows variation in while many proposals can outline what verification of the actual costs as
the amount between states. they think will be the savings, the added reported in the Expense Exhibits. Lastly,
Comment: An interested party costs must also be considered (which in the cost allocations have been
commented that the current proposed many cases will be a net cost to the simplified and contained in a formula
rule does not provide for penalties or farmer!) that will be provided to approved
sanctions for a submitter that does not Response: RMA disagrees with the insurance providers in procedures.
achieve the projected savings. The rules comment that its ability to verify cost Based on these changes, the current skill
must provide for penalties for efficiencies would be difficult to and knowledge of RMA employees
misrepresentation of a provider’s ability impossible. First, the efficiencies are should be sufficient to administer the
to provide the premium reduction plan measured by whether the approved premium reduction plan.
according to the established criteria; i.e., insurance providers A&O costs are less However, RMA disagrees that the
reject any and all future premium than the A&O subsidy it receives from premium reduction plan will require
reduction plans, charge the amount of RMA. The cost to farmers because the extensive auditing to discover evidence
the premium discount as a policy farmer may have to do additional work of unfair discrimination. The interim
rule now contains provisions that put
surcharge in the following year, require is not considered unless this burden
approved insurance providers on notice
that amount as an additional expense in results in higher costs to the approved
that RMA may compare the composition
each of the next two reinsurance years, insurance provider as a result of having
of its book of business to other approved
etc. to make corrections or in legal expenses.
insurance providers in the state to
Response: Since RMA has adopted the Further, under the interim rule, the determine whether there are differences
alternative proposal in the interim rule, costs are easily verifiable because RMA that may warrant further investigation to
the concerns of the commenters are is using the actual costs contained in the determine whether unfair
moot because all premium discounts Expense Exhibits provided with the discrimination is occurring. This
will be based on the actual savings Plan of Operations to determine information is currently contained in
achieved by the approved insurance efficiencies. These Expense Exhibits are RMA’s databases and would require no
provider and the content of any verifiable through the statutory more sophisticated auditing than
information that can be provided to accounting statements and now require currently done by RMA when it runs
farmers regarding the certainty or that an independent certified certain queries for the purposes of its
amount of premium discounts to be accountant with insurance experience annual summary of business,
paid under the premium reduction plan audit and certify these Expense compliance reports, data mining, etc. In
is severely limited prior to actual results Exhibits. Increase in approved addition, provisions have been added
being available and RMA approving the insurance provider costs because of that allow consumer complaints to be
payment. This eliminates the need for farmer error would be reflected in these made to RMA. These complaints will
penalties for approved insurance actual costs. Further, if farmers are also be investigated.
providers that fail to pay premium required to do more work with an agent Comment: A few approved insurance
discounts unless the approved or approved insurance provider, he may providers and interested parties
insurance provider or its agents violates choose to move to another agent or commented that all costs should be
a requirement in the interim rule. In approved insurance provider that evaluated by a CPA or auditing firm at
such case, as stated above, RMA has provides the service he desires. the end of each crop year to assure
added significant sanctions that allow it Comment: Many agents, approved compliance with the established criteria
to better tailor the punishment to the insurance providers and loss adjusters for offering the premium reduction plan.
offense. commented that RMA is proposing a Response: The interim rule contains a
In addition, the market will likely plan that will require considerable provision that the Expense Exhibits
naturally sanction approved insurance auditing expertise. The auditing would provided with the Plan of Operations,
providers that do not pay premium primarily be in the area of approved which will be used to determine any
discounts. Farmers who insure with insurance provider expenses and policy efficiency, must be audited and certified
approved insurance providers that are issuing discrimination. The commenters by an independent certified public
eligible to offer a premium discount but ask if RMA can say, with confidence, accountant with experience in
who continuously fail to do so would be that they have sufficient resources to insurance accounting.
likely to move their business to an assure the American taxpayer that the Comment: An agent commented that
approved insurance provider that does premium reduction plan is being fairly the RMA plan includes audit expenses
pay the premium discount. administered. to monitor the program. The commenter
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41852 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
states that more auditing should be stated that if there were sufficient complete these reviews. Therefore, the
directed toward fraud and abuse by resources, the cost of those resources costs of regulation should not exceed
some farmers than the approved would far outweigh the minimal the benefits of premium discounts to
insurance provider’s expenses. benefits offered to farmers through the farmers and no special premium
Response: While RMA agrees with the proposed premium reduction plan rule. reduction plan office is needed.
commenter that fraud and abuse are A commenter stated that RMA has a Comment: Many approved insurance
worthy of considerable and increased responsibility to supervise the approved providers, interested parties and agents
attention, RMA has no choice but to insurance providers to determine commented that the proposed rule
implement the premium reduction plan whether they are operating in a should be shelved or there should be an
and ensure it complies with the financially sound manner without indefinite extension of the comment
requirements of the Act. Based on the reducing service to the farmer. A period. A commenter asked that RMA
nature of the premium reduction plan, commenter asked how RMA proposes to postpone adopting rules and approving
compliance requires that RMA be able monitor, control and advance the new premium reduction plans until it:
to verify expenses. By structuring the premium reduction plan. A commenter (1) Develops an adequate evidentiary
interim rule so that existing stated that the rule does not discuss record and makes available for public
documentation is used to determine RMA’s resource needs but that it is comment rules that address the adverse
efficiencies and verification, the burden likely RMA will need to establish a consequences that these programs may
imposed on RMA should be minimal premium reduction plan office. have on delivery service levels and on
and not affect its ability to discover and Response: Under the proposed rule, farmers; (2) establishes an enforcement
investigate fraud, waste, and abuse. the premium reduction plan demanded mechanism that protects farmers from
Comment: Several interested parties considerable resources to evaluate the unfair discrimination under the
and agents commented that the requests to participate in the premium premium reduction plans; and (3) can
proposed rules contain no mechanisms reduction plan. However, RMA has avoid adopting rules that include
to detect and prevent anti-consumer taken two significant steps to ensure reductions in agent compensation
practices, such as rebating and tying, that it has the resources needed to which would decrease the amount and
under the premium reduction plan. A perform these tasks effectively. First, is quality of services available to farmers
commenter states that creation of an the adoption of the alternative proposal. under the current crop insurance
enforcement office would be necessary Since the premium discount is based on delivery system.
to monitor anti-consumer practices and actual costs, there is no longer a need Response: Based on the changes to the
address farmer complaints. Commenters for RMA to have the resources and proposed rule discussed above, there is
state that RMA does not have the expertise to conduct extensive audits to no need to extend the rulemaking at this
resources to police these practices. verify both forecast expenses under the time. However, as stated above, RMA
Response: RMA agrees with the requests to participate in the premium has elected to publish this rule as an
commenters that market conduct issues reduction plan and actual expenses and interim rule to allow for additional
under the premium reduction plan are efficiency savings after the reinsurance comments after the premium discount
a significant concern. However, RMA year. Under the interim rule, RMA plan is implemented. Further, the
disagrees with the comment that the would only have to evaluate the interim rule clarifies the requirements
creation of an enforcement office is approved insurance provider’s regarding the service of farmers and
necessary to monitor such conduct marketing plan. Determinations of believes that the current sanctions in the
under the premium reduction plan. The financial condition would be included SRA and those included in the interim
premium reduction plan should have no in the evaluation of the approved rule should provide sufficient deterrent
effect on whether such rebating or tying insurance provider’s Plan of Operations. to the possibility of a reduction in
occurs and RMA is currently monitoring Further, since approval of the payment service below that required in the SRA
such conduct today. Further, conduct of a premium discount and the amount and approved procedures. In addition,
such as tying is also regulated by the allowed are based on actual cost savings the alleged reduction in service is
states, which have well-established and after losses have been paid, RMA is purported to be a consequence of severe
structure for detecting and preventing in a much better position to evaluate the reductions in agent commission, and as
tying. Moreover, RMA is fostering closer financial impact of paying such stated above, the adoption of the
ties to the states through recently signed discounts on approved insurance alternative proposal and market forces
Memoranda of Understanding that will providers. make this less likely.
expand information sharing between the The second step is that RMA has With respect to the enforcement
states and RMA. These measures should structured the interim rule so existing mechanism that protects farmers against
result in synergies between state and documentation, such as Expense unfair discrimination, the interim rule
federal regulators that will strengthen Exhibits provided with the Plan of contains provisions that allow RMA to
market conduct enforcement, not only Operations under the SRA, are used. compare books of business to determine
for the premium reduction plan but for The result is that much of the evaluation whether such discrimination is
the entire crop insurance program. In and monitoring under the interim rule occurring, places the burden on
addition, RMA has added provisions would be the same as is required for any approved insurance providers to target
that allow consumer complaints to be approved insurance provider under the marketing to all farmers in a state,
made directly to RMA and would SRA, including the determinations of including small, limited resource,
include market conduct complaints. financial solvency. In addition, RMA women and minority farmers, and
Comment: Many interested parties has established a formula that can be contains sanctions that would be a
and agents commented that there are applied to each approved insurance deterrent to discriminatory practices,
insufficient resources and expertise to provider’s operation to allow it to such as withdrawal of eligibility if the
timely and properly evaluate the calculate the efficiencies in each state so approved insurance provider unfairly
proposed premium reduction plan it can determine the amount of premium discriminates, the denial of all or part of
submissions, regulate the process, and discount. Since little additional work is the premium discounts if an approved
monitor the program to ensure adequate required, RMA should not require insurance provider or its agents unfairly
service and prevent abuses. Commenters significant additional resources to discriminates and disqualifying the
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41853
approved insurance provider or agent Exhibits 10m and 10n to allocate certain RMA resources needed to regulate the
from participating in the premium costs to the state so that it can determine premium reduction plan. It does not
reduction plan. the maximum premium discount that represent such an estimate. Further, as
With respect to the concern that agent can be offered in the state. The formula stated above, much of the information
commission will decrease to the point will be provided to the approved collections have been revised
that there will be a reduction in service, insurance providers in procedures. The significantly in the interim rule so the
as stated above, there are many market use of these Expense Exhibits and the paperwork burden hours for approved
forces and regulatory sanctions that procedural formula should greatly insurance providers has been
make this unlikely. One is that simplify the process. significantly reduced. In addition, as
approved insurance providers have the Comment: Several approved stated above, the burden on RMA to
incentive to retain agents and farmers to insurance providers, interested parties determine eligibility for the opportunity
maximize their capacity for and agents suggested that an to offer a premium discount and
underwriting gains. Another is that independent CPA or auditing firm approval of the payment of an amount
approved insurance providers could risk should be retained to provide of premium discount should also be
significant sanctions under the SRA if comprehensive and objective evaluation significantly reduced.
they reduce service below that required of premium reduction plans that are Comment: Several approved
in the SRA and approved procedures. submitted to assure that such plans insurance providers and interested
Agents are also likely to move their meet or exceed the requirements parties commented that regardless of the
book of business if the reductions in outlined in the regulations. A mechanism adopted by RMA to
commission are too severe. No changes commenter stated the auditor must administer the submission and approval
have been made in response to this know and understand how the costs of premium reduction plans, it will be
comment. have been allocated and if the the adequacy and sufficiency of the
Comment: An approved insurance allocations are complete, reasonable and RMA supervision that will determine
provider commented that the proposal accurate. the success or failure of the premium
suggests that costs are to be determined Response: Adoption of the alternative reduction plan. A commenter questions
on a reinsurance year basis but will use proposal eliminates much of the whether RMA is equipped to oversee
SRA Expense Exhibits, which are on a accounting burden associated with the the delivery of the premium reduction
calendar year basis. The commenter proposed rule, specifically the burden to plan by the seventeen approved
claimed there will be allocation, verify cost projections. However, RMA insurance providers, due to apparent
monitoring and audit issues because agrees that the actual costs should be deficiencies in accounting and fiscal
such costs will have to be converted to audited and certified by the expertise, as well as the lack of financial
a reinsurance year basis. The independent certified public accountant and personnel resources. Furthermore,
commenter stated this will be further and that such person be experienced in budgetary constraints already are having
complicated because certain costs may insurance accounting so that they can an adverse effect on RMA’s information
have to be allocated between several understand the information contained technology capabilities and RMA’s data-
different lines of insurance. The in the Expense Exhibits to determine mining initiative may be in jeopardy. A
commenter stated it is unlikely RMA’s whether such information is complete, commenter asked that if RMA does not
goal that efficiencies be easily verifiable accurate and complies with the SRA. have the financial resources to
is attainable. This requirement has been included in accomplish its existing obligations, how
Response: In Appendix II of the SRA the interim rule. However, RMA RMA proposes to regulate the respective
that is effective for the 2005 and future believes that its staff is qualified to premium reduction plans of seventeen
reinsurance years, several expense review other aspects of the request to approved insurance providers. A
exhibits are required. Exhibit 18B is a participate in the premium reduction commenter stated that this oversight
calendar year accounting of expenses plan and approval to pay a premium function will have to be developed at a
that can be reconciled to the Annual discount. time when RMA faces a significant loss
Statutory Accounting Statements Comment: An agent commented that of staffing due to pending retirements
required by state regulators. However, according to the Federal Register within all program areas of RMA and
Exhibits 10m, 10n, and 10o show agent information, the estimated total public the premium reduction plan will put
commission expenses by state, loss burden is 7,560 hours annually. The additional strain on RMA’s ability to
adjustment expenses by state, and total commenter asked that if the fully manage the program while
expense by category, respectively, for Administrator is requesting an increase simultaneously ensuring compliance.
the prior reinsurance years, the current in staff years by 17 to meet the current Response: Although the commenters
reinsurance year, and the forecast for workload, how many additional staff do not specifically define what success
the coming reinsurance year. These years will be required for the premium or failure of the premium reduction plan
exhibits can be reconciled with those for reduction plans and what will the might be, RMA would generally agree
the calendar year guidance that has been additional cost be. that RMA must adequately regulate the
provided to the approved insurance Response: This comment is referring premium reduction plan if it is to not
providers. Further, the interim rule to the paperwork burden estimated by adversely impact the crop insurance
requires that these Expense Exhibits be RMA, as required under the Paperwork marketplace or policyholder service.
audited and certified by a certified Reduction Act. It was an estimate of the RMA also agrees that under the
public accountant experienced in total amount of time spent annually by proposed rule, the premium reduction
insurance to verify the reported costs all potential approved insurance plan supervision would have required
and compliance with the requirements providers to read, understand, develop, considerable personnel resources,
of the SRA. prepare, and submit a revised Plan of financial resources, and expertise.
Since premium discounts will be Operations under the SRA that would However, as stated above, with the
based on the actual costs and the qualify for the premium reduction plan adoption of the alternative proposal, the
savings attained in a specific under the proposed rule. The oversight, accounting and auditing
reinsurance year, RMA has developed a commenter appears to mistakenly burden on RMA is significantly reduced
formula that allows it to use Expense assume that it reflects an estimate of to not much more than would be
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41854 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
required when approving the Plan of policy-related variables, as opposed to Comment: An interested party
Operations and oversight of the SRA. one that merely is easily verifiable, commented that the proposed rule has
Use of a procedural formula to burdens the approved insurance some standards but they are not
determine the amount of premium providers with RMA’s shortcomings. adequate enough to protect the delivery
discounts also simplifies the process. The commenter states that adequate system.
Further, RMA’s monitoring of the means oversight and the availability of Response: RMA agrees that the
used to accomplish the savings is resources, not the dumbing-down of proposed rule may not have contained
limited to the assurances that there is no proposed plans, will ensure the proper sufficient standards to implement and
reduction in service. RMA has also regulation of premium reduction plan. regulate the premium reduction plan.
enlisted the states in monitoring market RMA deludes itself if it believes that an However, adoption of the alternative
conduct. Consequently, RMA is easy or simple plan will not spawn proposal removes the need for many
confident that it has the resources and program abuse. standards because the premium
expertise to adequately regulate the Response: RMA disagrees with the discount will be based on actual cost
premium reduction plan. commenter’s premise that RMA wanted savings, not projected. This means the
Comment: An interested party asked simplicity simply because it lacked the only standard that is necessary is how
how RMA plans to exercise oversight to resources to adequately review, to determine whether there has been an
ensure that premium discounts are implement or monitor the premium efficiency and the amount of premium
commensurate with savings. The reduction plans that contained state, discount that can be paid in each state.
commenter wants to know at what level crop or policy variability. On the For the former, RMA will be reviewing
does the efficiency rule apply and how contrary, in considering premium the Expense Exhibits provided with the
does RMA plan on enforcing this rule, reduction plan submissions and Plan of Operations. Since the manner in
given that approved insurance providers developing the interim rule, RMA which such Expense Exhibits are to be
write insurance in different states. discovered through its analytical prepared has already been provided, no
Response: Although State variation expertise and resources that more new additional standards are required.
was not permitted under the proposed complex plans had the general tendency As stated above, in determining the
rule, as stated above, RMA has amount of premium discount, RMA has
of providing increased opportunities for
reconsidered this program feature based developed a formula that will be
unfair discrimination and abuse of the
on public comments. The interim rule provided to approved insurance
premium reduction plan. In keeping the
now allows for variation of premium providers through procedures. Because
premium reduction plan relatively
discounts by state to the extent that the formula uses only information
simple, therefore, RMA was led by a
such discounts correspond to contained on these Expense Exhibits,
desire to avoid abuse under the
documented cost efficiencies for each additional standards are not required.
premium reduction plan, not by a fear
state. With the adoption of the With respect to other standards, the
of complexity.
alternative proposal, state level costs interim rule contains provisions
can be documented and verified at the From its evaluation of public regarding the ability to compare the
end of the reinsurance year through the comments, RMA acknowledges that the composition of approved insurance
use of state level expense reports that proposed rule did not adequately meet providers’ books of business to
approved insurance providers already this goal. This is one of the reasons it determine whether there is an
prepare for their annual Plan of adopted the alternative proposal in the indication of unfair discrimination that
Operations and by using relative simple interim rule. RMA also realized that a may warrant further investigations.
procedures to allocate remaining costs one-size fits all approach would not be There are also explicit limitations on
by state. Further, as stated above, RMA fair to approved insurance providers advertising and the meaning of
has developed a formula to allow it to with different business operations. reduction in service has been clarified
determine the maximum amount of Under the alternative proposal, to incorporate the requirements that
premium discount that can be paid in approved insurance providers can now currently exist in the SRA and approved
each state, which will be provided in tailor their premium discounts to better procedures. Therefore, RMA believes
approved procedures. Therefore, it meet their business operations. While that the interim rule contains sufficient
should be relatively simple to determine there may be a single formula used to standards to allow it and the approved
whether the premium discounts calculate the amount of premium insurance providers to implement the
correspond to the efficiencies attained discount that can be paid in a state, this premium reduction plan.
in the state. However, because costs are formula is flexible enough to encompass Comment: An interested party
not reported below the state level, it a broad range of different business commented that approved insurance
would be impossible for RMA to track operations. It allows approved providers can achieve cost reductions in
efficiencies below this level without the insurance providers to select states in a variety of ways, such as training costs,
development of complex cost which they want the opportunity to etc. The proposed rules are not specific
accounting rules, which other offer premium discounts. It also allows enough as to how and where the savings
commenters have asked RMA to avoid. for variability in the amount of premium will come from.
Comment: An approved insurance discount between states. Variability Response: Since each approved
provider commented that the proposed between crops and policies is still insurance provider’s business operation
rule suggests that RMA puts undue precluded because of concerns is different, it would be impractical and
emphasis on simplicity. In doing so, regarding unfair discrimination. undesirable for RMA to dictate how and
RMA inadvertently acknowledges that it Further, because premium discounts where the savings must come from. This
has neither the accounting expertise to are based on actual cost savings must be determined by the approved
evaluate proposed plans nor the determined from information that is insurance provider. However, RMA has
resources to monitor their already submitted to RMA and verified made it very clear that cost savings
implementation. The commenter states with statutory accounting statements, an cannot come from non-compliance with
that penalizing an approved insurance approved insurance provider’s requirements of the SRA or approved
provider for proposing a plan that opportunity to manipulate or hide costs procedures or the approved insurance
accounts for the many state-, crop- and is drastically reduced. provider will be subject to the sanctions
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41855
contained in the SRA or the interim rule insurance and market segments. This costs reported as A&O costs with the
as applicable. This would include the will increase the cost of auditing as the amount of A&O subsidy received and to
requirements regarding service, training, approved insurance providers will allocate costs across states.
loss adjustment, etc. This means it is understand their individual accounting Comment: Many agents, approved
solely the responsibility of the approved system better than RMA. A commenter insurance providers, loss adjusters, and
insurance provider to decide whether it is concerned that RMA is not looking at interested parties commented that RMA
can attain cost savings while still all costs that an approved insurance requires a certain level of service for the
complying with all requirements of the provider incurs and all allocations are insureds. The commenters ask if RMA
SRA, approved procedures and this not being reviewed to determine that will require these standards for the
interim rule. they are adequate for an approved premium reduction plan and how will
Comment: An agent commented that insurance provider. Commenters state it this be audited. Commenters also ask if
while the proposed rule would will be virtually impossible to RMA has developed service standards
authorize RMA oversight of the program accurately determine and verify the cost for the premium reduction plan program
there are no standards of measurement reductions and make appropriate and how RMA will audit to determine
for compliance in the proposed rule. comparisons between approved that the service provided under the
The commenter stated that this would insurance providers. A commenter premium reduction plan meets those
leave open the opportunity for abuse, as stated that there needs to be consistent standards. Commenters also asked if
the judgment for what constitutes a expense accounting with respect to RMA can guarantee agents and insureds
violation would now be very subjective. executive compensation, benefits, legal that the premium reduction plan is the
Response: RMA agrees that there were fees, and litigation expenses. A way of the future and that quality and
insufficient standards in the proposed commenter stated that there has to be service will not be jeopardized. A
rule, especially concerning service and uniformity with each approved commenter asked what RMA’s plan of
unfair discrimination. This issue has insurance provider and that premium action is if those standards are not met
been evaluated in the light of public reduction plan approved insurance and will more tax payer money be
comments received and addressed in providers must be subject to the same wasted trying to correct the situation.
the interim rule. As stated above, the financial and competency evaluations as Response: With respect to questions
interim rule makes it very clear that regular approved insurance providers. of the commenters regarding the service
approved insurance providers must Response: RMA agrees that cost and standard and the premium reduction
comply with all requirements of the expense accounting procedures vary by plan, any approved insurance provider
SRA and approved procedures regarding approved insurance provider and that wanting to participate in the premium
the level of service that must be consistent principles must be applied to reduction plan must meet all
provided. Further, specific standards all approved insurance providers requirements of the SRA and approved
have been set forth regarding allowable participating in the premium reduction procedures with respect to service. This
marketing of premium discounts. The plan. To accomplish this goal, RMA will is the same requirement for approved
use of Expense Exhibits to determine use the Expense Exhibits provided by insurance providers that elect to
whether there is an efficiency and the the approved insurance providers with participate in the premium reduction
amount of any premium discount also their Plans of Operations. These plan and those that do not. Since this is
sets a very clear standard. Providing a Expense Exhibits are required to be a requirement of the current SRA, RMA
formula to determine the amount of audited and certified as to their already has the infrastructure in place to
premium discount also sets a very clear completeness, accuracy and compliance audit these service requirements and
standard. In addition, the ability to with the SRA. Therefore, all costs to other SRA requirements through
compare the approved insurance deliver the Federal crop insurance periodic approved insurance provider
providers’ books of business to program should be included. Further, reviews. In addition, the interim rule
determine whether there is any RMA has already provided instructions also contains a mechanism to allow
indication of unfair discrimination also as to how they should be prepared and farmers to report to RMA if they believe
sets a standard. These standards remove there are statutory accounting they have received a reduction in
the subjectivity and permit all approved statements that have specific accounting service. If service requirements are not
insurance providers to be treated the rules for their preparation that can be met by any approved insurance
same. used for verification of costs. Failure to provider, then the SRA provides RMA
Comment: Several approved comply with one of these requirements with a range of actions it can take
insurance providers, agents and would not only jeopardize an approved against an approved insurance provider,
interested parties expressed concern insurance provider from participating in up to and including the withdrawal of
over the cost and expense accounting. A the premium reduction plan, it would authority to participate in the crop
commenter stated that it concurred with jeopardize its ability to participate in insurance program. The action that
a quote from a member of Congress to the crop insurance program. In addition, RMA would take would depend on the
RMA stating that premium reduction RMA has devised a formula that will severity of the violation.
plans are fraught with risk to the allocate costs in a consistent manner for RMA cannot speculate, much less
stability of the crop insurance program all approved insurance providers for the guarantee, as to whether the premium
and that it is opposed to the program. purposes of determining the amount of reduction plan is the way of the future.
A commenter asked that since each any premium discount in a state. This is up to Congress and whether
approved insurance provider has its Comment: An agent asked who was farmers and approved insurance
own method of operation, how RMA going to determine the efficiency. providers embrace the concept.
will develop a set of accounting Response: As stated above, RMA will However, as long as section 508(e)(3) of
standards which will show the actual determine whether there has been an the Act remains effective, the premium
costs to deliver the program. A efficiency for the reinsurance year based reduction plan will also be in effect.
commenter stated that most of these on the actual costs reported on the Comment: An agent asked how RMA
costs will be allocated, which creates Expense Exhibits provided with the will monitor qualification for the
the possibility to shift costs between Plan of Operations. It will be relatively premium reduction plan. The
states, coverages, crops, plans of simple to compare a total of all of the commenter claims the industry does not
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41856 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
need the negative results of approved life saving and retirement nest eggs and reinsurance year and the payment or
insurance providers in financial their very livelihood. The commenter amount is not guaranteed, many of the
disarray, especially when it gets to that asks why the crop insurance field concerns raised have been rendered
place with the blessing of RMA. should be any different. moot.
Response: Under the alternative Response: While this comment is not Comment: An interested party
proposal, participation in the premium directly applicable to the proposed rule, commented that there were no formal
reduction plan should not adversely because the same requirements rules governing the marketing and
affect the financial stability of approved applicable under the SRA apply to the distribution of the premium reduction
insurance providers because premium premium reduction plan, it is relevant. plan and the appropriate procedures
discounts are based on actual cost A crop insurance agent is subject to the were the only way to ensure the fair
savings, not projected. Further, because licensing, reporting, and educational delivery of crop insurance to all farmers
the premium discount is no longer requirements of the state or states in regardless of size or resources.
guaranteed in advance of a given year, which he or she operates. RMA agrees Response: The interim rule now
approved insurance providers are in a that some of these requirements vary contains specific requirements regarding
better position to evaluate their widely between states. However, with the marketing and distribution of
financial condition to determine respect to crop insurance, all agents are premium discounts. These requirements
whether they are in any position to take subject to the training requirements include limitations on advertising, and
cost saving measures and whether a contained in the SRA and if RMA marketing plans that use appropriate
premium discount should be paid. determines an agent is not competent to media to ensure that all farmers are
Lastly, RMA has added financial properly sell and service crop made aware that the approved insurance
reporting requirements to the SRA and insurance, it can suspend or debar such provider has been determined eligible
has enhanced financial analysis and agent. RMA agrees that standardizing for the opportunity to offer a premium
monitoring of approved insurance state licensing and competency discount. Further, there are
providers that allow it to be a better requirements would be preferable and requirements regarding the distribution
gauge the financial position of approved has recently begun working with the of premium discounts payment
insurance providers. Based on this states toward this goal. including the preclusion against placing
knowledge, the interim rule allows Comment: An approved insurance conditions upon such payment like
RMA to deny the payment of a premium provider commented that the first requiring renewal of the policy or
discount if it believes it will adversely principle of requiring documentation to having no loss for the crop year.
affect the financial stability of an demonstrate ability to operate within Further, premium discounts in a state
approved insurance provider. expense reimbursement and to reduce must be provided for all crops, coverage
Comment: An interested party costs below the expense reimbursement levels and plans of insurance. In
commented that all approved insurance received from RMA is related to the addition, all farmers in the state insured
providers should be expected to second principle of requiring that with the approved insurance provider
conform to all guidelines regarding claimed efficiencies be easily verifiable paying the premium discount must
marketing, adjusting, compliance and by RMA. Section 508(e)(3) of the Act receive the discount and in the same
reinsurance. This is the only way an requires premium discounts to be based percentage of net book premium.
agent or farmer can be guaranteed the on real efficiencies that reduce an Comment: An interested party
‘‘Service’’ FCIC is supposedly protecting approved insurance provider’s costs commented that there are no controls in
and supervising. below the RMA’s expense place to regulate false advertising or
Response: RMA agrees that all reimbursement and that can be passed manipulation. This could result in
approved insurance providers are through to farmers. The commenter inadequate or improper coverage, and
required to conform to all approved stated that allowing price reductions jeopardize a total farming operation.
procedures regarding marketing, that cannot be documented or that Response: RMA has added provisions
adjusting, compliance, and reinsurance. exceed objectively demonstrable to address these concerns. The interim
The interim rule reinforces this efficiencies likely will invite unfair rule now expressly contains provisions
requirement for approved insurance competition by approved insurance regarding advertising and contains
providers that participate in the providers seeking to undercut their limitations on the content of such
premium reduction plan. competition with discounts that cannot advertising. The interim rule also
Comment: An agent commented that be matched through savings. The contains provisions allowing consumer
RMA should have some type of commenter states that this abuse could complaints regarding false advertising to
competency requirement for anyone threaten the approved insurance be made directly to RMA. In addition,
involved in the business. The provider’s solvency and also give rise to the interim rule allows RMA to take
commenter stated that for those who are market disruption by directing farmers action against an approved insurance
only writing the coverage because it was away from the more reputable provider if the state determines that
easy to just make sure the client files his providers. there has been false advertising.
acreage reports every year so he can get Response: RMA agrees and shares the Comment: An approved insurance
on with selling life policies and expressed concerns regarding the provider commented that there must be
promoting investment products, it may verification of cost efficiencies and the better guidelines as to the extent of
not be so easy anymore. The commenter possibility for approved insurance oversight and regulation by RMA.
stated that in the investment field, there providers to promise premium Response: As stated more fully above,
are strict rules that dictate what and discounts that cannot be supported by RMA has revised the rule to include
what not a broker or agent can sell as actual savings. RMA elected to adopt better standards regarding the
well as regulations trying to certify their the alternative proposal because of some requirements of the program and the
competency to do any thing. These rules of the very concerns raised by this oversight of RMA, including those
and policies are in effect to protect the commenter. Under the alternative related to advertising, service, unfair
consumer/client against unscrupulous proposal, because all premium discrimination, whether small, limited
individuals but most specifically to try discounts are based on actual cost resource, women or minority farmers
and help protect their investments, their savings determined at the end of the are not being given access to premium
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41857
discounts, calculating premium done through data mining, the amount insurance provider saying that it is easy
discounts, etc. of resources to monitor this issue should to see if workplace discrimination is
Comment: Many agents, loss not be great. Further, RMA currently has occurring because it is against the law.
adjusters, approved insurance providers staff that is experienced in conducting Just because it is outlawed doesn’t mean
and interested parties commented that such investigations regarding that practices are going to be
the proposed rule does not include an discrimination. transparent, yet RMA is making that
enforcement mechanism that would Comment: An interested party prediction here. RMA is making a broad
prevent insurers from engaging in unfair suggested more extensive reporting on generalization assuming that since
discrimination by selecting only agents marketing would need to be done to discriminatory practices are not
who primarily service large, low risk prevent cherry-picking, which may allowed, then either no one will do so
farmers to deliver their products. The make the program prohibitively or it will be easy to detect. Commenters
commenters stated that RMA currently expensive to administer for RMA and state that this is impossible without an
does not have the resources necessary to the approved insurance providers. enforcement mechanism.
effectively police unfair discrimination Response: Competition for attractive Response: In the proposed and
against these farmers. Other commenters accounts is not prohibited by the SRA interim rules, unfair discrimination is
ask how RMA will police the unfair or RMA procedures, but unfair defined as denying a farmer a premium
discrimination of approved insurance discrimination is. There is no need for discount because of size, loss history,
providers only selecting agents who extensive reporting on marketing to etc. Therefore, RMA was correct when
primarily service large, low risk farmers. police unfair discrimination. The 2005 it said that unfair discrimination would
They also asked whether RMA has the SRA requires certain information be easy to detect because RMA could
resources to effectively police the unfair regarding the minority status of farmers examine the approved insurance
discrimination against these farmers. A be collected and, reported and, as stated provider’s book of business to determine
commenter suggests that necessary above, RMA may elect to compare the whether there was evidence of farmers
cooperative oversight between FCIC/ compositions of the approved insurance systematically being denied a premium
RMA and the state Departments of providers’ books of business to discount. However, as stated above,
Insurance (DOIs) is imperative. determine whether there are any RMA is also concerned that all farmers
Response: As defined in the proposed indications that small, limited resource, have access to premium discounts. This
rule, unfair discrimination occurs when women or minority farmers are not is not as easy to detect but, as stated
an approved insurance provider refuses being given access to premium above, RMA has added provisions that
to provide a premium discount to any discounts. This can be accomplished would allow it to analyze the
farmer because of the size of the through analysis of the existing compositions of the approved insurance
operation or premium, loss history, etc. information contained RMA’s databases. providers’ books of business to
However, RMA also recognizes that Therefore, the identification and determine whether there are any
there is a risk that approved insurance prevention of unfair discrimination indications that small, limited resource,
providers would select only agents that should not be cost prohibitive to RMA women or minority farmers are not be
service, large low risk farmers, which or the approved insurance providers. given access to premium discounts.
happens regardless of whether the Further, as explained above, the interim Along with the establishment of a
approved insurance provider rule provides a mechanism for consumer complaint process and
participates in the premium reduction policyholders and others to file direct standards included in the interim rule,
plan. To ensure equal access to the consumer complaints to RMA. this enforcement mechanism will allow
premium discount, RMA requires that Comment: Many agents and interested RMA to ensure that all farmers have
approved insurance providers parties opposed implementation of the access to premium discounts and apply
specifically market their participation in proposed rules until FCIC more appropriate sanctions to approved
the premium reduction plan to small, effectively addresses the unfair insurance providers that do not comply.
limited resource, women and minority discrimination concerns and RMA Comment: Several agents and loss
farmers through the appropriate media establishes a special enforcement office adjusters commented that RMA does not
designed to reach such farmers. This to address the issues that premium currently have the assets to investigate
marketing must be in addition to any reduction plans raise for farmers. more than a small percentage of alleged
solicitation done by the agent. Failure to Response: There is no need to create fraud and abuse instances let alone
comply with the marketing plan could a special enforcement office. As stated respond to greatly increased
subject the approved insurance provider above, the interim rule now provides requirements of policing provider
to significant sanctions. RMA with the ability to effectively discrimination in selection of agents
To enforce this requirement to market monitor and address any issues and locales, and ensuring that there is
to small, limited resource, women and regarding unfair discrimination or no discrimination against minorities
minority farmers, RMA will review the whether small, limited resource, women and smaller, high risk farmers. A
marketing plan and may compare the or minority farmers are not being given commenter stated that the primary focus
compositions of the approved insurance access to premium discounts. In of RMA should be in protecting program
providers’ books of business to addition, RMA already has a Civil integrity. A commenter stated that RMA
determine whether there is a need for Rights office that is experienced in must be concerned that someone is
further investigation. In addition, investigating such complaints. going to commit fraud, waste or abuse
provisions regarding consumer Comment: Many agents and interested of the premium reduction plan program.
complaints have been added that would parties commented that RMA states ‘‘it Response: RMA does not accept the
permit any farmer that thought it was was easy to determine if practices were apparent implication of the
excluded from receiving a premium unfairly discriminatory because the commenter’s assumption that RMA does
discount to complain directly to RMA. approved insurance provider was not have the resources to properly deal
Since the preliminary steps to identify required to offer the discount to all with fraud, waste, and abuse. RMA
whether small, limited resource, women producers who wanted it.’’ Commenters investigates all allegations of fraud,
or minority farmers are not being given states that this is a very bold statement waste, and abuse. The commenter may
access to premium discounts can be to make, similar to an approved be referring to the large number of data
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41858 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
mining results that show anomalies in requirements will be imposed on those methods. The interim rule makes it clear
the program. The commenter is correct approved insurance providers that that approved insurance providers must
that RMA would not be able to choose to participate in the premium continue to comply with these training
investigate all anomalies indicated by reduction plan under the interim rule. requirements. The SRA identifies
data mining. However, RMA has refined However, as stated above, the provisions specific actions RMA can take if an
the ability to determine when such in the interim rule will significantly approved insurance provider fails to
anomalies are likely indicators of fraud, reduce the burden over the meet these training requirements.
waste, or abuse and it investigates these requirements contained in the current Further, if the approved insurance
cases. procedures and the proposed rule. One provider participates in the premium
Further, there is no basis to assume means to accomplish this is to utilize reduction plan, sanctions authorized
that RMA does not have resources to information already provided to RMA, under the interim rule can also be
properly enforce discrimination such as Expense Exhibits and applied.
provisions under the premium policyholder information, to determine With respect to the question asked by
reduction plan. As explained above, whether efficiencies are attained, the the commenter on the sufficiency of one
there is a difference between amount of premium discount and training session at one location, RMA
discrimination and selecting only agents whether all farmers are being provided does not have the context in which the
that have large, low risk farmers in their access to the premium discount. commenter asks the question and does
books of business. With respect to Another means is the formula to not wish to speculate on what the
discrimination, RMA has the resources determine the amount of premium context might be. If all the training
and ability to enforce all discrimination discount, which will standardize cost requirements in the SRA can be
provisions of the crop insurance allocations and calculations across all accomplished in one training session,
program, including those included in approved insurance providers. Further, RMA could not preclude this action.
the interim rule. With respect to the the requirements contained in the SRA Comment: Several interested parties
selection of agents, RMA has included will continue to apply to the premium and approved insurance providers
provisions in the interim rule that reduction plan, such as those relating to commented that RMA must closely
would allow it to determine whether service, training and loss adjustment. monitor the program, including making
approved insurance providers have This allows for consistent monitoring sure such plans include a complete
taken such action and to require that and the ability to use existing resources. training program for agents who offer
approved insurance providers take Comment: A few agents and the premium reduction plan to farmers
remedial corrective measures. Much of interested parties questioned whether that is similar to current training
the work would be done through data having one training session at one requirements for all agents.
mining and responding to consumer location meets the qualifications of ’’ Response: As explained above,
complaints, both of which can be * * * training and oversight (must) not approved insurance providers must
handled by existing knowledgeable and be compromised.’’ The commenter comply with the same training
experienced RMA staff in collaboration states that most approved insurance requirements as required under the
with state regulatory officials. providers conduct training sessions SRA. Further, under the SRA, RMA will
RMA also disagrees with the throughout the various areas to allow monitor the training to ensure
commenter’s unexplained and agents accessibility to these sessions. compliance with all requirements.
unsupported prediction that fraud, The commenter asked if an approved Comment: An interested party
waste, and abuse will arise from the insurance provider gains ‘‘efficiency’’ by commented that RMA has not complied
premium reduction plan. All current cutting back on the number of training with its own rules in requiring Crop1 to
program integrity provisions of the crop sessions, but still has them, does it meet submit weekly accounting reports
insurance program will still apply to the requirement of the provision. A verifying their efficiencies and ability to
approved insurance providers commenter states the premium operate under lower A & O contracts.
participating in the premium reduction reduction plan does not further the Response: RMA disagrees with the
plan under the interim rule. RMA critical goal of ‘‘up-to-date’’ SRO commenter. Two years ago, the FCIC
enforcement of these provisions will relationships with RMA to foster a Board directed that RMA receive from
remain unchanged. better program. A commenter asks RMA Crop1 weekly narrative and statistical
Comment: Several agents commented to scrutinize plans to assure that they reports, more detailed quarterly reports
that RMA has very strict guidelines and continue to provide the necessary and that RMA conduct semiannual
rules requiring approved insurance training for agents and adjustors that is onsite reviews of Crop1. These
providers to do more with less money so important for agents’ continued requirements were to also apply to any
all the time. The commenter asked how education. other approved insurance provider that
RMA will police this program to make Response: RMA agrees with the RMA might have approved to offer a
sure it is administrated fairly to all commenter that agent and loss adjuster premium reduction plan. Crop1 has
insureds and agents, as it is now. A training is highly important in the complied with the directive regarding
commenter asked if the approved ultimate servicing of policyholders and reports, as required by RMA. There were
insurance providers will be expected to that participation in the premium occasions during the annual crop cycle
police this too and where will the funds reduction plan must be monitored with when RMA determined that there was
come from. A commenter stated that the respect to the sufficiency of training. minimal activity and excused Crop1
premium reduction plan will increase Under the SRA, every approved from this requirement until activity
the cost of RMA monitoring, which insurance provider is obligated to again warranted weekly reporting.
must be done fairly and accurately. conduct training for loss adjusters and Further, for 2003 and 2004, RMA has
Response: RMA agrees with the agents. Specific training requirements verified in each mid-year review that
comment that RMA expects approved are contained in Appendix IV of the Crop1 was on target to achieve the
insurance providers to abide by strict SRA and approved procedures. RMA projected cost efficiencies and verified
guidelines and rules and that RMA monitors compliance with these at the end of each year that it achieved
currently attempts to administer these requirements through approved those efficiencies. This Board directive,
fairly. RMA also agrees that additional insurance provider reviews and other reporting requirements, and the
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41859
procedures used to determine stated that Crop1 is going against all the create a rule that addresses these
efficiencies will be replaced by the rules of fairness and equality and problems and protects the interests and
interim rule. stretching the law beyond limits. A integrity of the crop insurance program.
Comment: Many agents, farmers, commenter states that this failure to Given the significant number of
approved insurance providers and enforce the program requirements will substantive comments received during
interested parties commented that likely destroy the crop insurance the 60-day comment period for the
Crop1 is engaging in the type of program as we know it, including some proposed rule, it is apparent that the
discrimination that RMA purportedly approved insurance providers and public including all interested parties
opposes, and RMA is unaware of such reinsurance sources. had sufficient time to provide comments
activities, which indicates RMA’s Response: With respect to the to identify problems and concerns. It is
inability to conduct oversight or it is allegation that fraud and abuse are unlikely that an extension of the
uninterested in doing so, which rampant with Crop1, the commenter comment period would yield any
indicates an unwillingness to conduct provides no support for this allegation. additional comments or concerns that
oversight. A commenter states there is RMA’s own data, and independent have not already been presented. Based
abundant anecdotal evidence that FCIC information from outside oversight on the comments received, the process
has lacked either the resources or the bodies such as the Office of Inspector has worked and the interim rule
inclination to ensure that Crop1 General, agree that fraud and abuse, includes many significant changes that
conforms to the standards purportedly while troubling in any amount, should provide a framework for a fair,
established by RMA. Commenters stated nevertheless represent a small fraction sound, and stable premium reduction
that if RMA can’t or won’t police its of all crop insurance business and plan. Therefore, RMA does not find that
own activities for one small approved Crop1 does not have a disproportionate there is a rational basis for extending the
insurance provider, there can be no amount of fraud or abuse. If anyone has comment period.
chance of policing the entire industry specific information on fraud, abuse, or Comment: An approved insurance
under the proposed rule. A commenter discrimination with respect to any provider commented that it had alerted
states RMA never determined that approved insurance provider, RMA RMA to misleading statements made by
Crop1 met all the standards set by the encourages such persons to bring this a Crop1 agent in conjunction with
Board. specific information to RMA’s attention. advertising of Crop1’s premium
Response: It is unclear what the Further, RMA is stringently enforcing discount plan and stated that but for its
commenters mean by discrimination program requirements but it cannot letter, RMA would have been unaware
that RMA purportedly opposes. The enforce requirements that do not exist. of these misrepresentations. The
commenters do not provide supportive That was one purpose of the decision to commenter asked how many other
explanation or examples. As stated use rulemaking, to identify weaknesses instances of false advertising have
above, unfair discrimination is defined in the current and proposed program so escaped the notice of RMA and if RMA
as denial of a premium discount based concerns could be adequately cannot police the marketing practices of
on the loss history or size of the farmer. addressed. This process has worked, one approved insurance provider, how
However, it is possible that Crop1, or its RMA has received many valuable RMA proposes to monitor the conduct
agents, targeted its marketing to large, comments and has addressed these in of seventeen approved insurance
low risk farmers. This occurs the interim rule. providers and thousands of sales agents.
throughout the crop insurance program Comment: Many agents, farmers, Response: There is no way for any
and is not expressly prohibited in any approved insurance providers and agency to monitor the activities of all
procedures. This means Crop1 was interested parties commented that if participants in a program the size of the
permitted to operate in the same manner someone in the hearing process were to crop insurance program. There may be
as all other approved insurance pursue the question vigorously, new only a limited number of approved
providers in delivering crop insurance. and unwanted answers would insurance providers but there are also
Therefore, it was not a matter of RMA undoubtedly surface and it definitely thousands of agents and loss adjusters
electing not to enforce a program should be done by the committee. and hundred of thousands of farmers,
requirement, it was a situation where Commenters suggested that these FSA county committees and state
the complained of conduct was not in problems combine to justify the insurance regulators.
violation of any procedures. indefinite extension or termination of RMA relies on a variety of ways to
As stated above, RMA recognizes that the comment period and rulemaking monitor approved insurance providers
the program is premised on equal access procedure for the proposed rule. with respect to the SRA and the
to the crop insurance program and Response: With respect to the premium reduction plan. The
added provisions to the proposed rule, comment that RMA should extend the commenter has highlighted one of the
and revised and refined them in the comment period indefinitely or most valuable and powerful, the
interim rule, to specifically require that terminate rule making because of the assistance of the crop insurance
approved insurance providers market to allegations of these commenters, RMA participants to report instances where
small, limited resource, women, and notes that it is obligated under section there may be violations of the SRA,
minority farmers and if such marketing 508(e)(3) of the Act to operate the policy provisions or procedures. Even
were inadequate, RMA can require premium reduction plan. Extending the before the premium reduction plan was
remedial measures such as targeted comment period or terminating the ever implemented, it was not
marketing. All approved insurance interim rule would simply force RMA to uncommon for approved insurance
providers electing to participate in the operate the premium reduction plan providers or agents to report to RMA
premium reduction plan, including under current or revised procedures, instances where competitors may be
Crop1, will be subject to the same which the FCIC Board has already engaged in rebating or false advertising.
requirements and scrutiny. determined to be unsatisfactory or The fact that RMA assessed the
Comment: Many agents, farmers, revised procedures. information it received from the
approved insurance providers and Further, the purpose of this commenter and took quick action
interested parties commented that fraud rulemaking process is to identify demonstrates its willingness to enforce
and abuse are rampant. Commenters problems with the current program and the premium reduction plan and SRA
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41860 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
requirements with Crop1. Further, coverage levels and size of farmers for hold Crop1 to a higher standard than
because the crop insurance participants all approved insurance providers, other approved insurance providers. It
are in the best position to detect any including Crop 1; (3) how RMA was not until the 2005 SRA that RMA
wrongdoing, RMA has and will monitors compliance with the affirmatively required all approved
continue to rely on their assistance in regulations and the Act; (4) how often insurance providers to market and sell
identifying program violations. approved insurance providers are crop insurance to all farmers. With the
However, this does not mean that RMA penalized for not serving all farmers inclusion of this provision in the SRA,
is not continuously monitoring the within a given state; (5) how many and the inclusion of this requirement in
conduct of the approved insurance ‘‘specialty crop’’ policies does Crop1 the interim rule, RMA will have to
providers. Finally, the interim rule write, such as tomatoes, apples, conduct such analysis. If it reveals that
added a mechanism for the receiving nurseries etc., and (6) how many small approved insurance providers are not in
consumer complaints, which is another farmers are served by Crop1. compliance with this requirement, RMA
means for RMA to monitor the Response: There was never an intent can take the appropriate action under
implementation of this rule. to allow Crop1 to operate the only the SRA or require remedial measures
Comment: A few agents commented premium reduction plan. It happened under the interim rule.
that the agent contract with Crop1 is that it was the first approved insurance With respect to RMA monitoring,
very restrictive and is really weighted to provider to submit such a plan and the RMA engages in a variety of activities
the approved insurance provider side. procedures were developed in response such as an extensive analysis of each
For instance, there is no commission to the Crop1 submission, under the approved insurance provider’s Plan of
paid until the farmer pays the premium. direction of the FCIC Board, and were Operations before the beginning of the
The commenter asked when RMA pays designed to allow all approved reinsurance year; quarterly statutory
the approved insurance provider and insurance providers to make financial reviews; periodic financial and
does Crop1 get paid after the farmer application. With respect to the operational reviews; compliance
pays the premium. The commenter also premium reduction plans submitted by reviews; ad hoc investigations of
stated that the contract states that the other approved insurance providers for specific operational issues; civil rights
agent can only write a discount plan the 2005 reinsurance year, RMA reviews, and indemnity estimates; just
with them and agents would be liable to extensively reviewed each of the to name a few.
Crop1 if they did not meet the RMA proposals individually under the With respect to frequency of penalties
expense requirements, which they have procedures and determined they could for approved insurance providers not
no control over, and all this for a 20 to not be approved because they did not serving all farmers, RMA would view a
40 percent decrease in commission meet the requirements. In notifying refusal to provide insurance to an
revenue. Since they are the only them of this fact, the approved otherwise eligible farmer as a serious
approved insurance provider allowed to insurance providers were provided with violation of the SRA and take the
write a discount plan in 2005 it was not detailed information regarding the appropriate action. However, such
an issue. The commenter asked if RMA specific terms of the premium reduction occurrences are rare. With respect to the
is aware that this is in Crop 1’s contract. plan and the procedures RMA issue of marketing to all farmers, this
Response: As explained above, the determined the applications did not requirement only became effective for
contract between an approved insurance comply with. It should be noted that it the current reinsurance year and not all
provider and an agent is a voluntary took Crop1 over a year and multiple policies have been reported. Therefore,
arrangement and RMA does not regulate submissions to obtain the required it is not yet possible for RMA to conduct
such contracts, including such terms as approvals to begin offering its premium a review.
the timing of commission payments. As reduction plan. During the time its plan With respect to the number of
with all agent contracts, provided that was under consideration, it went specialty crop and small farm policies
there are no violations of the through a number of changes and carried by Crop1, such information is
requirements of the SRA or approved reviews. protected by the confidentiality
procedures, agents and approved With respect to analysis of Approved provisions in the SRA and other privacy
insurance providers are free to negotiate insurance providers’ books of business, statutes. RMA can say that it has such
the terms of their contracts. Terms like RMA does routine analyses from its information for all approved insurance
exclusivity and paying the commission extensive data base. However, prior to providers in its extensive data base and
after the farmer pays the premium do the implementation of the premium periodically analyzes such data for
not violate any requirement in the SRA reduction plan, such analysis did not approved insurance provider
or approved procedures. Therefore, focus on the types of plans, coverage monitoring purposes.
RMA cannot prevent their inclusion in levels of size of policies because, prior Comment: A few agents and
the agent contracts. to the 2005 reinsurance year, the SRA interested parties asked whether the
As stated above, the market will only required that approved insurance approved insurance provider who has
determine the appropriate terms and providers sell insurance to all eligible delivered premium reduction plan
conditions in such contracts, including farmers. The procedures only required policies has been held to the same
the timing and amount of commission that approved insurance providers not adjusting, education, and quality
payments. Approved insurance unfairly discriminate against farmers. standards as the balance of the industry.
providers will always have the incentive RMA did receive allegations that Response: All approved insurance
to retain agents and their books of Crop1 was only marketing its premium providers that are eligible to participate
business because such business reduction plan to large farmers. in the premium reduction plan under
provides the potential for underwriting However, there was no specific the interim rule and those authorized
gain. requirement in the premium reduction under existing procedures, including
Comment: An interested party asked: plan procedures or the SRA that Crop1, must first and foremost abide by
(1) Why RMA rejected all other plans required approved insurance providers the terms of the SRA. These are
offered by other approved insurance to market its products and services, standard for all approved insurance
providers and still kept Crop1’s plan; (2) including the premium reduction plan, providers. In addition, Crop1 must
if RMA looks into the types of plans, to all farmers. Therefore, RMA could not abide by additional terms and standards
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41861
established by the FCIC Board and by determines that any segment of farmers requirements imposed on agents under
existing premium reduction plan is not adequately being reached, it can the interim rule. The only significant
procedures. These would include the require the approved insurance requirement is the limitation on
service, training, loss adjustment, providers to take remedial corrective marketing practices in the promotion of
quality control, etc. requirements of the measures, including targeted premium discounts to existing and
SRA and approved procedures. advertising. prospective policyholders. There should
Comment: Many agents, interested not be any additional paperwork
c. Uniform Service and Unintended parties, approved insurance providers, burdens because premium discounts are
Effects and farmers commented that the now based on the actual cost savings
Comment: Several farmers and agents premium reduction plan will reduce achieved by the approved insurance
commented that with the current services to farmers. Some reasons provider.
premium reduction plan there has been include stricter regulations, crop Comment: Many agents, interested
no reduction in benefits or service. insurance is labor intensive, the parties and farmers commented that
Commenters state they are satisfied with inability to make changes to honest reductions in service would be
the service they received from Crop1, its paperwork mistakes or keying errors by particularly true for small or limited
agents and loss adjusters. A commenter approved insurance providers or agents, resource farmers because they will be
stated it received as good, if not better and reductions in agent commissions. unprofitable to serve. Commenters
service than with other approved Commenters stated that their business is stated small farmers require as much
insurance providers. A commenter built on service. Commenters state that time, effort, and expense to service as
stated it was satisfied with the prompt farmers need the assistance from their large farmers. The commenters stated
accurate adjustment during the year agents. A commenter stated that crop that if all of the larger accounts are
when losses occurred due to drought. insurance is an increasingly complex switched to the discount plan, then
The commenter stated this not only subject and requires at least the level of agents will barely survive on the large
strengthened Crop1’s reputation but service afforded now. A commenter accounts and will lose money on the
helped the agency to provide value and stated that if approved insurance smaller accounts, which they already
service as well. The commenter stated providers are cutting service then do, meaning that overall they would be
that every client has renewed their crop farmers will not buy the product. A losing money and would have to go out
insurance since offering the premium commenter stated reduced service will of business due to a marketing scheme.
discount. mean poorer risk management decisions The commenters state that they are able
Response: RMA has monitored service by farmers. A commenter stated that to serve small farmers partly because the
provided by Crop1 and all authorized lesser service at a good price is not larger farmers’ policies help with the
approved insurance providers under the always a good bargain. low or non-existent profits from the
exactly the same standards, which are Response: RMA agrees that crop smaller farmers. A commenter stated
the requirements of the SRA and insurance is a complex, labor intensive that he or she could not still service
approved provisions, as all other program and that many farmers may areas with farmers in high loss ratios the
approved insurance providers and has need the expertise provided by the way they deserve, if the premium
not found evidence that service to agents in selecting the best risk reduction plan takes place. Commenters
farmers was reduced. Further, such management tool for their operation. stated that these small farmers could be
monitoring for compliance with the However, the service requirements left without service.
requirements of the SRA and approved under the SRA and approved Response: For the reasons stated
procedures will continue under the procedures will not change and all above, it is unlikely that there will be
interim rule. As stated above, provisions approved insurance providers and any reduction in service to any farmer,
have been added to the interim rule agents are required to comply with these including small or high risk farmers,
clarifying these applicable standards. requirements irrespective of whether the from the requirements in the SRA and
Comment: An agent commented that agent or approved insurance provider approved procedures. Approved
whether the premium reduction plan is participates in the premium reduction insurance providers are not going to pay
kept in place or not, it intends to plan. Failure to comply with these a commission so low that selling crop
continue providing the existing requirements regarding service will not insurance is no longer economically
policyholders with the best service that only subject approved insurance viable for the agent and risk their going
it can. However, the commenter asks providers to sanctions under the SRA, it out of business. This would result in
that RMA understand that the crop may subject agents and approved approved insurance providers not
insurance program was designed for all insurance providers to sanctions under having sufficient agents to properly
farmers, not just large farmers, but the the interim rule. Given the significance service their policyholders. In addition,
medium and small farmers. of the consequences, RMA does not approved insurance providers are not
Response: RMA hopes that all agents believe there will be a reduction in going to risk losing the agent or their
share the desire of this commenter to service. book of business to a competitor thereby
provide the best service possible to RMA understands that agents may be decreasing the potential for
policyholders. Further, RMA is in total providing services over and above that underwriting gains. The marketplace
agreement that the premium reduction which is required by the SRA and will determine the fair and equitable
plan must provide access to all farmers approved procedures. RMA does not commission for the agent.
in the states in which it is available. To require such extra service and cannot In addition, RMA has taken steps to
accomplish this, RMA is requiring that preclude a reduction in such services. ensure that service to small farmers is
approved insurance providers develop This is strictly a matter between the available and is not reduced. One step
marketing plans designed to reach all agent and the farmer. As long as such is to clarify the requirements regarding
farmers, including small, limited service at least meets the requirements service in the interim rule. Another is to
resource, women and minority farmers, of the SRA and approved procedures, specifically require that approved
through the appropriate media and RMA will not interfere. insurance providers develop and
implement the marketing plan. RMA With respect to strict compliance with implement a marketing plan designed to
will monitor performance and if it regulations, there are few additional reach small, limited resource and
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41862 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
minority farmers. Provisions have also spending less time and a product that is agents or approved insurance providers
been added to allow farmers to now successful would again take a step out of compliance.
complain directly to RMA if they feel backward with reduced time spent Comment: Many agents and farmers
they have been denied access to the educating the farmer on risk commented that when discounted
premium reduction plan or have management. Commenters state that the pricing brings along with it discounted
received reduced service. In addition, amount of work required increases each service, the farmer is not educated nor
failure to comply with either the service year. Commenters state that they need guided effectively through all his
or marketing requirements could result the ability to pay office expenses and do options. Commenters state that this
in the imposition of significant not deserve to have to attempt to program has become much more labor
sanctions under the SRA or the interim continue to provide superior services at intensive, complex and convoluted by
rule on the approved insurance provider reduced compensation. A commenter the addition of plans of insurance as
and agent. stated that the amount of commission well as more individual crop policies
Comment: An approved insurance will not cover the amount of work. A are offered and the premium reduction
provider commented that state commenter stated that crop insurance plan will cause reduced services. A
variability could adversely affect the policies will take a back seat to other commenter stated that the farmer needs
level of service to some farmers, which lines of insurance when the revenue the agent to assist them in making
is directly contrary to the fundamental generated decreases to a point that the sound risk management decisions.
requirement of the crop insurance investment of time is not feasible. Agents spend many hours keeping
program that all farmers are entitled to Commenters stated that farmers do not updated on changes. Commenters state
the same level of service, regardless of mind paying if they get quality service. that farmers want quality service. A
their size or loss history. A commenter stated that the complexity commenter stated that the farmer relies
Response: As stated above, service of the program has increased the time on the agent to educate them. A
cannot be reduced below the level spent servicing each client tenfold, commenter stated that there is barely
required by the SRA and the approved leaving less time each year to solicit enough time in the day to farm, to
procedures. Further, as stated above, new accounts and new accounts that are market, to keep records and to do
approved insurance providers and necessary each time a commission everything else required to stay in
agents have a strong incentive to reduction is passed down. business and that the premium discount
maintain at least the required level of Response: As stated above, the SRA is not worth losing the personal
service. Permitting state variability does and approved procedures contain attention from the agent. Commenters
not change these requirements. Further, specific requirements regarding service state that farmers would be harmed
as stated more fully below, after and all approved insurance providers without uninterrupted service.
consideration of the comments and agents must comply with these Response: RMA agrees that farmers
regarding the inequity of creating a one requirements or be subject to the want quality service and that the agent’s
size fits all program when the approved sanctions in the SRA and interim rule. knowledge and experience is important
insurance providers have different Therefore, it is unlikely that approved to the success of the crop insurance
business operations and may incur insurance providers will reduce program and the farmer. However, this
significantly different costs from one commissions to the point that agents does not mean there is no room for
state to the next, the adoption of the can no longer afford to comply with competition. It is the approved
alternative proposal which bases these requirements. Further, as stated insurance providers that are in the best
premium discounts on actual savings, above, it is not in the approved position to judge where efficiencies can
the use of existing Expense Exhibits to insurance provider best interest to cut be obtained without jeopardizing their
determine efficiencies and the amount commission to the point that agents stop compliance with the SRA and approved
of a premium discount in a state, and selling crop insurance. As with all procedures or their book of business.
the use of a formula to allocate costs and competition, the market will generally Therefore, approved insurance
determine the amount of premium strike a balance with respect to the providers are not likely to request the
discount, there was no reason to refuse reductions in compensation the market opportunity to offer a premium discount
to permit state variability. However, this can bear. in states where it is not economically
means that any approved insurance RMA understands that based on the feasible to reduce agent commissions or
provider seeking state variability must comments there may be agents that are other administrative costs. Further,
do so while maintaining the required providing services in excess of those approved insurance providers are likely
level of service. required. RMA also understands that to only propose cuts in commission that
In addition, the interim rule expressly some farmers find these services will still permit agents to receive a fair
contains provisions that preclude invaluable. However, since these and equitable commission as determine
conditioning the payment or amount of services are not required by the SRA or by the agent and approved insurance
a premium discount on the loss history approved procedures, RMA cannot provider. It is not in the approved
or size of the farm. Violation of one of require that they be maintained. This is insurance provider’s best interest for the
these requirements could also result in a matter between the agent and the agent to lose customers because the
the imposition of significant sanctions farmer. Further, the approved insurance agent can no longer serve its customers.
under the interim rule. provider may want to encourage such Comment: Many agents and farmers
Comment: Many agents, interested services in order to retain these farmers commented that given the complex,
parties and farmers commented that if in its book of business. This would labor-intensive nature of crop insurance,
the premium reduction plan proposal provide another incentive for approved any agent faced with a reduced
stays intact as written, it would cause insurance providers not to cut commission will be forced to take on
many of the personal services and commissions to the point that agents additional farmers to make up the
consulting offered by the agent to not be cannot provide these additional difference, plus do all the other lines of
available to the average farmer. services. RMA’s obligation is to ensure insurance that they have to do just to
Commenters stated that they meet that the requirements of the SRA and stay in business. A commenter stated
several times each year with each farmer approved procedures regarding service that in order for an agent to operate on
and reduced commissions would mean are complied with and to sanction those less commission they would have to
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gain new customers, which means are in the best position to know the all farmers value superior service and
taking clients from another agent. End level of assistance required by their are likely to remain loyal to the agent
result, someone gets hurt and it could customers. providing valuable service regardless of
lead to loss of integrity in the program. Comment: Several agents and size. The addition of price competition
Commenters state that taking on new interested parties commented that they simply gives the farmer a choice to
clients would reduce service because all are concerned that a premium reduction decide what it values the most and,
of the marketing energy goes into plan environment will force approved since the premium discount can no
generating the higher volumes. insurance providers and agents to cut longer be guaranteed at the time of sale,
Response: It is not uncommon for funding for training, support, and the competition is on a more level
agents to want to expand their client farmer education. Commenters state that playing field.
base. Given that the number of potential the premium reduction plan will lead to Comment: Several interested parties
new insureds is limited, agents typically less knowledgeable or qualified agents. and agents commented that reductions
attempt to attract clients from another A commenter states that this will erode in service and use of the internet will
agent. This occurred in the crop the confidence in the crop insurance result in increased mistakes and
insurance program even before the program. A commenter stated that RMA misunderstandings. A commenter stated
implementation of any premium should not undervalue the knowledge, that farmers need personal contact with
reduction plan. However, as stated expertise and service the agent provides their agent to prevent these mistakes.
above, it is unlikely that there will be the farmer. Response: As stated above, approved
the severe cuts in commission Response: All agents and approved insurance providers and agents are
anticipated by the commenters because insurance providers are still required to required to comply with the service
it is not in the approved insurance comply with all requirements of the requirements in the SRA and approved
provider’s best interest to lose agents or SRA regarding training and the interim procedures and such requirements,
policyholders. rule reinforces this position. Failure to when followed, would preclude
Further, what the commenters are comply with such requirements would mistakes and misunderstandings.
describing is competition between subject the approved insurance provider Therefore, because approved insurance
agents and price will simply be a new to sanctions under the SRA. Therefore, providers would be subject to sanctions
component of that competition. participation in the premium reduction if service failed to meet the
However, as is currently occurring, plan should have no effect on the requirements, there should not be any
service is still another means of knowledge or qualifications of agents. increase in mistakes or
competition and in some cases may be With respect to support and farmer misunderstandings under the premium
more valuable than the potential of a education, to the extent that reduction reduction plan. Further, no approved
premium discount several years in the of these would lead to non-compliance insurance provider can sell and service
future. The premium discount simply with any service requirement in the insurance solely over the internet. The
provides another tool to be used by SRA or approved procedures, such Act requires such sales to be made
agents to attract clients and, under the reduction would be prohibited and through licensed agents. Further, it is
alternative proposal adopted in the could lead to sanctions against the unlikely that an approved insurance
interim rule, one which is not so approved insurance provider. To the provider could meet all the service
overwhelming that agents who provide extent that the support and farmer requirements in the SRA and approved
superior service would not be able to education may not be required by the procedures remotely. Therefore, some
compete on a level playing field. SRA or approved procedures, RMA personal contact between the agent and
Comment: An agent commented that cannot require that approved insurance farmer is likely to occur.
self service insurance is a disaster providers continue these activities. Comment: An agent asks what exactly
waiting to happen for anyone who However, as stated above, approved is service to the farmers. The commenter
assumes that simply signing up will insurance providers have the incentive states that if RMA means, timely claims
take care of business. to retain customers and to the extent payment, make sure they get their bills,
Response: There is no expectation that such activities are needed for such etc, the approved insurance providers
that crop insurance will become self retention, it is unlikely that approved will do this fine but unfortunately, that
service. As stated above, agents provide insurance providers will cut them. is not what the farmer considers good
too valuable a service to farmers and Comment: An agent commented that service. The farmer considers good
many farmers could not assess and meet the small farmers will more than likely service to be when his agent helps him
their risk management needs without remain loyal to approved insurance decide the best coverage, when the
the assistance of the agent. However, as providers and agencies that have done agent reminds him that acreage and
occurs in many aspects of life, there will their very best to service their accounts production reports are due and then
be farmers that are more knowledgeable over the years, such as developing looks it over to make sure it is not
about crop insurance than others and record keeping systems, acreage missing anything. The entire program
may not need the same level of service mapping, educational updating, and has grown because there is a committed
to meet their risk management needs. As constant reminders about proper sales force of agents pushing the
long as the service provided to all reporting and compliance with the FCIC program. The approved insurance
policyholders at least meets all the program. In general, the large farmers providers cannot and do not make sure
requirements of the SRA and approved work on economies of scale and these that kind of service is taking place
procedures, any service provided above farmers will be the accounts solicited. (except for captive agents). The best
that level is totally within the discretion Response: Large accounts were always they can do is make sure agents are
of the agent and approved insurance the most attractive to solicit even before fulfilling the obligations of integrity,
provider. This is true today and will implementation of the premium deadlines, and non-discrimination and
remain true under the interim rule. As reduction plan because they allowed the they do a good job of that. But a
explained above, agents have always most opportunity for agents to profit. commitment to servicing the farmer lies
and will continue to compete based on The implementation of the premium with the agent. Some do it well (and
the service they provide. It is the agent reduction plan does not change this they grow their business) and others do
and approved insurance provider who dynamic. However, RMA believes that not (and they lose the business to the
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41864 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
better agent). It is the agent/agency’s commission be used to fund the Response: RMA is unsure of why a
responsibility to service the customer. premium discount. If the approved reduction in agent commissions will
That is how the farmer defines service. insurance provider experiences higher lead to fewer loss adjusters. Under the
Response: As stated above, service costs in other parts of its operation, it SRA, both functions are separate and
requirements are contained in the SRA may be using savings from the reduction distinct from one another. Further,
and approved procedures. RMA agrees in agent commissions or other under the interim rule, approved
the service required by the SRA and efficiencies to offset such costs. This is insurance providers must still comply
approved procedures do not include the totally within the discretion of the with all the requirements of the SRA
many personal touches that individual approved insurance provider. and approved procedures regarding loss
agents employ in the course of Comment: An agent commented that adjustment. Failure to comply with
conducting business with clients. RMA in order to adequately serve all these requirements will subject the
further agrees that these factors can play customers as they should be served, the approved insurance provider to
a significant role in determining reductions in cost of delivery should be sanctions under the SRA.
whether an agent is successful or not made at the approved insurance Comment: Several agents commented
and that it is the agent that determines provider level, not at the agent level. that RMA has stated that an agent
this level of service as a means to Response: As stated above, the goal of cannot accompany a loss adjuster on a
compete with other agents. the interim rule is to provide the loss as they have in the past. A
Nothing in the interim rule changes approved insurance providers the commenter stated that this goes against
this dynamic. Agents provide a valuable maximum flexibility to evaluate their the whole principle of having an agent,
service and farmers are the best judge of business operations to determine where which is service. A commenter asks
the service they want. This competition savings can be achieved. The approved whether the agent is considered part of
to retain or obtain new customers will insurance providers are in the best the approved insurance provider and,
still exist under the interim rule. therefore, can’t cut any services that
position to determine whether agent
However, a new component, price, has were provided in the past. The
commissions or other costs can be
been added to the competition and commenter stated that a large majority
reduced while still maintaining their
agents will have to determine how best of the farmers don’t understand the
potential profitability. As stated above,
to compete because commenters are adjusting procedures and are being
this is a free market issue between the
correct that some farmers will value the forced to rely on a stranger they just met
agent and the approved insurance
service more and others will value the and can only assume that adjuster is
provider because if commission cuts are
premium discount. qualified to complete their loss instead
Comment: Several agents commented too deep, agents are likely to move their
of having someone they know and trust
that commissions are being reduced by books of business to competitors.
to be there to help them know they are
a half or a third. Commenters state that Further, if RMA were to dictate the
being treated fairly. The commenter
if commissions were reduced only the manner in which savings could be
stated that many adjusters fill out
amount of the discount the farmer achieved, as suggested by the
papers and say sign here without
received, it could still deliver the commenter, it could have a detrimental
explaining what they have done.
program with the same service. A effect on the financial stability of the Response: These comments do not
commenter asked where the rest of the approved insurance provider because address a matter covered by this
savings are going. each has a different business operation, rulemaking and, therefore, were not
Response: There is no requirement in which means different areas where considered relevant to the consideration
the interim rule that dictates that agent savings could be attained. of the proposed rule. However, this is an
commissions be cut or the amount of Further, as stated above, based on the important issue that RMA would like to
commissions to be paid. This is a matter information reported by the approved address.
solely between the agent and the insurance providers on their Expense The role of agents in the adjustment
approved insurance provider. Market Exhibits provided with their Plans of of claims is provided for in the SRA. For
forces will determine if any cut in Operation, agent commissions represent a number of years, the SRA has
commission is appropriate and any an overwhelming percentage of the total prohibited agents from being involved
amount because, as stated above, cost to the approved insurance provider in the loss adjustment process. So this
approved insurance providers have the to deliver crop insurance. To exclude is not a new requirement and is
incentive to retain agents and their the ability to use commissions to necessary because in many cases of
books of business. Further, as stated achieve savings even though the fraud, waste, and abuse, there has been
above, RMA has made revisions to the approved insurance provider has collusion between the agents and loss
premium reduction plan, such as the determined that this is the most adjusters. In addition, the concerns
selection of states, which will provide appropriate place to achieve savings raised by commenters occurs in most
the maximum flexibility for approved based on its evaluation of its operation lines of insurance, such as auto
insurance providers to made sound, would be arbitrary and capricious. insurance, where if there is a claim, the
reasoned decisions regarding where However, the interim rule retains the insured works with the claims
they can achieve savings in their requirement that approved insurance representative, who is usually a stranger
operations without jeopardizing their providers cannot achieve all of their and must assume that the stranger is
book of business and potential cost savings from agent commissions. qualified to complete their loss. Many
profitability. To participate in the premium reduction persons are in the same position as the
RMA is not in a position to comment plan, approved insurance providers will farmer in that they know little about the
on the extent of the reductions in have to achieve some savings from other adjustment process. However, the need
commission or where the savings are aspects of their operations. has been long been recognized to
going. RMA only examines A&O costs Comment: An agent commented that separate sales and loss adjustment
and A&O subsidies to determine it is concerned that reductions in because of the inherent conflict of
whether there is a savings. Further, commissions will lead to fewer loss interest in the position. Agents
there is no requirement in the premium adjusters available to provide claims inherently want to keep their clients
reduction plan that all cuts in agent servicing. satisfied so they will remain with the
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41865
agent. However, loss adjusters work for RMA agrees with the commenters that it will not override this immediate
the approved insurance provider, who is unlikely an approved insurance interest. These market forces will
has an interest in containing losses. provider could comply with all the always permit competition based on
Therefore, as with other lines of service requirements in the SRA or service.
insurance, this provision is necessary to approved procedures if it offered crop Nothing in the interim rule is
protect the integrity of the crop insurance solely through the internet. intended to minimize the role of the
insurance program. However, the internet does provide a agent or change the service received.
Comment: An agent commented that means where savings can be achieved The interim rule is intended to allow
RMA should consider a premium and there are farmers who are willing price competition when and where the
modification philosophy that provides a and able to use the internet. Since the market will bear and the approved
savings where it can be applied without premium discount is now based on insurance providers, agents, and farmers
affecting customer service and it actual cost savings, not projected, are the best determinant of these factors.
prevents applying a discount where it approved insurance providers no longer Comment: Several agents commented
will reduce customer service. have to mandate the use of the internet that under the premium reduction plan,
Response: All approved insurance but could make it available and use any farmers suffer lack of service, access to
providers must provide the level of savings achieved to justify paying all plans of insurance, and knowledge of
service required under the SRA and premium discounts. the crop insurance program. A
approved procedures. Since approved Comment: Several agents, interested commenter states that only those
insurance providers and agents already parties and farmers commented that if farmers that can educate themselves
compete based on the service they price is a factor, it seems to become the will benefit. A commenter also stated
provide, it would be inappropriate for ‘‘only’’ factor when discussing a that the access to the premium discount
RMA to require as part of the interim product. A commenter states that crop must be applied across the board to all
rule that an approved insurance insurance is a valuable asset to any types of policies and that farmers
provider not be allowed to adjust the farming operation these days and does participating only in catastrophic risk
service provided so long as it meets the not need ‘‘pricing games’’ to become a protection (CAT) policies must be
requirements of the SRA and approved factor. A commenter stated that agents informed about the reduced premiums
procedures. RMA believes that should continue to provide coverage to in other programs.
decisions by approved insurance policyholders based more on service Response: All approved insurance
providers regarding the level of service and quality than cutting prices. A providers must provide access to all
beyond the minimum should be based commenter stated that farmers don’t go plans of insurance under the terms of
on competition in the market. Which looking for the cheapest rate, they go the SRA. The interim rule does not
means policyholders will decide the looking for the person who can explain change this requirement. Further, the
level of service beyond the minimum the program and offer the best service. requirements for service are also
approved insurance providers and The commenter stated that the premium contained in the SRA and approved
agents must provide. To adopt the reduction plan is going to make it where procedures and all approved insurance
commenter’s suggestions would require farmers look for the cheapest plan, and providers and agents must comply with
RMA to try to determine for who cares if they know what they are these requirements or risk sanctions
policyholders the types and level of buying. A commenter states that if the under the SRA or interim rule. If the
service that each approved insurance premium reduction plan proposal goes commenters know of instances where
provider must provide regardless of its through, agents will water down their approved insurance providers or agents
relationship to the requirements in the competitive advantage and have to have not complied with these
SRA and approved procedures. RMA resort to selling price. A commenter requirements, they should report such
does not believe that such regulation is stated that others can be trendy and look non-compliance to RMA.
in the policyholders’ or the approved to the bottom line but agents should be Promoting certain insurance products
insurance providers’ best interests. motivated by providing the best service is not the same as denying access to an
Comment: Many agents and interested they can. insurance product. RMA has not
parties commented that it is unrealistic Response: The commenters seem to regulated such promotion because
at best to expect to see true realized suggest that competition on price and generally the market forces take care of
savings and efficiencies through the use competition on service are mutually this issue. For instance, if an agent
of the internet. The commenters stated exclusive and that is unlikely to be the promotes a Group Risk Protection plan
that the complex nature of crop case. In a complex program where of insurance and the farmer later
insurance, coupled with recent history service is so important, it is unlikely discovers that the indemnity payable
from the approved insurance provider that price competition, especially the under policy did not meet the farmer’s
currently offering the premium kind included in the interim rule, risk management needs and that
reduction plan having no success would have the dominating effect on purchase of another product would
whatsoever with the internet as a competition that commenters seem to have, the farmer is likely to go to
delivery tool demonstrates this fact. A suggest. The whole premise of price another agent to obtain the coverage.
commenter stated that farmers do not competition is to be able to provide the Therefore, it is in the best interest of the
have the time or equipment to input the same product or service for less money. agent to tailor the insurance coverage to
data so agents must still do the work. Therefore, farmers are still going to want best meet the needs of the farmer.
Commenters state that the premium the best risk management tool and Regarding the statement that only
reduction plan provides an incentive to advice they can get. If they find out they farmers that can educate themselves
use the internet to the detriment of did not receive it from one agent, they will benefit, RMA expects that agents
agents. Commenters state that farmers will move on to another agent because participating in the premium reduction
need the agents to assist them in making of paramount concern to farmers is plan will continue to be motivated to
their risk management decisions. whether they receive the benefits they provide crop insurance education to
Response: There is no requirement in are contractually entitled to receive farmers in order to remain competitive.
the interim rule that cost savings must under the policy in a timely manner. Further, with respect to the requirement
be attained through the internet. In fact, The potential for a premium discount that agents inform their farmers of the
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41866 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
potential for a premium discount if it Comment: An agent commented that determining whether an efficiency can
buys up, there is no need to specifically farmers who opt for a discounted plan be achieved, the approved insurance
include this requirement in the rule. should expect and receive some provider must evaluate its business
Agents already have an incentive to differentiation in service, to offset the operation to determine where savings
suggest to their farmers who purchase cost savings, i.e. earn the discount. are possible while still maintaining the
CAT coverage to buy higher coverages Example would be to complete the required level of service and complying
because of the higher commissions the required reporting in some electronic with the other requirements of the SRA.
agents can receive. The potential for a format, which would speed up the These requirements limit the actions of
premium discount would provide an process for the agent and approved approved insurance providers and
additional incentive the agent can use to insurance provider involved. The protect the integrity of the crop
convince the farmer to buy-up to higher commenter also stated a discount may insurance program.
coverage levels. also make sense if the policy size were Comment: A few interested parties
Comment: Several agents commented taken into consideration. The and agents commented that service
that there is currently a competitive commenter stated that the time spent by centers would not be able to continue
marketplace with several approved an agent on farmer education, working with agencies because the
insurance providers’ agents still counseling, and processing can be just approved insurance providers would
competing for new business based on as involved for a 100 acre policy, as a have no ‘‘room’’ in their commission
service. If the government interferes policy for 1,000 acres. Consideration for structure to offer enough for both a
with the marketplace to the degree that the amount of insurance may be in service center and the agent. The
there are only one or two providers, the order, and justify some further discount commenter stated it would drive many
incentive to compete is lost and the beyond the administrative fee alone. service centers out of business
level of service will certainly decline. A Response: It is possible that farmers immediately. The commenter stated that
commenter stated that the system isn’t who participate in the premium service centers offer a valuable service
broke now so why go out of the way to reduction plan will not receive the same to both agencies and approved
fix something that is working fine. level of service as before. However, insurance providers by acting as a buffer
Response: There is nothing in the these farmers will still receive the level for the agent in turning in correct forms,
interim rule that suggests that of service required by the SRA and information, etc. and reducing the
implementation of the premium approved procedures. Any service over workload of approved insurance
and above that standard is strictly providers. Without service centers,
reduction plan will result in only one or
between the agent and the farmer. The approved insurance providers would
two approved insurance providers.
interim rule does not require that extra have to hire more underwriters at much
However, RMA has taken measures to
service be eliminated. more expense than a service center
minimize potential disruption to the Further, the amount of any premium costs.
marketplace. One is basing premium discount takes into consideration the Response: There is nothing in the
discounts on actual costs savings, size of the policy. A farmer with a 1,000 SRA or approved procedures that
instead of projections that may be acre policy would likely receive more require approved insurance providers to
unrealistic or unrealized. Further, the dollars of premium discount than a use service centers. It is up to the
potential for a premium discount in the farmer with a 100 acre policy because of approved insurance provider to
future will be much less disruptive to the difference in premium. However, as determine whether or not to use service
the market place than a guaranteed the rule makes very clear, there can be centers and how much to invest in such
premium discount at the time of sale. no difference in the percentage of activities. Nothing in the interim rule
Allowing approved insurance providers discount between the two if both changes this. While RMA does not
to select the states in which they will farmers are located in the same state. To doubt that service centers provide a
participate in the premium reduction allow the application of different valuable service, it is up to the approved
plan also eliminates potential adverse percentages of premium discount in the insurance provider to evaluate its
effects in those states where margins are same state could lead to unfair operation and decide where to achieve
much less. discrimination. There could be different efficiencies. RMA has no rational basis
Under the interim rule, agents will percentages of premium discount paid to interfere with this relationship.
still have the ability to compete on between states, i.e., state variability. Comment: Several interested parties
service. In a complex program, there However, there is no unfair and agents commented that the
will still be farmers that will value discrimination as long as all farmers proposed rule would cause an even
service more than the potential for a within each state are treated the same. greater burden on the approved
premium discount. Further, service is Such state variability may simply be a insurance providers requiring vast
not likely to decline such that the function of the differences in savings accounting reports, particularly ones
requirements in the SRA and approved that can be achieved among the states. that are state specific. The A & O was
procedures are not met. Comment: Several agents and just recently cut for the 2005 crop year
As stated above, RMA has no choice interested parties commented that and further cuts are not warranted. The
but to implement the premium although lower premiums would be commenters state that the proposed rule
reduction plan. However, it has tried to beneficial to farmers, they question how would require further commission cuts
do so in a manner that maintains the approved insurance providers will be to agents in order for the approved
best attributes of the crop insurance able to maintain their efficiency in insurance providers to comply with the
program, service and choice, and servicing the customer. This in the long premium reduction plan requirements
minimizes the potential for adverse run will defeat the benefits of good crop at the same time that RMA continues to
effects, such as financial instability and insurance. require more and more paperwork and
approved insurance providers pulling Response: As explained above, the contacts with its insured’s.
out of states. As a result, RMA believes interim rule requires that all farmers Response: As stated above, RMA
it has developed a premium reduction must still receive the level of service revised the proposed rule to require
plan that can benefit all participants in required by the SRA and approved premium discounts to be paid on actual
the crop insurance program. procedures. Therefore, when cost savings. Therefore, the accounting
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41867
reports necessary to determine the insurance product that best meets their desist and Crop1 complied. RMA has no
projected efficiencies have been risk management needs and if the agents evidence that widespread false or
eliminated. Actual costs savings must are not, farmers will likely take their misleading marketing information about
still be determined at the end of the business to an agent that will. Crop1’s premium reduction plan was
reinsurance year but the proposed rule Further, RMA is unsure of what the disseminated. Any person with specific
was revised to use existing Expense commenter means by the statement that information coming from Crop1 or any
Exhibits provided with the Plan of GRIP by its very structure result in other approved insurance provider that
Operations. Further, state accounting overpaid claims. If the commenter is is false or misleading is encouraged to
reports will not be necessary. RMA has referring to the fact that GRIP may pay provide such information to RMA and
developed a formula that will be used an indemnity even if the farmer has not RMA will take appropriate action.
for each state to determine the premium suffered a loss because the county Comment: Several agents and
discount. RMA has developed a formula suffered a loss, payment for this type of interested parties commented that
that will be used for each state to loss is specifically authorized by the Crop1 does not have an adequate
determine the premium discount to the Act. Further, the flip side is also true in number of loss adjusters. A commenter
state level. Apart from the requirement that farmers with GRIP who suffer losses asked that if Crop1 did decide to hire
to have these expense statements may not receive an indemnity because more adjustors where they could find
audited, there is no additional burden the county may not have suffered the ones with enough experience to handle
on approved insurance providers. requisite amount of loss. such a large number of losses in a short
RMA disagrees with the comment Comment: Several agents and amount of time. A commenter stated
‘‘that the proposed rule would require interested parties commented that that Crop1 is trying to hire loss adjusters
further commission cuts to agents Crop1 uses very deceptive marketing to that from other approved insurance
* * *’’ Participation in the premium try to convince people they will receive providers who have already gone to
reduction plan is voluntary for any a 10% discount on their premiums. great expense to train them. A
approved insurance provider. If an Commenters state that this is not the commenter stated that Crop1’s adjuster
approved insurance provider chooses to case for all levels of insurance coverage force is small. A commenter stated that
participate in the premium reduction or plans of insurance. Commenters Crop1 has an advantage of no training
plan, agent commission reductions are asked what happens in the event that for agents or loss adjusters.
not required. Approved insurance the farmer would have a claim. The Response: Regarding the comment
providers are free to evaluate their commenter stated the farmer already did alleging that Crop1 lacks loss adjusters,
operations to determine where cost not receive the discount he was Crop1 has advised RMA that, like nearly
savings can be achieved while still expecting, and asked about the service. every other approved insurance
allowing them to be in compliance with A commenter stated that farmers do not provider, it employs a combination of
all requirements of the SRA and learn they have been misled until loss salaried loss adjusters, contracted loss
approved procedures, including service, time. adjusters on retainer, and extra
loss adjustment, training, etc. Response: While such contracted loss adjusters when needed.
Comment: Several agents and misunderstanding might have been RMA has no evidence that Crop1’s
interested parties commented that many possible under the process established claims service is inferior to other
existing Crop1 agents are promoting in the proposed rule because approved approved insurance providers and has
only the Group Risk Income Protection insurance providers were required to not received any more complaints from
(GRIP) product partially because it project costs savings and such farmers regarding Crop1’s loss
requires less work and expertise than projections could be unreasonable or adjustment than it received about the
individual products but also because its unattainable, the adoption of the loss adjustment of other similarly sized
very structure causes claims to be alternative proposal precludes such approved insurance providers.
overpaid. A commenter asked how conduct. Under the interim rule, Regarding the comments alleging a
much money could be saved if GRIP premium discounts are based on actual lack of training of Crop1 agents and loss
claims were not overpaid. A commenter cost savings determined after the end of adjusters, the SRA and Appendix IV
stated such promotion may be to the the reinsurance year and all approved contain the requirements regarding
detriment of the insured, who may be insurance providers and agents will be training and all approved insurance
better served by an individual plan precluded from advertising that a providers are required to be in
tailored to the farmer’s risk management premium discount will be paid or compliance with these requirements or
needs. promising an actual or projected face sanctions under the SRA. RMA
Response: It is impossible for RMA to amount. Approved insurance providers monitors the training of all agents and
determine the motives behind the will only be able to advertise actual loss adjusters and, through its
promotion of one insurance product premium discounts paid and even these monitoring activities, RMA has
over another. However, the allegations must be accompanied by prominent documented training logs and materials
by the commenter are not the first time disclaimers that past results do not that confirm that Crop1 conducts
such allegations have been made. guarantee future payments. If RMA training activities for agents and loss
Several years ago there were allegations discovers that an approved insurance adjusters that are in compliance with
that agents were promoting CRC to provider or agent is not complying with the requirements of the SRA and
farmers who did not need that level of these limitations, sanctions will be Appendix IV.
risk protection in order to increase their imposed. Comment: Several agents commented
commissions. In these types of Regarding the comment about farmers that the premium reduction plan
situations, it is impossible for RMA to being led astray about the premium approved insurance provider is seeking
determine the appropriate plan of discounts, RMA has investigated several people who are not professional agents,
insurance for a farmer or require that cases where local marketing information such as seed dealers and elevators, and
agents specifically promote certain from Crop1 and its agents, though not have not worked and know very little
insurance products or stop promoting conclusively false, could be perceived about the realm of crop insurance and
another. As with the situation with CRC, by some farmers as misleading. In such that this was unfair. A commenter stated
agents should be advising farmers of the cases, RMA directed Crop1 to cease and the agents were new and inexperienced.
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41868 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
A commenter claims that one of the stated, there will be farmers that will questions in regards to their policies
people involved with the premium value premium discounts over service and are constantly calling and coming
reduction plan program stated he knew and those that do not. This allows for a into its office to get the answers to their
very little about crop insurance, but his balanced competition. questions. A commenter asked if this is
job was to sign up ‘‘agents’’ willing to Crop1 is in the business to make another one of their efficiencies. The
sell this type of insurance. A commenter money and as such, it will ensure it has commenter states that Crop1 will write
claims their selling pitch has nothing to the proper personnel to conduct the business but they are not around to
do with the integrity of the crop underwriting, sell insurance, and service it and let other approved
insurance program nor the service and conduct loss adjustment. Further, under insurance provider’s agents do the work
hard work that goes with the the interim rule, Crop1 will operate for them.
professional standard of most MPCI under the same requirements as all Response: Without additional
agents, but only with the fact that ‘‘we other approved insurance providers. information, RMA cannot determine
can save you 10% on premium.’’ A The market will determine whether whether the service requirements in the
commenter states that because of these Crop1 can successfully compete with its SRA and approved procedures have
unprofessional people involved with the alleged inexperienced personnel and been violated. However, if farmers are
premium reduction plan program, all agents. not satisfied with the service they are
agents who have worked so hard to Comment: An agent commented that receiving, they can complain to RMA or
improve the program over the years are Crop1’s agents were bragging that it only move their business to another agent.
now going to suffer because of these few took two days to become certified or This is the free market choice of
bad apples. A commenter states that eligible to sell its products and asked farmers. Further, this situation would
farmers will suffer by not getting quality where the due diligence was and why appear to provide a great marketing
service. A commenter asked how RMA Crop1 did not have to follow the same opportunity for the commenters because
can expect a Crop1 insured, a coop rules. they can point out the benefits of
employee, or a seed dealer to perform Response: All approved insurance continuous access over possible price
policy underwriting with absolutely no providers are required to comply with discounts. This is one of the purposes
experience or training in crop the same licensing and training of the program so that farmers could
insurance. requirements contained in the SRA and determine which they value most.
Response: Regarding the general approved procedures. As stated above, Finally, the interim rule provides a new
comments that Crop1 has relied heavily RMA has monitored Crop1 and has process to allow farmers with
on people who are not professional found no violation of these complaints to directly report these
agents, such as seed dealers, etc., Crop1 requirements. If the commenter knows complaints to RMA.
is required to comply with the same of such a violation, it should report it Comment: An agent commented that
requirements in the SRA and approved to RMA. approved insurance providers will
procedures as all other approved Comment: An agent commented that divide their book of business into
insurance providers regarding the any indication of savings from loss additional corporate entities if there is
licensing and training of agents and adjustment expenses should cause great a competitive advantage. Such division
service provided to farmers. RMA has concern for RMA and asked how one could allow the manipulation of the
monitored Crop1’s sales activities and reduces costs for loss adjustment SRA. The commenter stated that this
has not discovered that is in violation of without reducing service to farmers. will also create a significant challenge to
any of these requirements. While Crop1 Response: RMA reiterates that the loss verify savings as it will allow the
may use persons such as seed dealers to adjustment process is separate and potential to shift cost allocations
sell crop insurance, these persons are distinct from the service provided by between the entities.
licensed and trained agents. agents as required by the SRA. Further, Response: RMA shares the concerns
Further, there is nothing in the SRA all approved insurance providers are of the commenter—that an approved
that precludes the use of inexperienced, still required to comply with all the loss insurance provider could potentially
trained and licensed agents. New agents adjustment requirements in the SRA divide a book, create opportunities to
are constantly entering the crop and approved procedures, regardless of manipulate allocated costs and, thereby,
insurance program and there is no basis whether they elect to participate in the abuse the premium reduction plan.
to exclude their participation. premium reduction plan. However, this However, to do so, the approved
Inexperienced does not mean does not mean that loss adjustment insurance provider must create two
unprofessional and it is up to the expenses cannot be reduced. RMA has separate and distinct entities and both
approved insurance provider to make been offering a Simplified Claims entities would have to independently
sure these new agents gain the Process, that is intended to reduce the qualify for a SRA because RMA does not
experience to go along with their burden on approved insurance permit an approved insurance provider
training. Further, inexperienced does providers and use of such claims or its managing general agent to operate
not mean that agents cannot determine process could result in savings. under multiple SRAs.
the risk management needs of the client However, given the importance of the Further, the use of the Expense
and properly advise them of the claims process to the financial welfare Exhibits provided with the Plan of
insurance product that will meet that of the crop insurance program, RMA Operations and the formula to
need. No agents are authorized to sell will carefully scrutinize situations determine the premium discount would
insurance until they receive this where there has been a reduction in loss mitigate any potential manipulation of
training. adjustment expenses to ensure that such costs. However, now that approved
Further, the fact that agents are selling reduction does not violate the loss insurance providers have the flexibility
insurance based on ‘‘price’’ competition adjustment requirements of the SRA and to select the states in which to
instead of service is also not precluded. approved procedures. participate in the premium reduction
As stated above, the whole purpose of Comment: Several agents commented plan, can elect whether to pay a
section 508(e)(3) of the Act was to that if anyone has purchased a policy premium discount in a state, and can
introduce price competition into the through Crop 1 they have problems vary the amount of premium discounts
program. Further, as commenters have getting hold of anyone to answer between states, there is much less
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41869
incentive for approved insurance Further, well managed farms already to the program and the economic
providers to divide their books of do not pay the same premium as a stability of farmers far outweighs the
business. poorly managed farm. Premium rates are possibility that farmers in some states
based on the risk of loss and the risk of may not be offered premium discounts.
3. Discrimination
loss would be greater with a poorly For this reason, RMA is permitting
In the preamble to the proposed rule, managed farm so more premium would approved insurance providers to select
RMA stated that one of the principles be required to cover these losses. those states in which it will participate
that must be met to comply with the Therefore, the requested change has not in the premium reduction plan.
requirements of section 508(e)(3) of the been made. However, if an approved insurance
Act is that no premium reduction plan Comment: An approved insurance provider selects a state to participate in
can unfairly discriminate against provider commented that approved the premium reduction plan and is
farmers based on their loss history, size insurance providers who apply and approved by RMA to provide a premium
of operation, or the amount of premium receive approval to offer a premium discount, all policyholders of the
generated. RMA has tried to address this reduction plan should be required to approved insurance provider in the state
issue in the proposed rule by: (1) offer the savings to all their farmers and will receive the same percentage of
Requiring that the premium reduction that in advance of making the offering, premium discount.
plan be provided to all farmers insured the approved insurance provider should Further, to ensure that small,
by the approved insurance provider; (2) be required to prove within their minority, limited resource, etc. farmers
requiring approved insurance providers marketing plan how they expect to are aware of the availability of a
to provide marketing plans for how they reach these farmers. Thus, the premium reduction plan in a state, the
will reach these farmers; (3) denying commenter states it is supportive of the marketing plan provisions have been
approval for premium reduction plans fourth principle, non-discrimination, clarified to require approved insurance
with inadequate marketing plans; and and would be addressed by: (1) providers to more clearly specify how
(4) allowing for withdrawal of approval Requiring premium reduction plans to they will be marketing and that the
by RMA for failure of the approved be provided to all farmers insured by marketing under the marketing plan is
insurance provider to follow the the approved insurance provider, (2) in addition to any marketing that may
marketing plan. RMA sought comments requiring the submission of marketing be done by agents. This should ensure
on whether these provisions should be plans to show how the approved that all farmers have equal access to the
modified or additional provisions added insurance provider will reach small and premium discounts.
limited resource, women and minority Comment: Many agents and interested
to ensure that all farmers have access to
farmers; (3) denying approval of parties commented that they were
all premium reduction plans offered in
premium reduction plans not supported opposed to the premium reduction plan
their state. The comments received and
by an adequate marketing plan, and (4) will because it will lead to
FCIC’s responses are as follows:
allowing for the withdrawal of approval discrimination. Commenters stated that
a. General of a premium reduction plan for failure wholesale ‘‘cherry picking’’ will take
to implement the approved marketing place in the market. A commenter stated
Comment: An interested party that discrimination will be impossible
plan.
commented that if an approved Response: RMA understands the basis for RMA to control. Commenters states
insurance provider is to offer a premium for the commenter’s position that that the premium reduction plan will
reduction plan, they should be able to approved insurance providers lead to discriminatory underwriting. A
choose who they offer it to. The participating in the premium reduction commenter states the premium
commenter states that with the wide plan should be required to offer reduction plan will lead to adverse
variety of management skills of today’s premium reductions to all producers. selection and abuse. A commenter states
farmers, why offer a premium discount This principle was the basis for that its members are 99% opposed to
to someone who claims a loss every provisions in the proposed rule. the premium reduction plan product
year. The commenter asks if they are However, as stated above, RMA, after because of discrimination issues.
truly worthy of having their premium reviewing the comments, has concluded Commenters state that allowing cherry
reduced and why should a well that this position would give a picking is not fair to the farmer or the
managed farm pay the same amount of significant competitive advantage to integrity of the crop insurance delivery
premium as one that is poorly small or regional approved insurance system
organized. The commenter suggests that providers that may not write in states Response: As stated above, there is a
an insured should demonstrate that it is with marginal or high loss ratios. difference between selecting agents that
a better risk than a neighbor, and RMA believes that approved solicit the most potentially profitable
deserving of a premium discount. insurance providers would withdraw policyholders and denying insurance or
Response: Under section 508(e)(3) of from certain states if they are required a premium discount because of the
the Act, premium discounts are based to provide a premium discount to all policy size, loss history, etc. The latter
on whether the approved insurance policyholders. Given the higher costs is considered unfair discrimination and
provider can reduce costs under the associated with such states and the is prohibited in the interim rule.
amount of A&O subsidy that is paid by difficulty or impossibility that approved However, the former is not precluded
RMA under the SRA. There are no other insurance providers could reduce costs under the SRA or the interim rule.
criteria stated in the Act and there is no sufficiently to offer a premium discount, Agents are currently trying to assemble
rational basis to adopt the criteria an unintended consequence of the the most profitable book of business that
proposed by the commenter. If RMA proposed rule was that farmers in some they can. However, while agents may
were to permit approved insurance states would be left without any solicit large farmers, they cannot deny
providers to select which farmers approved insurance provider to offer insurance to any other farmer, including
receive the premium discount based on insurance because RMA cannot require small, limited resource, women and
whether they have a loss, it would approved insurance providers to do minority farmers.
permit the very discrimination that business in any particular state. The However, to ensure that all farmers
RMA is trying to avoid. harm that such withdrawal would cause know about and have access to the
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41870 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
premium reduction plan, approved insurance agency/agent signs up for it, balance the impact of approved
insurance providers will be required to all of the customers would have to be insurance providers withdrawing their
design and implement marketing plans switched to the discount plan or face business from a state with the impact
to reach all farmers, including small, discrimination—not only legally but that farmers in a state may not receive
limited resource, women and minority ethically and morally as well. An agent a premium discount. RMA has
farmers. One way RMA can use to with a discount plan available would determined that the potential for no
determine whether all farmers have have no choice but to move every single crop insurance to be available in the
been provided access to the premium customer to the discount plan. state is more harmful than the lack of a
discount is to compare the composition Commenters stated that being able to potential premium discount. The most
of one approved insurance provider’s offer the premium reduction plan to one important consideration is that farmers
book of business with another. If RMA farmer and a regular plan to another have access to the risk management
determines that the marketing plan is takes on a discriminatory appearance. products they need. However, RMA
not adequately reaching such farmers, Response: First, there is no signup for agrees that once the approved insurance
RMA can require remedial measures or farmers under the premium reduction provider elects to offer a premium
impose sanctions under the interim plan. If the approved insurance provider discount in a state, all farmers insuring
rule. attains an efficiency and elects to pay a with the approved insurance provider
Comment: Several agents commented premium discount the farmers will must receive the same percentage of
that the previous premium reduction receive the premium discount payment premium discount.
plan had farmers entering data over the from the approved insurance provider. Comment: An approved insurance
internet to afford a premium discount Second, as stated above, the premium provider commented that the premium
because of ‘‘administrative’’ efficiencies. reduction plan no longer must be reduction plan will cause insurance
Commenter states there is a potential to available in all states in which the companies to cater only to large farmers
discriminate against many farmers who approved insurance provider does because premiums in 2005 will drop
are not technically literate and those business. Approved insurance providers due to lower commodity prices which,
who could not afford technology to take will select the states in which they will in turn, will reduce the amount of A&O
advantage of the discount. participate in the premium reduction received, even though an approved
Response: The commenter may be plan. However, RMA agrees that once an insurance provider’s costs are rising.
referring to inaccurate accounts of the approved insurance provider elects to Response: The incentive to cater to
previously approved premium offer a premium discount in a state, large farmers exists in the current
reduction plan that would restrict allowing approved insurance providers program, apart from any feature of the
premium discounts to only those to offer the premium discount to some premium reduction plan. However, the
farmers who applied for insurance farmers in the state and not to others interim rule helps to create meaningful
through the internet. The premium could result in unfair discrimination. program opportunities for smaller
reduction plan approved by RMA For this reason, the interim rule requires farmers by requiring that approved
included opportunities for farmers to that an approved insurance provider insurance providers eligible to offer
use the internet, but never proposed authorized to offer premium discounts, premium discounts implement
restricting premium discounts to those and its affiliated agents, must marketing plans that specifically targets
farmers that used the internet. automatically apply the same such farmers. This affirmative step
Further, costs savings are not percentage premium discount to all of helps to offset the natural tendency of
determined on a farmer-by-farmer basis. its policyholders in the state. approved insurance providers and their
As discussed above, since approved However, there may be situations agents to seek only the business of larger
insurance providers can now select the where the agent is writing for more than farmers. Further, RMA will monitor
states in which to participate in the one approved insurance provider, some such marketing plans to ensure that they
premium reduction plan, under the of whom may not be participating in the are effectively reaching the small,
interim rule, cost savings for an premium reduction plan or not limited resource, women and minority
approved insurance provider are participating in that state. There is no farmers and require remedial measures
determined on a state basis. Further, to requirement in section 508(e)(3) of the or impose sanctions where appropriate.
preclude any discrimination against Act, the SRA, or the interim rule that Comment: Several agents and
farmers in a selected state, if an the agent sign up all its customers with interested parties commented that there
approved insurance provider is the approved insurance provider that is nothing in the proposed rule to
approved to pay a premium discount, participates in the premium discount prevent an approved insurance provider
the same percentage amount of plan. However, as stated above, the from advertising a premium reduction
premium discount must be paid to all interim rule now contains provisions plan only to large farmers through direct
policyholders of the approved insurance that require the agent to inform all its mail telling past customers that they are
provider in the state. This means the customers of the approved insurance offering a discount and they are the only
percentage of premium discount may providers the agent writes for that agent they can get the discount from.
vary between states but it must be the participate in the premium discount Response: The interim rule precludes
same within each state. Therefore, if an plan. This will allow farmers to make this behavior in two ways. First, as
approved insurance provider requested informed decisions regarding their stated above, advertising and promotion
approval of a premium discount based insurance. is significantly curtailed. No agent or
on savings attained through the internet Comment: An interested party agrees approved insurance provider can
and only intended to pay the discount absolutely that the premium reduction advertise or promote the availability or
to farmers that used the internet, RMA plan must be provided to all farmers as amount of a premium discount.
would have to disapprove the payment a minimal standard since it reduces the Advertising and promotion is limited to
of such discount under the interim rule. opportunity for inequitable treatment. the past premium discounts that have
Comment: Several agents and Response: RMA agrees in part with been paid and even they must be
interested parties asked whether anyone the commenter that a premium discount accompanied by prominent disclaimers.
thought about the fact that if agents have must be provided to all producers. Second, as stated above, the interim rule
a discount plan and every crop However, as stated above, RMA has to requires approved insurance providers
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41871
to design and implement a marketing plan. To mitigate the situation, RMA achieve savings in all states or achieve
plan that will specifically target small, requires the approved insurance the same amount of savings.
limited resource, women and minority provider to develop and implement the With respect to policing of the
farmers. RMA would take remedial marketing plan separate from the situation, as stated above, promotions
action or sanction any approved solicitation done by agents. This way all and advertising alleged to be
insurance provider that attempted to farmers regardless of size should be discriminatory will be reviewed by
solicit only large or prospectively informed of the availability of the RMA and state regulators and corrective
profitable farmers. Further, as stated premium reduction plan in their state. actions required. The marketing
above, all agents must now inform their Further, RMA is requiring that all agents concerns raised by the premium
customers of all the approved insurance to disclose to all farmers the list of all reduction plan are similar to other
providers they write for that are approved insurance providers with market conduct issues that insurance
participating in the premium reduction which they write that are participating regulators regularly face especially with
plan in the state. This will reduce the in the premium reduction plan. This, respect to the marketing of insurance
chance of any agent representing that it coupled with the marketing campaigns plans by mutual and other similar types
is the only agent the farmer can get a of the approved insurance providers of approved insurance providers that
premium discount through. who participate in the premium offer payments to policyholders similar
Comment: Several agents, approved reduction plan, will allow farmers to to the premium discount. While RMA
insurance providers, and interested make informed decisions. shares the concerns of the commenter,
parties commented there is nothing With respect to the policing of such RMA believes that these concerns can
keeping an agent from selling the conduct, RMA will be monitoring the be addressed through cooperation
discount plan from one approved situation and will also rely on state between RMA and state insurance
insurance provider and the regular plan regulators, who have extensive regulators.
from another. Agents will be able to experience in regulating market conduct Comment: Several interested parties
pick and choose who they write with for by agents. commented that they oppose
given farmers. A commenter states that Comment: A few agents commented implementation of the premium
this may lead to market conduct issues that the crop insurance program (before reduction plan, which opens the door to
regarding the farmers’ access to the best the premium reduction plan) was easier discrimination and significant program
deal that the approved insurance to promote and keep other agents honest risks because the opportunity for all
providers, states and RMA will not be because the agent could tell the farmers to obtain coverage with a
able to police or monitor. A commenter customer that the base multi-peril premium discount, is simply not
stated that the agent recommends federal subsidized program was the available, either by state, crop, or
placing a policy with a given approved same cost no matter which agent or approved insurance provider. The
insurance provider and the farmer approved insurance provider they buy it commenter states that RMA is assuming
almost always goes along. It is a from. The commenter asked how to that all approved insurance providers
homogeneous product and the farmer police that problem in the future other will apply for and be approved to offer
trusts his agent to tell him which than to make the premium all the same. the premium reduction plan. But since
approved insurance provider will offer The commenter said this could lead to only one approved insurance provider
him the best service on timely claims accusations of ‘‘bid rigging.’’ has been approved to offer this type of
adjustment and payment. The farmer Response: With respect to changes coverage, a large portion of the farming
chooses his agent and the agent chooses resulting from the premium reduction segment is left without the availability
the approved insurance provider. plan, RMA would agree that the to purchase this coverage, which is itself
Response: RMA acknowledges there premium reduction plan may require discriminatory. The commenter also
may be an issue when an agent writes that agents adjust their marketing stated that no one or two approved
for both an approved insurance provider methods from those based on the insurance providers could currently
that offers the premium reduction plan premise that a policyholder pays the handle this volume of business.
and one that does not. There is nothing same premium regardless of approved Response: The commenter suggests
in the SRA that would require an agent insurance provider. Further, RMA that since only one approved insurance
to inform a farmer of the products shares the concern of the commenter provider, with a relatively small client
offered by a competing approved that these changes could pose problems base, is currently authorized to offer
insurance provider with whom it writes. such as misrepresentations of premium premium discounts, that RMA is
RMA acknowledges that an agent that discounts by agents. However, discriminating against the relatively
represents both an approved insurance provisions have been specifically added large segment of policyholders that do
provider eligible to participate in the to the interim rule that severely limit not have the opportunity to receive
premium reduction plan and an the advertising or promotion of a premium discounts. The commenter
approved insurance provider that does premium discount. Approved insurance further implies that RMA is
not can strongly influence which providers can only advertise actual discriminating if it does not approve
approved insurance providers to historical premium discounts and they enough approved insurance providers
promote among his or her existing or still must be accompanied by a with sufficient capacity to be able to
prospective policyholders. Further, the prominent disclaimer, either contained provide premium discounts to every
approved insurance provider in the interim rule or approved by RMA. crop insurance policyholder. The
recommended to the policyholder by RMA cannot consider the commenters commenters are incorrect.
the agent might reflect compensation or suggestions of making premium Participation in the premium
other benefits to the agent rather than discounts the same for all approved reduction plan is strictly voluntary.
what might be in the policyholder’s best insurance providers because section Further, RMA is obligated to comply
interest. RMA is concerned that the 508(e)(3) of the Act is very specific that with section 508(e)(3) of the Act, which
misuse of such influence by agents such discounts must be based on the requires approved insurance providers
could result in certain farmers not savings achieved by the approved be able to deliver crop insurance for less
having an equal opportunity to insurance providers are not all approved than the A&O subsidy received to
participate in the premium reduction insurance providers will be able to qualify to pay a premium discount.
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41872 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
There never was, nor could there be, a Response: If the commenters are providers to offer premium discounts,
guarantee that all approved insurance correct in their assessment that the approved insurance provider must
providers would request to participate reductions in the A&O subsidy remove be able to demonstrate that it can
in the premium reduction plan or they opportunities to reduce premiums, then deliver insurance for less than the A&O
would qualify. approved insurance providers will not subsidy, that its premium discounts
The fact that not all approved request the opportunity to offer a correspond to cost efficiencies in
insurance providers may participate in premium discount under the premium delivery, and that it can meet other
the premium reduction plan or, as reduction plan or submit premium requirements established by FCIC.
stated above, RMA has elected to permit discounts for RMA approval. These additional requirements have
approved insurance providers to elect Participation in the premium reduction been contained in several FCIC Board
which states in which they will plan is voluntary based on whether an resolutions and Manager’s Bulletin
participate, does not mean that farmers approved insurance provider can MGR–03–008. RMA has applied these
have been unfairly discriminated achieve cost efficiencies that would requirements evenly across all approved
against. By definition, unfair qualify under section 508(e)(3) of the insurance providers submitting
discrimination occurs when an Act. premium reduction plans, including the
approved insurance provider elects to Further, the commenters do not only approved insurance provider that
offer the premium discount to certain provide an explanation to support the has been authorized to offer a premium
farmers and elects not to provide it to conclusion that the premium reduction reduction plan. In most cases where
others when the premium reduction plan does not support the objective of RMA has not approved an approved
plan is available based on factors such preventing unfair discrimination and insurance provider, it has been because
as policy size or loss history. that it is inherently discriminatory. The the approved insurance provider has not
Within each state the approved interim rule addresses the potential for been able to demonstrate that it can
insurance provider elects to participate discrimination on several fronts. First, deliver crop insurance for less than the
in the premium reduction plan, all the interim rule requires that the A&O subsidy.
farmers in that state will have equal approved insurance provider first meet Notwithstanding what has occurred in
access to the premium discount and to all requirements to qualify for crop the past, the interim rule is significantly
ensure that all farmers are informed insurance participation under the SRA, different from the procedures or
about the opportunity to receive a including certifying to abide by all proposed rule because now approved
premium discount, approved insurance Federal regulations prohibiting insurance providers will not have to
providers must implement a marketing discrimination. Second, the interim rule demonstrate they can deliver the crop
plan that specifically targets small, requires that an approved insurance insurance program for less than the
limited resource, women, and minority provider must automatically provide the A&O subsidy received from RMA before
producers. Further, as stated above, all same percentage of premium discount to they are found eligible to participate in
agents must identify all approved all policyholders in the state if it elects the premium reduction plan. RMA will
insurance providers for which they to pay a premium discount. Third, the simply be evaluating the marketing plan
write that participate in the premium interim rule requires that for an to determine whether it is likely to meet
reduction plan. These measures should approved insurance provider to be the requirement of reaching small,
ensure equal access to premium authorized to offer a premium discount, limited resource, women and minority
discounts in a state and if they are not it must develop and implement a farmers. If it is likely to be effective,
effective, RMA has the authority to marketing plan which specifically approved insurance providers will be
require other remedial measures or targets small, limited resource, women, eligible for the opportunity to offer a
impose sanctions. and minority farmers. premium discount to their
Finally, RMA has attempted to Comment: Several agents, approved policyholders. However, no premium
simplify the process for approved insurance providers, and interested discount can be paid until the approved
insurance providers to request to parties commented that RMA has insurance provider can demonstrate it
participate in the premium reduction further discriminated against the farmer has attained actual cost savings. This
plan. Based on these changes, coupled by not allowing all approved insurance means that all approved insurance
with the strong interest by most of the providers to offer plans and by allowing providers will be on equal footing under
approved insurance providers to one new applicant for an SRA to offer the interim rule.
participate in the premium reduction a premium reduction plan as part of its Comment: A few agents and
plan for the 2005 reinsurance year, RMA SRA application based upon interested parties commented that the
believes that the premium reduction unpublished procedures and criteria. premium reduction plan is blatantly
plan will be available to an increasing The commenter claims RMA has now unfair to the different states it covers.
number of farmers over time. denied all applications for plans based The commenter states that certain states
Comment: Many approved insurance upon the Managers Bulletin No. MGR– routinely make the insurance industry
providers, agents and farmers 03–008, dated May 1, 2003, and the profits they are required to make just
commented that the premium reduction apparently it has not applied the same so they can pay the amount of claims
plans do not support the objective of criteria to the only approved insurance that occur in other states with poor loss
preventing unfair discrimination. A provider approved for the premium history. With the requirement that all
commenter stated that the reductions in reduction plan. A commenter claims the states have to be treated the same
A&O already eliminate any broad based this has allowed unfair competition in the program discriminates against the
business opportunity for approved the marketplace to the detriment of farmers in those states.
insurance providers or agents to offer other SRA Holders large and small. Response: Because approval to pay a
further reductions in premium. Commenters have stated the premium premium discount is determined by the
Commenters stated the premium reduction plan should not be provided actual expenses of an approved
reduction plan is inherently by only one approved insurance insurance provider in delivering crop
discriminatory particularly based on provider. insurance to farmers, underwriting gains
what has been implemented to date and Response: Although section 508(e)(3) or losses in a state should not be a
what is proposed in the new rules. of the Act allows approved insurance consideration. The proposed rule was
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41873
based on that premise. However, RMA providers is confidential business a living if they lose their large
now recognizes that many factors, information which is protected from customers. A commenter stated that
including underwriting gains or losses, public disclosure. However, RMA has Crop1 only advertises to large farmers.
may influence an approved insurance taken other measures to assure non- Commenters stated that Crop1 was not
provider’s decision to enter, remain in, discrimination in the delivery of the being forced to market with equal
or exit a state. As stated above, RMA has program. One measure is the marketing resources to all farmers. A commenter
evaluated the consequences of approved plans that specifically targets small, stated that approval of Crop1 was
insurance providers withdrawing from limited resource, women and minority irregular, discriminatory and illegal
certain states if it required the approved farmers. To ensure that such marketing because it ignored the civil rights
insurance provider offer the premium plans are working, RMA may compare statutes and the provisions of the SRA
reduction plan in all states and has the compositions of the approved requiring approved insurance providers
elected to allow approved insurance insurance providers’ books of business. to sell to all farmers.
providers to select those states in which RMA can take remedial actions or Response: Under existing RMA
it will participate in the premium impose sanctions if there is evidence procedures, any approved insurance
reduction plan. Further, as stated above, that small, limited resource, women, or provider authorized to offer premium
the fact that some farmers will not have minority farmers are not being provided discounts, including Crop1, must
access to the premium reduction plan access to the premium discount. automatically provide the discount to
because one is not offered in the state Another measure implemented in the all of its policyholders. RMA has no
is not discrimination as long as all interim rule is the consumer complaint evidence that any Crop1 policyholder
farmers in the state are treated the same. provisions. These allow farmers to has ever been denied the appropriate
Comment: A few approved insurance complain directly to RMA if they premium discount. As part of its
providers and agents commented that believe they have not been provided premium reduction plan monitoring
the premium reduction plan access to the premium reduction plan or effort, RMA monitors the marketing
discriminates against approved have been unfairly discriminated materials and practices of Crop1. As far
insurance providers that write on a against. as RMA has been able to determine,
national basis and are not cherry Comment: An interested party none of these marketing activities,
picking by selling on a geographical area commented that the premium reduction including advertising, have been
basis. The commenter stated that these plan should be implemented only with directed to farmers of a certain size.
geographical areas tend to have the best the strictest caution only for those RMA does not regulate agent solicitation
performance. The commenter stated that approved insurance providers who have activities and, therefore, cannot
the premium reduction plan also favors already demonstrated the capacity to eliminate the possibility that agents
start up approved insurance providers fairly serve all farmers and that the final representing Crop1 may target larger
that have no track record of rule should include specific provisions farms through their mailings or through
performance. designed to guarantee equitable services other means. Such conduct by agents is
Response: After further reviewing this to minority farmers. not precluded in the SRA or the existing
situation in light of this and other Response: The interim rule requires procedures.
similar comments received on this that approved insurance providers Further, to the extent that such
issue, RMA agrees that the proposed eligible for the opportunity to offer conduct has occurred in the past, the
rule tended to favor regional approved premium discounts first meet all interim rule has provisions to mitigate
insurance providers who generally sell requirements of the SRA. The SRA and such conduct, such as requiring
in the lower risk areas. As stated above, approved procedures includes approved insurance providers to design
RMA was concerned that requiring provisions regarding the service and implement their marketing plan to
approved insurance providers to requirements to fairly serve all farmers. specifically reach small, limited
participate in the premium reduction Further, the interim rule specifically resource, women and minority farmers
plan in all states in which they do requires approved insurance providers and to require agents identify to farmers
business would encourage approved to market to all farmers, including all approved insurance providers for
insurance providers to pull out of states small, limited resource, women, and which it writes that participate in the
where they could not reasonably cut minority farmers. In addition, since the premium reduction plan. Further, RMA
costs so that they could cut costs and premium discount is determined based can compare approved insurance
offer a premium discount in other states on actual savings achieved during the providers’ books of business in the
to remain competitive. As stated above, reinsurance year, RMA will be able to states in which participate in the
RMA weighed interest of the farmer in evaluate the service provided and premium reduction plan to identify
receiving insurance versus the potential whether small, limited resource, when small, limited resource, women
to receive a potential premium discount women, and minority farmers were and minority farmers may not be
in the future and determined the former adequately served before approving any receiving access to the premium
was much more important. For this premium discount. discount and take the appropriate
reason, RMA revised the rule to allow action.
b. Crop1 Comment: Several agents and an
approved insurance providers to select
the states in which they will participate Comment: Many agents, farmers, and interested party commented that the
in the premium reduction plan. other interested parties claimed that premium reduction plan agencies do not
Comment: An approved insurance Crop1 is selecting only large farmers to offer nor advertise to their current
provider commented that the current offer the discount to and not all of their customer base the availability of the
proposed rules do not provide adequate customers. A commenter stated that a premium reduction plan unless they
public disclosure to assure non- marketing mailer from Crop1 seemed to specifically ask about it and only use
discriminatory program delivery in the be sent only to customers who had at the premium reduction plan to attract
future. As a result, these problems will least 750 acres. A commenter stated that new business. A commenter states that
inevitably persist. Crop1 agents misrepresent quotes in agents are only pushing the premium
Response: Much of the information order to mislead another agent’s clients. reduction plan in the one area where it
provided by approved insurance Commenters state that they cannot make does not have much business but where
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41874 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
the agent has a lot of business, farmers has been significantly curtailed because in the interim rule would change this
are being told the premium reduction premium discounts are now based on requirement and would extend
plan is a bad thing and that they do not actual, not projected savings. Therefore, sanctions in the interim rule to agents
want to use it. A commenter stated the no agent can advertise that a premium as well as approved insurance providers
reason they do not offer it aggressively discount is available in order to obtain that violate this prohibition.
to their current customer base is that it new policyholders. Moreover, the interim rule contains
will reduce their commissions by as Comment: An agent commented that features that help ensure that service to
much as one-half. A commenter because Crop1 is limited as to how small farmers will be adequate, in
concludes that the agents who have much insurance it can write and can contrast to what the commenter had
signed on with Crop1 use it only as a only write in certain states, the heard from certain agents. Under the
tool of last resort to capture business premium reduction plan is not available interim rule, all approved insurance
from other agents who do not offer it, to all farmers, which contradicts RMA’s providers are required to comply with
while at the same time trying to make statements regarding discrimination. the service requirements of the SRA and
sure their current customers do not hear Response: RMA is obligated to approved procedures for all
about it. A commenter stated that comply with section 508(e)(3) of the Act policyholders, both small and large or
farmers do not receive real service just regardless of how many approved be subject to sanctions. Further, the
so Crop1 can have a competitive insurance providers qualify to be able to marketing plan requirement is designed
advantage. Commenters stated the offer premium discounts, how many to ensure that small farmers have access
premium reduction plan is being used states they write in, or how much to any premium discount. Unless
as a predatory tool. premium they are authorized to write. otherwise provided for in procedures,
Response: Under the existing Only approved insurance providers that RMA will be relying on the definition of
premium reduction plan procedures as have actual A&O costs less than their ‘‘small farm’’ issued by USDA.
well as under the interim rule, if an A&O subsidy can pay a premium However, RMA wants the flexibility to
agent represents an approved insurance discount. However, under the adjust the definition if the need arises.
provider authorized to offer the alternative rule, this burden does not Comment: Several agents commented
premium reduction plan, then all have to be proven up front and any that they had not seen unfair
policyholders of that approved approved insurance provider can discrimination against farmers as noted
insurance provider through that agent qualify for the opportunity to offer a in the proposed rules. The commenters
will automatically receive the premium premium discount based on the stated they were servicing the small and
discount that has been authorized. RMA marketing plan and other standards large farmer just as other agencies did
is not aware of any cases where a contained in the interim rule. The prior to the premium reduction plan,
policyholder of an approved insurance payment of any premium discount will with no decline in claims servicing and
provider that is authorized to offer the still be conditioned upon a showing of it does not matter if our grower is male
premium reduction plan has been the requisite savings. or female; if they are insuring as little
denied the premium discount. Further, as stated above, as long as all as 25 acres crop or up to 27,798 acres.
Moreover, agents routinely solicit the farmers are treated the same where a A commenter states that when given the
most profitable farmers under the premium reduction plan is available, option to buy insurance at the usual
existing crop insurance program. As there is no discrimination. It is only price or a premium reduction plan
stated above, RMA does not regulate the where farmers in a state where the price, farmers chose the premium
solicitation activities of agents. It premium reduction plan is available are reduction plan. A commenter states this
regulates the marketing of the approved treated differently is there is one area where farmers were able to
insurance provider to ensure that small, discrimination. secure a savings that they could show
limited resource, women, and minority their lender; that gave them an
c. Small, Women, Minority Farmers
farmers receive access to the premium opportunity to buy-up; or assisted with
discount and these requirements have Comment: A farmer commented that off-setting increased input costs.
been strengthened and clarified in the they had heard agents comment that Knowing their savings up-front
interim rule. small farmers will be hurt by not being provided an offense against the many
The commenter appears to be serviced. The commenter stated that the unknown factors that confront them
describing a situation in which an agent agent’s definition of a small farm may be every year when they go into the field.
represents both an approved insurance more like a 10 or 20 acre special farm A commenter stated that the premium
provider eligible for the opportunity to (i.e. organic or other), not USDA’s reduction plan is of extra importance to
offer a premium discount as well as one definition of gross income of $250,000 smaller farmers that don’t have the
or more other approved insurance or less. The commenter asked that when financial strength to purchase the
providers. The commenter seems to RMA is confronted by the approved coverage that they really need. Although
believe that the requirement of the insurance providers’ reasons against the the total savings to a small farmer seems
approved insurance provider to offer the premium reduction plan that RMA is on negligible, the per acre savings is
premium reduction plan to all of its the same page with the terminology. significant.
policyholders is implicitly extended to The commenter asserted that it is illegal Response: RMA would agree with the
agents. This is not the case. However, to to NOT sell to a farmer customer, no commenters that unfair discrimination
ensure that all farmers are made aware matter how big or small and that one provisions are being effectively
of the opportunity to participate in the would think the agent would not risk an enforced, that service requirements
premium reduction plan, agents are now E&O claim. under the SRA and approved
required to inform all of their customers Response: RMA agrees that the SRA procedures are being maintained, and
of all the approved insurance providers prohibits an approved insurance that small farms are receiving premium
they write for that participate in the provider or its agents from refusing to discounts. However, although RMA
premium reduction plan. Lastly, any provide crop insurance to an otherwise agrees that knowing the amount of
advertising by agents and approved eligible farmer, regardless of size. premium discount up front can be
insurance providers prior to being Approved insurance providers can be beneficial, as stated more fully above,
approved to pay a premium discount sanctioned for non-compliance. Nothing the ability to effectively regulate the
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41875
program will be difficult. Therefore, eligible to participate in the premium Comment: An interested party
RMA has elected to base premium reduction plan must qualify under the commented that RMA spends millions
discounts on actual savings, not terms of the SRA, which prohibits an each year in educational outreach and
projected savings, thereby reducing the approved insurance provider from maybe it should take some of that
burden on approved insurance denying insurance to any eligible money and contract for a study of the
providers in becoming eligible for the farmer, regardless of size or loss history, impact of this education on small,
opportunity to offer a premium discount and establishes specific requirements limited resource and medium-sized
and on RMA and approved insurance for policyholder service. The interim family farms.
providers in determining the amount of rule adds a further restriction that an Response: Although the commenter’s
any premium discount, if any, that is approved insurance provider cannot suggestion may have some merit, it does
available for the reinsurance year. RMA deny a premium discount to any not address issues concerning the
anticipates that this will effectively give existing or prospective policyholder on proposed rule.
more farmers the opportunity to receive the basis of size or loss history. It is Comment: A few agents commented
such premium discounts. Further, when doubtful that an approved insurance that farmers can currently purchase
evaluating the possibility that an provider would risk sanctions under the CAT coverage for very minimal expense
approved insurance provider may leave SRA and interim rule by allowing and in some cases free for limited
a state versus the payment of a premium service to fall below SRA and approved resource farmers but they don’t
discount, RMA determined that the procedure requirements or by denying participate in the crop insurance
former was more critical and have given insurance or premium discounts to program now. The commenters asked
approved insurance providers the otherwise eligible farmers. how the premium reduction plan would
option to select states. The interim rule further prevents an benefit them or increase participation.
Comment: Many agents, approved Response: The commenter may be
approved insurance provider from
insurance providers, loss adjusters and correct that some farmers may not avail
ignoring the risk management needs of
other interested parties claim that new themselves of the benefits of crop
small, limited resource, women, or insurance regardless of the incentive
or small farming operations, women, minority farmers because to qualify for
minority, and limited resource farmers that might be provided by premium
the opportunity to offer a premium discounts. The legislative history of
will be harmed the most. Commenters discount, an approved insurance
stated these groups will have more section 508(e)(3) of the Act suggests that
provider must develop and implement a increased price competition among
difficulty competing with larger, lower marketing plan, which specifically
risk farmers and farms in high risk areas approved insurance providers is the
targets such farmers. Further, RMA will major objective and increased
will end up without service. They claim
be closely monitoring the situation to participation may be the result of such
FCIC’s proposed rules concerning
ensure such farmers are not denied competition.
administration of the premium
access to premium discounts. Comment: Several agents and an
reduction plans do not adequately
protect small and minority farmer from With respect to an approved approved insurance provider
unfair discrimination on the basis of insurance provider targeting only the commented that as the large accounts
size and risk of loss. Commenters stated most profitable areas based on their loss are ‘‘cherry-picked’’ by the premium
approved insurance providers will history, a strong incentive to do this reduction plan, the smaller farmers will
target farmers considered to be the most exists currently and has existed ever be left to bear alone the overhead and
profitable based on their acreage size, since the delivery of Federal crop cost of the traditional plans. A
the loss ratios of the counties they are insurance was transferred to private commenter stated it will be financially
in—particularly whether the county or approved insurance providers. challenged to continue servicing smaller
state is in a favorable or unfavorable loss However, as stated above, the interim accounts. A commenter stated that the
area—and whether farmers can afford to rule does require the approved premium reduction plan is NOT being
pay higher premiums for higher insurance provider to also target small, used as a beneficial option to farmers
coverage levels. A commenter stated limited resource, women and minority but is instead being used to ‘‘cherry
that these are the farmers crop insurance farmers and RMA will be monitoring pick’’ the existing policies of big farmers
was intended to protect. The their efforts. With respect to agents’ who are current customers of other
commenters also claim the agents will shifting service away from smaller agencies. A commenter also stated that
have to accept less commission and, policyholders to better service larger premiums for smaller farmers will
therefore, spend most of the time policyholders because, the commenters necessarily increase, thus exacerbating
servicing only the larger farmers in their assume, commission rates would the current deplorable situation that is
agencies. One commenter claims it decline, an approved insurance provider rapidly destroying this nation’s family
would not be fair to small farmers nor and its affiliated agents are obligated to farms. Some approved insurance
to loyal agents who have represented maintain a required level of service providers are discriminating against
FCIC well in this part of the country. A under the terms of the SRA and small farmers by cherry picking large
commenter states that typically, smaller approved procedures for all farmers and offering to bundle other
farm operations tend to have higher loss policyholders, both large and small. If a services at reduced prices at the expense
ratios, so again small family farmer group of policyholders fail to receive the of small farmers.
clients will suffer the most. A required level of service, the approved Response: RMA has investigated the
commenter stated that the premium insurance provider risks sanctions marketing activities of the approved
reduction plan will put many of the under the SRA and interim rule. In any insurance provider currently authorized
smaller farmers at risk for a catastrophe. event, as stated above, the interim rule to offer the premium reduction plan and
Response: RMA disagrees with the contains provisions specifically has found no evidence that the
comments that high-risk areas will lose designed to protect the interests of approved insurance provider is
service and that the interim rule does small, limited resource, women, and specifically and exclusively targeting
not protect against unfair discrimination minority farmers and RMA has added large farmers. However, RMA accepts
on the basis of size and risk of loss. Any teeth to its sanctions to provide the the possibility that some agents of the
approved insurance provider that is incentive to comply. approved insurance provider currently
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41876 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
authorized to offer the premium premium reduction plan. The only thing the larger farmers. The commenter
reduction plan might be targeting larger that is changed is that the approved stated that now RMA is trying to give
and more profitable policyholders of insurance provider now pays to the the larger farmers an unfair discount.
competing agents. As stated above, such farmer a discount based on cost savings The ones (family farms) that need the
practices are not be prohibited by the expressed as a percentage of the total help are not receiving it.
Act or the SRA. RMA does not regulate premium. Response: The commenter does not
the conduct of agents in the solicitation With respect to the comment that make the distinction between an
of business. some agents will use the premium unauthorized initiative of certain agents
However, to mitigate such conduct by reduction plan to bundle crop insurance to offer discounts according to their own
the agent, the interim rule puts the with other products offered by the terms and section 508(e)(3) of the Act,
burden on the approved insurance agent, this is an issue that also is outside which permits approved insurance
provider to ensure that the premium the interim rule. Such conduct is providers to offer premium discounts.
reduction plan is adequately marketed prohibited by the SRA and agents are Under section 508(e)(3), RMA is
to small, limited resource, women and under the scrutiny by both RMA and the obligated to provide approved insurance
minority farmers. As stated above, RMA states with respect to market conduct providers with the opportunity to pay
will be able to monitor the situation and and illegal rebating through bundling. premium discounts, subject to the
determine whether approved insurance Nothing in the interim rule would make limitations it establishes. As stated
providers’ marketing plans were it more attractive to engage in such above, one of the limitations is that
successful before it approves any illegal practices. premium discounts have to be
premium discount. Further, market Comment: An agent commented that specifically marketed to small, limited
forces are the best means to control the the areas it serves have a number of resource, women, and minority farmers.
conduct of agents because approved limited resource, socially Therefore, RMA is not trying to give
insurance providers are unlikely to be disadvantaged, and minority farmers. larger farmers an unfair discount.
the recipient of only the potentially The commenter asked that once it is Comment: Several agents and other
unprofitable policies while competitors forced out of business due to the interested parties commented that crop
get the potentially more profitable proposed marketing scheme, who will insurance was designed to give all
policies. service this segment. farmers protection from natural
With respect to the comment that Response: The commenter predicts disasters and that all farmers means
agents that do not offer the premium that he or she will be forced out of large and small. They claim that RMA
reduction plan will be left to service business as a result of the premium tells them that they must service all
only smaller accounts, the commenter is reduction plan. However, as state above, farmers equally and rightfully so. They
describing a situation that is possible approved insurance providers have an claim that it is ironic that RMA is
regardless of whether the premium incentive to retain their agents and their proposing just the opposite and that if
reduction plan is operating or not. books of business to maximize profits the premium reduction plan is approved
However, the interim rule has taken and ensure that customers are receiving then the civil rights laws and
measures to mitigate potential problems. the required level of service. Further, regulations applicable to federally
Now approved insurance providers will the interim rule now bases premium assisted programs must be amended to
be allowed to select the states in which discounts on actual savings and severely require removal of the ‘‘Justice for All’’
to participate in the premium reduction limits advertising or promotions. poster because the premium reduction
plan. This would allow approved Therefore, the impacts on the program plan will not be providing justice for all.
insurance providers to elect not to should be significantly decreased and Response: RMA would agree with the
participate in states where its cost effectively phased-in over time because commenters that the benefits of crop
margins are low. the discounts will be paid after the end insurance are intended for both small
Further, as stated above, approved of the reinsurance year. Even if the and large farmers and that those that
insurance providers have the incentive commenter is correct and some agents participate in the program are expected
to ensure that agents are provided a fair go out of business, under the SRA, it is to treat all farmers equally. However,
commission. However, the the approved insurance provider’s RMA disagrees with the comment that
determination of what constitutes fair responsibility to assign other agents to RMA is proposing the opposite to this.
compensation is strictly between the provide the required service to these In any state that an approved insurance
approved insurance provider and agent. policyholders. provider participates in the premium
In addition, commenters have pointed However, RMA understands the reduction plan, it must make any
out that some farmers will value agent’s concerns that approved premium discount available to all
superior service over any premium insurance providers may withdraw from farmers large and small. To ensure this
discount, especially when such states if they are forced to offer a occurs, RMA requires the design and
discount is no longer guaranteed. premium discount in all states in which implementation of a marketing plan for
Therefore, even those agents that do not they do business. As stated above, RMA all farmers, including small, limited
participate in the premium reduction has elected to allow the approved resource, women and minority farmers.
plan could still compete. insurance provider to select which As long as all farmers within a state are
With respect to the comment that states to participate in the premium treated equally, there is no
premiums for smaller farmers will reduction plan. While this may mean discrimination. If RMA determines that
necessarily increase, the commenter that some farmers may not be able to not all farmers have been treated
does not indicate why the premium receive a premium discount, it assures equally, it can impose sanctions.
reduction plan would cause this to that these same farmers will have Further, RMA can make this
happen. Premiums are determined by a continued access to crop insurance. determination before any premium
rating methodology based on the Comment: A few agents commented discount is approved. Finally, under the
frequency or severity of losses and are that back in the late 80’s agents wanted interim rule, farmers who believe they
not related to premium discounts. The to give cash discounts to farmers who have not been treated fairly have a
amount of premium paid each year to paid their premiums early, but RMA means of bringing their complaints
cover losses is not changed under the said they could not because it favored directly to RMA.
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41877
Comment: Many agents, interested Comment: An interested party agent commissions and agent profit-
parties, approved insurance providers commented that the requirement in share levels based on the state or agency
and loss adjusters commented that the section II.A.2 of the SRA that approved to which it is marketing. The
premium reduction plan could insurance providers offer the premium commenter stated that an approved
encourage selective ‘‘red-lining’’ of reduction plan in all states they do insurance provider would be more
specific states, crops and agencies business makes it clear that cherry likely to emphasize marketing of the
without federal oversight. They claim picking is not acceptable. premium reduction plan in a state or
the approved insurance providers will Response: RMA disagrees with the part of a state where it can produce a
only write in areas that are profitable. A commenter that section II.A.2 of the superior underwriting gain, leaving less
commenter states that the requirement SRA states that an approved insurance profitable regions underserved. The
that national approved insurance provider must offer the premium commenter stated that such an outcome
providers provide premium reduction reduction plan in all states. Section would directly undermine the principle
plan discounts in the unprofitable states II.A.2 of the SRA obligates the approved that ‘‘no premium reduction plan can be
creates an incentive for these approved insurance provider to provide insurance unfairly discriminatory against
insurance providers to withdraw from to all farmers who make application producers based on their loss history,
these areas in order to concentrate on unless such farmer is ineligible. The size of operation, or the amount of
the more profitable states. A commenter requirement that approved insurance premium generated within the
is concerned that some farmers with providers offer a premium discount plan program.’’
poor loss histories in certain states will in all states arose in the proposed rule Response: RMA questions the
be excluded by certain approved and, as stated above, RMA has commenters’ assumption that an
insurance providers because the reconsidered this position and will now approved insurance provider would be
approved insurance providers would allow approved insurance provider to more likely to market premium
not be willing to write in those states. select the states in which it will discounts in areas where the approved
A commenter stated that due to the participate in the premium reduction insurance provider expects
danger of a ‘‘domino effect’’ on plan. In those states where the approved underwriting gains and to ignore them
approved insurance provider insurance provider elects to participate, in high risk areas. The ability to be
participation, farmers in these states the approved insurance provider must approved to pay premium discounts
could be left without an opportunity to make pay any premium discount to all depends on the approved insurance
obtain protection for their farm farmers or it will be in violation of the provider’s ability to deliver crop
operations. A commenter states that this interim rule and subject to sanctions. insurance for an amount less that the
jeopardizes the national characterization Comment: A few agents commented A&O subsidy, not underwriting gains.
on the potential ability of approved Further, RMA’s experience with the
of crop insurance, which is necessary to
insurance providers to offer discount premium reduction plan to date
its future.
and non-discount insurance in the same indicates that an approved insurance
Response: Selective redlining of states state. The commenter claims this goes provider is not necessarily averse to
can occur now. RMA does not require against everything that the current crop marketing the premium reduction plan
approved insurance providers to offer insurance delivery system stands for. in a state with large historical loss
crop insurance in all states. The The commenter states that letting ratios.
approved insurance provider selects the approved insurance providers’ offer Nevertheless, RMA is concerned with
states in which it will do business. both discount and non-discount the number of comments it has received
Presumably, this selection process is insurance in the same state would lead that high risk areas might be
based on the potential profitability of to the biggest case of ‘‘Cherry-Picking’’ underserved and that requiring an
the state in light of the terms provided the crop insurance industry has ever approved insurance provider to
under the SRA. Even considering seen. participate in the premium reduction
profitability, approved insurance Response: RMA agrees completely plan in all states could lead to a
providers are currently participating in with the commenter. Both the proposed decision to leave certain states by
high risk states. rule and the interim rule require that an approved insurance providers.
However, as stated above, RMA approved insurance provider must Therefore, the interim rule allows an
acknowledges that if an approved automatically pay any premium approved insurance provider to select
insurance provider is required to offer a discount to all policyholders in a state those states where it elects participate in
premium discount in all states in which in which the approved insurance the premium reduction plan. This
it does business, it may withdraw from provider is participating in the premium change should help ensure that farmers
certain states, leaving farmers with no reduction plan and it is approved to pay in certain areas do not lose their
coverage. To prevent this, RMA has a premium discount. Approved opportunity to obtain crop insurance
elected to allow approved insurance insurance providers that only pay the protection. Further, RMA cannot require
providers to select the states in which premium discount to certain farmers in that approved insurance providers pay
it will offer a premium discount. While a state will be subject to sanctions under premium discounts in states where the
this may exclude farmers in a particular the interim rule. achieving of cost efficiencies put the
state from receiving a benefit that others Comment: An approved insurance program in that state at risk. Therefore,
in an adjoining state may receive, at provider commented that FCIC appears while loss experience and premium size
least these farmers will still have access to have understated the extent of this may play a role because of the amount
to crop insurance even if they do not problem in the Federal Register release of expense required to service such
have access to a premium discount. when it states, ‘‘it would be easy to policies, RMA has determined that the
Within a state where a premium determine if practices were unfairly continued availability of crop insurance
discount is being paid, all farmers discriminatory because the approved is more important that the possibility of
insured with the approved insurance insurance provider was required to offer receiving a premium discount in the
provider making the payment will the discount to all producers who future.
receive the premium discount regardless wanted it.’’ However, approved Comment: Several agents, approved
of their loss history. insurance providers can pay different insurance providers and interested
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41878 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
parties commented that USDA can ill- Comment: Many agents, farmers, stable workforce that will provide
afford more discriminations suits. A interested parties and approved farmers with the service required by the
commenter suggested the premium insurance providers stated that the SRA and approved procedures. In
reduction plan will cause ill feelings independent reviewers commissioned addition, as stated above, RMA has
toward the government. by RMA found that premium reduction revised the proposed rule to reduce the
Response: RMA disagrees with the plan proliferation will only result in a incentive for approved insurance
implication that the premium reduction modest increase in participation in the providers to make drastic cuts to agent
plan will generate discrimination crop insurance program. The commission or cause market
litigation. As stated above, commenters stated that only those disruptions.
discrimination only occurs when already insured will participate, which Comment: An agent commented that
farmers in the same state are treated will do nothing to contribute to a RMA’s independent reviewers seemed
differently. As stated above, RMA has reduction in ad hoc disaster relief and to believe that the premium reduction
taken measures to ensure this does not that the premium reduction plan will do plan would increase farmer
happen, including the ability to evaluate nothing to promote new participation by participation in the program. The
whether discrimination has occurred those who are currently not purchasing commenter claims this is an incorrect
before approving a premium discount. crop insurance. assessment. The insurance program is
Therefore, the potential for Response: The commenters assume complicated enough. Taking a
discrimination litigation should not be that objectives of the premium complicated process into more of a self-
any greater than under the current crop reduction plan are to increase service mode is not likely to increase
insurance program. participation and to reduce the need for program participation to any measurable
ad hoc disaster aid. However, from its degree.
4. Expert Reviews
legislative history, the stated objective Response: As stated above, the
Comment: Many agents, approved of the premium reduction plan is to purpose of the premium reduction plan
insurance providers, interested parties, allow for price competition in the
and a loss adjuster commented that is not to increase participation. It is to
market for crop insurance. Any increase allow price competition. If one effect of
RMA chose not to seek independent in participation would be an effect, not
review by parties with expertise in the this price competition is to increase
the objective. Therefore, regardless of participation, the program benefits.
marketing, selling, and operations whether there is any increase in
conducted by insurance agents in the However, regardless of whether the
participation, RMA is obligated to program benefits, premium discounts to
delivery of crop insurance. They state implement section 508(e)(3) of the Act.
RMA should revisit agent compensation farmers will allow the farmer to benefit.
Comment: Several agents and
by seeking review by qualified interested parties commented that they Further, as stated above, there is
insurance agency sales and management disagreed with the independent nothing in the interim rule that would
experts—and get knowledge-based reviewer’s assessments of the impact of require insurance be self service. In fact,
advice regarding the negative impact the widespread use of the proposed the interim rule makes it very clear that
that reduction in agent compensation premium reduction plan. One approved insurance providers and
will have on the crop insurance delivery commenter stated the assessments were agents are required to comply with the
system, and the economy of our rural devoid of facts or statistics. One finding service requirements in the SRA and
communities. A commenter also states in particular estimated that there would approved procedures or risk the
that RMA should conduct a study to be an increased use of the crop imposition of sanctions. In this respect,
anticipate what effects widespread insurance program by farmers. The RMA believes that even with the
adoption of the premium reduction plan estimated increase on a nationwide participation in the premium reduction
might have on the public/private basis was a total of 3,312,934 row crop plan of another agent, many farmers will
partnership that has been so successful acres. The commenter asks how the choose to remain with their agent based
in reducing farmers’ reliance on ad hoc experts arrived at these figures and on the service provided by that agent.
relief. stated the experts should show their The premium reduction plan will
Response: While commenters may work. A commenter stated fewer agents introduce price competition as an
disagree with the expert reviewers will make it harder for farmers to element in the decision making of
selected, their input was only to assist participate. A commenter stated that the farmers. However, it will not be the only
in creating the proposed rule. When premium reduction plan has not factor and frequently will not be the
creating the interim rule, RMA has brought any of the uninsured acreage deciding factor.
sought the opinions of the very people into the crop insurance program. Comment: An interested party
that would be most affected by the rule, Response: As stated above, the commented that when increasing levels
agents, farmers and approved insurance purpose of the premium reduction plan of coverage costs over 50% in premium
providers through the notice and is not to increase participation. It is to from one level to the next, a 5% or 10%
comment rulemaking process. Through allow price competition. If one effect of reduction will not do anything to
these comments, RMA has been able to this price competition is to increase increase participation by the farmer.
more accurately determine the impact of participation, the program benefits. What it may create, is a rate war
the premium reduction plan. As a result However, regardless of whether the between the approved insurance
of these comments, as stated above, program benefits, premium discounts to providers until no one can afford to
RMA has made considerable changes to farmers will allow the farmers to service the policies the way you expect
the proposed rule to address the benefit. them to be serviced.
commenters concerns. Further, as stated above, it is unlikely Response: As stated above, the
However, RMA agrees that additional that the premium reduction plan will purpose of the premium reduction plan
input may be valuable so it has decided result in a substantial reduction of the is not to increase participation. It is to
to implement this rule as an interim rule number of agents. Approved insurance allow price competition. If one effect of
so that additional comments may be providers have the incentive to retain this price competition is to increase
sought during the initial their agents and their books of business participation, the program benefits.
implementation of this regulation. to maximize profitability and ensure a However, regardless of whether the
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41879
program benefits, premium discounts to government and would rather live Comment: An agent commented that
farmers will allow the farmer to benefit. without crop insurance. he or she hoped that the available
Further, as stated above, RMA has Response: As stated above, the discount would entice more local
revised the proposed rule to remove the purpose of the premium reduction plan customers to join the agency but the
incentive for approved insurance is not to increase participation. It is to only customers he or she gained were
providers to engage in premium allow price competition. If one effect of smaller farmers who actually were not
discount wars and instead has this price competition is to increase engaged in farming on a full-time basis.
developed a process that allows the participation, the program benefits. Response: As stated above, the
approved insurance provider to conduct However, regardless of whether the purpose of the premium reduction plan
a reasoned analysis of its business to program benefits, premium discounts to is not to increase participation. It is to
determine where costs savings may be farmers will allow the farmer to benefit. allow price competition. If one effect of
appropriate and allows RMA to ensure Comment: A few agents and this price competition is to increase
that all SRA, approved procedures and interested parties commented that the participation, the program benefits.
the premium reduction plan argument that more farmers will buy However, regardless of whether the
requirements have been complied with crop insurance if it is cheaper is false. program benefits, premium discounts to
and that the financial stability of the The commenter stated that if RMA farmers will allow the farmer to benefit.
approved insurance provider will not be wants more farmers to buy crop Comment: A few agents and
adversely affected before approving the insurance, make crop insurance interested parties commented that the
payment of any premium discount. mandatory to get a farm payment. premium reduction plan will not
Therefore, insurance agents should not Another way would be to reduce increase participation. A commenter
be driven out of business and farmers disaster payments and put that money suggested that the premium reduction
still should be adequately served. towards more subsidies of higher levels plan would negatively impact the
Comment: Many agents, approved of crop insurance. Make farmers delivery system. Commenters stated that
insurance providers and farmers responsible for their own operation. the crop insurance program needs to be
commented that farmers who want crop Response: As stated above, the
simple. A commenter suggests making it
insurance are already buying it so purpose of the premium reduction plan
an entire farm income program. A
participation will not increase under the is not to increase participation. It is to
allow price competition. If one effect of commenter stated that farmers don’t like
premium reduction plan. Commenters
this price competition is to increase all of the plans to choose from and all
stated that if farmers are not buying crop
participation, the program benefits. they want is a policy based on a flat
insurance with a 38% to 67% subsidy,
However, regardless of whether the dollar amount of protection per acre. A
the 5–10% premium reduction plan
program benefits, premium discounts to commenter suggests that this should be
discount will not make them buy it. A
farmers will allow the farmer to benefit. looked at before RMA lowers premium
commenter stated that program
Further, commenters suggestions and find it only did just that. A
participation is nearly 80% now so it is
clear that the premium reduction plan regarding the use of disaster payments commenter suggested making the
has not been necessary to achieve or a requirement that farmers purchase delivery system more efficient.
current participation levels. A crop insurance to receive farm payments Response: As stated above, the
commenter stated that most farmers is outside the scope of this rule. purpose of the premium reduction plan
saved about $1.00 per acre with the Consequently, RMA cannot consider is not to increase participation. It is to
premium reduction plan and that if the taking this action. allow price competition. If one effect of
$1.00 savings meant that much to a Comment: Several agents and this price competition is to increase
farming operation as far as the farmer interested parties commented that participation, the program benefits.
being able to farm in the future, than farmers were unlikely to use the However, regardless of whether the
that operation has other factors that will premium reduction plan savings to program benefits, premium discounts to
keep him in or out of business in the increase coverage. A commenter stated farmers will allow the farmer to benefit.
future. it sold the premium reduction plan to However, RMA agrees that
Response: As stated above, the battle competitors. A commenter stated simplification is beneficial to the crop
purpose of the premium reduction plan that those customers that did buy the insurance program and it has taken
is not to increase participation. It is to premium reduction plan, none of them considerable measures to simplify the
allow price competition. If one effect of bought higher coverage because of the premium reduction plan and the
this price competition is to increase discount. Another commenter said only process under the interim rule. In
participation, the program benefits. a few farmers increased coverage. addition, RMA is always looking at
However, regardless of whether the Commenters state that those ways to simplify the delivery of crop
program benefits, premium discounts to participants will most likely redirect insurance, such as the combination of
farmers will allow the farmer to benefit. their premium savings to another policies, simplifying the claims process,
Further, if the commenters are correct product as opposed to purchasing etc.
and that the typical policyholder will additional coverage, and it will do The commenter also implies that in
not be motivated much by premium nothing to promote new participation by the premium reduction plan, RMA is
discounts, then there should be minimal those who are currently not purchasing lowering premiums. This is not correct.
impact on the crop insurance program crop insurance. The amount of premium stays the same.
by the implementation of the interim Response: As stated above, the What is occurring is that approved
rule. purpose of the premium reduction plan insurance providers can pay premium
Comment: An agent commented that is not to increase participation. It is to discounts to farmers to help them, if
currently, participation in crop allow price competition. If one effect of they so choose, to defray their premium
insurance is at about eighty percent and this price competition is to increase costs.
that there is not an agent alive who participation, the program benefits. Comment: An interested party
wants those last twenty percent. The However, regardless of whether the commented that there will likely be a
commenter stated that those that make program benefits, premium discounts to decrease in participation because agents
up that twenty percent are very non- farmers will allow the farmer to benefit. will drop out of the business and
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41880 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
farmers will drop out because there are the notice and comment rulemaking choices while saving money on crop
no agents nearby to service them. process, from the parties most affected insurance, by increasing competition in
Response: As stated above, it is by the rule and it has examined these the crop insurance market through
unlikely that the premium reduction comments and made appropriate offering crop approved insurance
plan will result in a substantial changes to the proposed rule to providers the opportunity to compete on
reduction of the number of agents. minimize the adverse impact on agents, price. The introduction of the premium
Approved insurance providers have the farmers, approved insurance providers reduction plan into the market allows
incentive to retain their agents and their and the integrity of the program. approved insurance providers to
books of business to maximize Comment: Several interested parties compete on price and service to farmers,
profitability and ensure a stable and agents commented that RMA, in its rather than simply on who pays the
workforce that will provide farmers exuberance to implement the premium highest commissions. The commenter
with the service required by the SRA reduction plan program, purchased 5 also states that the proposed rule
and approved procedures. Failure to opinions and most of the five opinions promotes the interests of the American
meet those requirements could result in made many points about the premium farmer by institutionalizing the
the imposition of sanctions. In addition, reduction plan, bringing to light the premium reduction plan approval
as stated above, RMA has revised the many flaws in trying to deliver crop process into a permanent rule that will
proposed rule to reduce the incentive insurance on a cut rate basis. A enable approved insurance providers to
for approved insurance providers to commenter asked why RMA does not pass along cost savings to farmers.
make drastic cuts to agent commission get a true ‘‘expert’’ opinion from Response: RMA agrees that the
or cause market disruptions. someone working directly in the system proposed rule attempted to implement
Comment: An interested party in a rural area and not from a high 508(e)(3) of the Act in a manner that
commented that the premium reduction priced consultant based in Washington, strikes a balance that allows for a
plan will increase participation in the DC. A commenter stated that three of competitive market place between
program the longer it is available. the purchased opinion providers then approved insurance providers with
Response: As stated above, the have the audacity to give a summary respect to price, protects the delivery
purpose of the premium reduction plan that flies in the face of many of the flaws system, and promotes the interests of
is not to increase participation. It is to they had previously stated in their farmers. Further, the interim rule built
allow price competition. If one effect of report. It should be noted that there is on that framework and addressed the
this price competition is to increase no research to back the purchased concerns of adverse impacts on the
participation, the program benefits. opinions. A commenter disagreed with program.
However, regardless of whether the an expert opinion that it costs ‘‘about Comment: Many farmers, agents and
program benefits, premium discounts to $50 to write a new client.’’ A interested parties commented that the
farmers will allow the farmer to benefit. commenter states that the actual annual premium reduction plan helps farmers.
Comment: An agent commented that Commenters stated that in today’s farm
cost per farmer client to maintain all
the expert reviewer was incorrect when economy, farmers are faced with rising
agency systems and do the job in
he stated that a cozy relationship costs of almost all inputs and that
keeping with its responsibility level is
between the agent and farmer suggests farmers constantly have to look for ways
about 10 times that amount.
fraud. The commenter stated that the to keep farms efficient, cost effective,
Response: As stated above, RMA only
agent needed to be well grounded with and competitive in a world market and
sought the opinion of the expert
farmers to be able to serve them. getting a discount on crop insurance is
Response: The comment is unrelated reviewers to assist it in the development
a step in that direction. A commenter
to the interim rule. Nothing in the of the proposed rule. However, with
stated that farmers are viewing crop
interim rule would change the respect to the interim rule, RMA has
insurance more and more like an input
relationship a farmer has with his or her sought and received comments, through
such as seed, fuel and fertilizer.
crop insurance agent. the notice and comment rulemaking
Commenters stated that as farmers have
Comment: Several interested parties process, from the parties most affected
little to no control of commodity prices,
and agents commented the five experts by the rule and it has examined these
discounts on any farm related expenses
have the opinion that crop insurance comments and made appropriate
are appreciated. One commenter states
agents are overpaid. A commenter changes to the proposed rule to that while there has been opposition to
suggests they get their license and try minimize the adverse impact on agents, the discount plan within the insurance
delivering crop insurance to the farmer. farmers, approved insurance providers industry in the past, agents and
A commenter stated that agent and the integrity of the program. approved insurance providers, like
commissions have been in a steady and 5. Other farmers, need to look for efficiencies as
consistent decline since the first SRA well.
a. For the Premium Reduction Plan
was put in place by RMA. In fact they Response: RMA agrees that the
had dropped between 40–50% from Comment: An approved insurance premium reduction plan was intended
original levels. A commenter states that provider commented that the proposed to ultimately benefit farmers by
agent commissions are at rock bottom rule strikes the correct balance between allowing approved insurance providers
levels NOW and that between the 2004 the various interests at stake, including to compete for their business on the
and 2005 insurance years, net income the interests of farmers in obtaining crop basis of price as well as service, like the
will be reduced by about 15% due to insurance at the lowest possible cost. other vendors with which the farmer
cuts in the A&O from the renegotiated The balance struck in this proposal does business. RMA also agrees that the
SRA. ensures a stable, competitive crop premium reduction plan will result in
Response: As stated above, RMA only insurance market, and protects the approved insurance providers
sought the opinion of the expert industry delivery system as approved examining their operations to find cost
reviewers to assist it in the development insurance providers compete for agents. efficiencies.
of the proposed rule. However, with The commenter states that the Comment: Many farmers and agents
respect to the interim rule, RMA has fundamental purpose of section commented that with the premium
sought and received comments, through 508(e)(3) was to offer farmers more reduction plan farmers are able to
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41881
increase coverage levels at a discount, reduction plan will reduce that interest plan program, there is a choice to offer
which has helped to better control risks. or that agents will stop competing on the same insurance with a discounted
Commenters claim farmers saved the basis of superior service. program and with any program this is
significant savings on premiums. Competition on price and service can strictly voluntary, not a requirement and
Commenters stated that current insureds only benefit the crop insurance no strings attached. A commenter stated
enrolled in the premium reduction plan program. it is important to offer a discounted
would be very disappointed if the Comment: A few farmers and agents insurance program as a way to manage
program was discontinued. commented that they were impressed risk in today’s environment. A
Response: RMA agrees with the with Crop1’s technology. The commenter stated that because such a
comment that the premium reduction commenters stated they liked the program is strictly the farmer’s choice
plan allows farmers to consider internet access because with the world there is no reason to discontinue this
increasing coverage for better protection becoming more technologically program.
and that some farmers may receive a advanced it is nice to see an approved Response: RMA agrees that
significant premium discount. However, insurance provider stepping up to the participation in the premium reduction
as stated above, such cost savings under plate and becoming a leader, rather than plan by an approved insurance provider
the interim rule will not directly reduce waiting until everyone else does it first. is strictly voluntary and that a farmer
the cost of premiums because the A commenter stated that with the Crop can freely choose between an approved
premium discount will not be paid to Saver analysis by Crop1, it was able to insurance provider that offers a
the farmer until after the premium is accurately show the comparative premium discount and one that does
due. Therefore, there is no guarantee premium for the different levels of not. RMA further agrees the merits of
that farmers will receive premium coverage and the total revenue farmers the premium reduction plan can
discounts. However, for those approved would receive with multiple peril ultimately be determined by the choices
insurance providers that can achieve versus coverage with Revenue made by approved insurance providers
efficiencies, they have the incentive to Assurance and that Crop1’s technology and farmers in a competitive
pass those efficiencies on to their is allowing the agency more time to marketplace. In addition, the adoption
customers. service clients and also prospecting for of the alternative proposal and allowing
Comment: Several interested parties, new clients. approved insurance providers to
farmers, and agents commented that the Response: Increased use of beneficial
determine when it is appropriate to pay
idea of giving the farmer more for less technology by farmers and agents is one
efficiencies out as premium discounts
is a good idea. A commenter stated that of the possible outcomes from the
allows the decision to be made based on
if the customer did not benefit, the premium reduction plan. The cost
the prevailing market forces, as is the
discount would go away on its own. A savings that may accrue through the use
case in most business settings.
commenter said it is great that Crop1 is of such technologies will be considered
willing to abide by government rules, when determining whether to approve Comment: An agent commented that
and be able to offer the same coverage the amount of premium discount. Crop1 has been a pleasure to work with
for a better value to the farmer. Comment: A farmer commented that due to the fact they really understand
Response: RMA agrees that the several other approved insurance the business from an agent’s
premium reduction plan generates providers have also applied, but have perspective. The commenter stated that
benefits for farmers. RMA also agrees not been granted access and that there when the premium reduction plan first
that, because participation by approved seem to be enough approved insurance came out, agents screamed that the
insurance providers in the premium providers filing for bankruptcy. The premium reduction plan would come
reduction plan is voluntary, approved commenter stated that it is great that out of commissions and that the agent
insurance providers and farmers would those approved insurance providers that would be replaced by direct selling over
not participate if they did not perceive can operate efficiently can be rewarded the internet. The commenter stated that
a benefit. The commenter is also correct for doing so. this was not the case because Crop1 sent
that based on the reviews conducted by Response: The commenter is correct letters and postcards to farmers,
RMA, Crop1 did operate in compliance that other approved insurance providers increasing the growth of the business.
with the requirements of the SRA and applied to offer the premium reduction The commenter stated that Crop1 does
approved procedures, including the plan under RMA’s existing procedures offer lower commissions, but they have
premium discount plan procedures. but were not approved. An important great paper and software. The
Comment: An agent commented that qualification for an approved insurance commenter also stated that if acres or
many farmers are seeking a more provider to be able to offer the premium production are reported on time, agents
knowledgeable crop insurance agent reduction plan is that the approved can receive a bonus so Crop1 is making
and that is exactly what the agent is insurance provider’s expenses are less it possible for agents to make, or better,
offering. The commenter stated that the than the A&O subsidy. This the commissions than with other
‘‘new generation’’ of agents truly qualification exists to ensure that the approved insurance providers.
understands risk management for payment of premium discounts do not Response: The premium reduction
farmers. The commenter stated that with stress the financial capabilities of the plan, as regulated through the interim
a background of providing marketing approved insurance providers. For this rule, allows the approved insurance
advice and hedging strategies, more and reason, premium discounts under the provider to structure a range of cost
more farmers are seeking services. Being interim rule are paid on actual, not efficiencies within the context of the
able to offer them a discount allows projected, cost savings and RMA will approved insurance provider’s business
clients to manage their overall risks at have the opportunity to determine the plan, including those identified by the
less cost. financial condition of the approved commenter. RMA agrees with the
Response: RMA agrees that many insurance provider before it approves commenter’s assessment that agents are
farmers are seeking more knowledgeable the payment of any premium discount. unlikely to be replaced as a result of the
crop insurance agents, including those Comment: Several agents, interested implementation of the interim rule.
that offer other risk management tools. parties and farmers commented that Further, the proposed and interim rules
RMA does not believe that the premium with the current premium reduction clarify many concepts that were not
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41882 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
included in the existing procedures, crop insurance delivery system. The Response: RMA would agree that
including the treatment of bonuses, etc. commenter stated that without a strong many factors can potentially influence a
Comment: Several agents and farmers premium reduction plan, the crop farmer to choose to buy insurance from
commented that agents do not want to insurance industry will simply fall back an approved insurance provider offering
sell the premium reduction plan due to to the cycle of increasing commissions a premium discount or from another
the simple fact that they do not want to to gain new business that in the long- approved insurance provider, including
take a cut in commissions, even though run endangers the delivery system. some of the factors identified by the
the premium reduction plan would save Response: RMA agrees that agent commenter. However, since RMA is
farmers. Commenters state that this is compensation is the single largest unaware of the specific ‘‘deceptive,
the only reason for resistance to the component of approved insurance misinformed or ignorant’’ reasons cited
premium reduction plan and that the provider expenses and, consequently, it by the commenter, RMA is unable to
premium reduction plan saves farmers is a prime candidate for consideration respond. Further, lending institutions
money, which enables them to put more when approved insurance providers are prohibited from conditioning their
back into the local economy. A seek cost efficiencies. However, the loans on the purchase of crop insurance
commenter stated that if the approved changes to the proposed rule reflected with them. If the commenter knows of
insurance providers really cared about in the interim rule increase the a specific case where this is occurring,
the farmer, there would be more flexibility of approved insurance it should report it to RMA. Eventually,
approved insurance providers involved providers to enable them to make a there will be competition on service and
in developing new policies and projects measured evaluation of their operations price and it will be up to the farmers to
for the good of the farmer, not just the and determine the most appropriate determine which is more valuable to
concern to preserve the agent’s places to achieve efficiencies. Such them.
commission. A commenter states that changes include allowing approved Comment: A few agents commented
the farmer wants the discount, but many insurance providers to select the states that RMA will receive an overwhelming,
are apprehensive to participate because in which they participate in the positive response from farmers who
of mistruths and intentional premium reduction plan and allowing would like to see the premium discount
misinformation from the agent not the payment of variable premium continue. The commenter stated that
willing to offer the discount. discounts between states. farmers may not so respond because in
Response: RMA agrees that much of RMA also agrees that competition addition to this being a very busy time
the controversy surrounding the between agents and approved insurance
of the year for them, they expect their
premium reduction plan comes from the providers as well as price competition
insurance agent to ‘‘take care of them.’’
perception that agents’ commissions for farmers are forces that can
By their very nature, farmers aren’t
will necessarily be reduced and the strengthen the delivery system. To the
‘‘letter writers.’’ The commenter stated
impact this would have on agents and extent that the premium reduction plan
on behalf of every crop insurance
farmers. RMA cannot voice an opinion can provide a competitive incentive to
customer they all want the premium
with respect to the motives behind the maintain the balance of these forces,
discount to continue to be made
concerns regarding agent commissions RMA would agree that the premium
available.
but recognizes that the concerns reduction plan may contribute to the
expressed in the comments to the long run financial health of the delivery Response: RMA would agree with the
proposed rule are real and legitimate system. commenters that the range of comments
and have been addressed in the interim Comment: An agent commented that received under the proposed rule may
rule. while a greater number of farmers have not be proportionate to or fully
RMA would also agree that the not taken advantage of the premium representative of the views of farmers.
benefits a farmer receives from premium discount, there has been respectable By the same token, RMA cannot agree
discounts would extend to the local growth in the numbers of farmers who with the commenter who states that he
economy. However, without more want to take advantage of the discount. or she represents every crop insurance
specific information from the The commenters stated that some of the customer in voicing a desire for the
commenter, RMA cannot address the reasons farmers have not taken greater premium discount to continue. In any
allegation that certain agents present advantage of the premium reduction case, the rulemaking process does not
mistruths to discourage some farmers plan are: (1) They have been insured represent a referendum on the premium
from seeking to buy insurance from an with and have developed a relationship reduction plan but rather the
approved insurance provider eligible for with their current agent and they trust development of a framework that allows
the opportunity to offer a premium the agent ‘‘to take care of them,’’ (2) participation from all interested parties
discount. Many farmers do not totally understand regarding the implementation of this
Comment: An approved insurance crop insurance and have relied on their Congressionally mandated option for
provider commented that agent agents deceptive, misinformed or approved insurance providers.
compensation is a large component of ignorant reasons for discrediting the Comment: An agent commented that
the expenses that are incurred in the premium discount; (3) Agents have put selling the premium reduction plan has
delivery of crop insurance (currently their own selfish interests (loss of resulted in growth to the book of
seventy percent), and thus its reduction customers or commissions) ahead of the business each year.
is a common, if not universal, benefit to farmers and have failed to Response: RMA recognizes that
component of the premium reduction promote the premium discount with growth in a book of business may be a
plan. The commenter stated that just as ANY approved insurance provider; and result of the price competition created
agents are free to find the approved (4) Many farmers buy their crop by the premium reduction plan.
insurance provider that will enable insurance from their lender and it has Comment: An interested party
them to maximize their income, farmers either been insinuated that they must commented that it supports the
should have a similar option enabling buy their insurance from the lender or premium reduction plan for all crops in
them to maximize profit by reducing the farmer feels he is jeopardizing his all states. The commenter claims it
their premium cost and that such a ability to obtain credit if he doesn’t buy balances the interests of the farmers and
choice for the farmer can strengthen the crop insurance from them. the agencies providing it, for the
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betterment and furtherance of minimally. The commenter stated it is a insurance providers will assess their
agriculture. much greater burden for agents in business situation to determine whether
Response: The rulemaking process higher loss ratio areas. The commenter it is economically feasible to participate
does not represent a referendum on the stated that with the current limited plan in the premium reduction plan.
premium reduction plan but rather the under the premium reduction plan there However, even those that choose not to
development of a framework that allows still may be disparity, however it is not participate in the premium reduction
participation from all interested parties as great as in the regular system. plan will still have the opportunity to
regarding the implementation of this Response: The commenter’s compete based on service, if not price.
Congressionally mandated option for assessment of certain practices, Farmers are the ones who will
approved insurance providers. economic forces, and geographical ultimately determine what is most
However, RMA agrees that it is in the disparities in the crop insurance valuable to them.
best interest of the crop insurance delivery system is basically consistent Comment: A few agents commented
program and farmers to require the same with several studies that investigated that the timing could be better and
premium discount for all crops but as the financial failure of American asked that the premium reduction plan
stated above, in response to the Growers in 2002. RMA also agrees that not be implemented now. A commenter
significant concerns raised by to the extent that there is disparity in stated that if the premium reduction
commenters, RMA has elected to allow the payment of agent commissions plan is in the future, all approved
approved insurance providers to select between states, now allowing approved insurance providers involved in crop
states in which to participate in the insurance providers to select the states insurance need to be able to provide the
premium reduction plan and will allow in which they will participate in the exact same product and the industry as
variability of premium discounts premium reduction plan will not a whole needs more time to implement
between states. acerbate this problem and may reduce that type of change. With more time and
Comment: An agent commented that some of the disparity. input from everyone involved in this
without price competition, RMA leaves Comment: An interested party business a fair and equitable policy
the program open for various types of commented that it is not opposed to the should be possible.
non-price competition and there have concept of the premium reduction plan Response: RMA understands that
been a lot of crazy plans by approved for crop insurance, but is concerned there may be parties that want to delay
insurance providers to compete with about the proper and complete implementation of the premium
various non-price service offers implementation of such a program. Full reduction plan but that is not an option.
(mapping, agronomy services, etc). The consideration must be given to the Section 508(e)(3) of the Act requires that
commenter asks why RMA does not impact of a premium reduction plan RMA give approved insurance providers
keep it simple and direct for the program on the availability and viability the opportunity to apply to provide a
customer. The commenter stated that of the delivery and service of crop premium discount. Further, it would be
price competition works for everything insurance to America’s farmers. If the impossible for RMA to structure the
else (including other insurance, utilities, premium reduction plan is not premium reduction plan so that
phone service, airlines and others that structured, administered, regulated and approved insurance providers all
are traditionally thought of as natural implemented with careful thought and provide the same product and remain in
monopolies) and asks why it isn’t good planning it could have the unintended compliance with the Act. Under section
for crop insurance. result of lower service quality and less 508(e)(3), premium discounts are based
Response: The purpose of section effective cost controls for the farmers on the efficiencies attained by the
508(e)(3) of the Act was to introduce who rely upon crop insurance approved insurance providers. Since all
price competition into the crop protection. approved insurance providers operate
insurance program. In response to Response: RMA agrees the interim differently, they would not attain
comments, RMA has developed an rule must reflect a careful consideration efficiencies in the same manner or in
interim rule that make the program of the viability and service of crop the amount. The interim rule allows
much simpler to administer. Now insurance to farmers. Through the flexibility for such difference in
approved insurance providers and rulemaking process, RMA has been able business operations.
agents can compete on service and to receive input regarding the impact of Further, through this rulemaking
price, maximizing the potential benefits the premium reduction plan on agents, process, RMA has provide all interested
to farmers. farmers, and approved insurance parties the opportunity to provide input
Comment: An interested party stated providers, who will be the parties most and has carefully considered such input
that they have seen grave changes affected. Further, RMA has carefully when developing the interim rule.
within the program as well as considered all comments and structured
availability of delivering approved a program that minimizes the b. Against the Premium Reduction Plan
insurance providers. Overpayment of administrative burdens while still Comment: An approved insurance
agents in the Midwest and impractical protecting the integrity of the program, provider commented that the General
use of the funds available have crippled such as requiring agents and approved Accounting Office is conducting an
and dissolved some approved insurance insurance providers to comply with all audit of the premium reduction plan to
providers as they pursue business with the requirements of the SRA and evaluate how the one approved plan is
commission payments above the A&O approved procedures regarding service, operating and the impact on the nation’s
reimbursement. The commenter stated loss adjustment, quality control, etc. farmers and the integrity of the Act. The
that the approved insurance providers Comment: An agent commented that commenter states that the results of this
were also tied to underwriting and although it opposed the premium audit should be reviewed before any
multiple years of loss in both A&O and reduction plan, it would offer it to stay final rules are promulgated.
underwriting, which also crippled their competitive in the marketplace if it Response: As stated above, section
financials. The commenter stated that looks like it will become a significant 508(e)(3) of the Act obligates RMA to
agents in the Midwest have been paid offering. consider any request by an approved
above the A&O while other agents in Response: Under the interim rule, it is insurance provider to offer a premium
higher loss ratio states have been paid expected that all agents and approved discount. If RMA were to postpone
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41884 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
implementation of the interim rule to However, the interim rule rectifies this the states prior to the implementation of
wait for information from one or more matter and requires that the approved any final rule. The commenter suggested
studies, RMA would need to operate the insurance provider solicit small, limited the proposed rule may even need
premium reduction plan under existing resource, women and minority farmers evaluation, contrary to the conclusion
procedures which the FCIC Board of through its marketing plan. reached above, under the Unfunded
Directors has determined to be Further, disclosure to the Board under Mandates Reform Act of 1995.
inadequate or revised procedures. the existing program has been adequate. Response: RMA recognizes that the
Consequently, RMA cannot adopt the Crop1 has submitted regular reports to provisions in the proposed rule that
suggestion of the commenter to RMA, who provides an update to the required state approval of the premium
postpone the interim rule. Board at every Board meeting. Further, reduction plan submissions and
Further, through this rulemaking RMA has conducted periodic reviews of marketing plans may have created
process, RMA has been able to obtain Crop1’s operations and reported to the unnecessary burdens on states.
comments from all interested parties Board its findings. In addition, RMA Consequently, these provisions have
regarding the impacts of the premium briefed the Board on all new requests to been removed from the interim rule.
reduction plan and, given the significant provide premium discounts for the 2005 However, states remain involved in
number of comments received, has a reinsurance year and sought the Board’s monitoring market conduct to ensure
good understanding of the concerns. In input on the proposed and interim farmers are not misled but this is not a
response to these comments, RMA has rules. new burden. States have always been
made significant changes to the responsible for monitoring such market
i. Procedural
proposed rule to make the premium conduct since they license approved
reduction plan much simpler, less Comment: A few approved insurance
insurance providers and agents.
burdensome, and less likely to cause providers commented that the premium
Therefore, there are no unfunded
any significant market disruptions. In reduction plan is providing burdens on
mandates in the interim rule.
addition, RMA has elected to implement the state without providing funding. A
commenter states this could raise the Further, with respect to Executive
this rule as an interim rule to allow it Order 13132, RMA agrees that the
to collect additional comments so it can issue of state premium taxes. A
commenter stated that while the premium reduction plan had Federalism
better understand, and make implications because it is regulating
adjustments if needed, the impact of the standard of what constitutes ‘‘sufficient
implications’’ under Executive Order certain conduct relating to marketing
premium reduction plan as contained in and allowing premium discounts that
the interim rule. 13132 to warrant consultation with the
states is not known nor are the some states may construe to be illegal
Comment: An interested party
intergovernmental consultation rebates. However, the crop insurance
suggested that the Board should insist
on a contractor review of the existing standards set in Executive Order 12372, program is a national program and there
the premium reduction plan program prior premium reduction plan needs to be uniformity in the
before implementing any rule. The experience and the requirements of the application of its requirements. In
commenter states that the existing proposed rule itself create potentially addition, section 4 of that Executive
program has no protection against significant burdens on state Order authorizes agencies to preempt
discrimination or adequate disclosure to government—specifically state state law where there is a Federal statute
the Board. insurance departments—such that some that contains an express preemption
Response: As state above, RMA is detailed analysis and potential provision. As stated above, section
obligated by law to operate the premium consultation under these Executive 506(l) of the Act is an express
reduction plan. If RMA were to Orders appears warranted. The preemption provision. Therefore, RMA
postpone the interim rule to await commenter stated RMA should ask the is authorized to take promulgate
information from one or more studies, insurance departments in the states regulatory provisions that preempt state
RMA would need to operate the where the premium reduction plan is law.
premium reduction plan under existing approved by FCIC for the 2003–2005 With respect to the consultation
procedures which the FCIC Board of crop years whether that program created requirement in Executive Order 13132,
Directors has already determined to be an ‘‘insignificant’’ burden. Furthermore, RMA maintains contact with the
inadequate or revised procedures. the proposed rule requires any premium National Association of Insurance
Consequently, RMA cannot adopt the reduction plan-participating approved Commissioners and actively participates
suggestion of the commenter to insurance provider to file its marketing in its crop insurance working group.
postpone the interim rule. strategy with each state in which the Through this relationship, RMA is able
Further, RMA disagrees that the program will be offered ‘‘for its [the to consult with the State Departments of
existing program has no protection state’s] review to determine whether the Insurance of any actions it proposes to
against discrimination or inadequate licensing of agents and the conduct of take and obtain the necessary feedback.
disclosure to the Board. As stated above, agents in the solicitation and sale of Comment: An approved insurance
all approved insurance providers are insurance under the proposed premium provider commented that it disagreed
required to sell insurance to all reduction plan is in accordance with with RMA’s assessment that, with
interested farmers as long as they are applicable state insurance laws’’. The respect to the Regulatory Flexibility Act,
eligible. Further, approved insurance commenter asks where RMA proposes the proposed rule will not have a
providers are required to comply with the state is going to get the resources to significant economic impact on a
all anti-discrimination provisions in the conduct the above review. This review substantial number of small entities.
SRA. This requirement did not change alone, along with all implementation The commenter stated that the proposed
under the existing premium reduction aspects of the plan and its potentially rule would affect the sales strategies,
plan or under the interim rule. discriminatory impact both at the agent sales techniques and income of
However, RMA acknowledges that the and consumer level, will undoubtedly thousands of agents, most of whom
existing program did nothing to change constitute a significant impact on state qualify as small entities. The commenter
the longstanding practice of allowing insurance departments and would stated that since the prime effect of the
agents to only solicit large farmers. presumably warrant consultation with rule is likely a reduction in
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41885
commissions, the effect is likely to be private sector, including approved Crop Insurance Reform Act of 2000
direct and immediate. insurance providers and their agents, [Agricultural Risk Protection Act of
Response: RMA disagrees with the and the Federal government. RMA 2000] helped the American farmer out
comment. As stated above, the purpose agrees that crop insurance appears to be the most by giving them a higher
of the premium reduction plan is to working well for many farmers and has subsidy for their premium. A
provide the potential for greater benefits steadily improved, as evidenced by commenter stated that since the 2000
to farmers, agents and approved growing participation at increasing Reform Act; the policy count has gone
insurance providers through free market coverage levels. RMA also recognizes upward every year. A commenter stated
competition. As stated above, the vital role that the agent plays in that the legislation to allow for the
participation in the premium reduction providing information and service to premium reduction plans was approved
plan is strictly voluntary. Therefore, if farmers in the current delivery system. at a time (1993) [1994] when there were
agents feel that they would be harmed RMA strongly disagrees with the approximately sixty four (64), and there
by participating, they can elect not to. claim that no farmer has ever are now seventeen (17) approved
In addition, neither the proposed nor complained that crop insurance insurance providers, when premium
the interim rule mandates that agent premiums are too high. Whenever RMA subsidies to farmers were much lower,
commissions be reduced. Commission meets directly with farmers, they often and the subsidy for administrative and
rates are freely negotiated between the argue that crop insurance premiums are operation expenses to approved
agent and the approved insurance too high and are a major concern. insurance providers was approximately
provider. In addition, as stated above, Notwithstanding these concerns, the thirty-three percent (33%) higher. The
approved insurance providers have an purpose of the premium reduction plan intent of the legislation was to
incentive to pay agents a fair is to improve the crop insurance encourage approved insurance
commission and only the agents and program by allowing price competition. providers to develop efficiencies in their
approved insurance providers can be The assumption is that the crop operations and pass the savings on to
the judge of that. Further, as stated insurance industry will respond as have the farmers in the form of reduced
above, RMA has revised the proposed most competitive industries with a premiums for them and the 2000 Reform
rule to minimize the potential for better product, better service, at a better Act accomplished this goal and
market disruption. Therefore, the price. approved insurance providers have
interim rule will only have a significant Further, as stated above, RMA has already had to reduce their costs.
economic impact on the agent if the revised the proposed rule to minimize
Response: RMA agrees that the
agent elects to receive such impact. This potential market disruptions so that the
additional premium subsidy in the
is a matter solely up to the agent. crop insurance program can continue to
Agricultural Risk Protection Act of 2000
Therefore, RMA was correct in its provide valuable risk management to
assessment that no Regulatory contributed to an increase in crop
farmers long into the future.
Flexibility Act analysis is required. insurance participation. RMA also
Comment: Several agents and
agrees that the premium reduction plan
interested parties commented that when
ii. Current was legislated when there were more
crop insurance was solely a government
Comment: Several agents and approved insurance providers, lower
project 72 cents of all premium was for
interested parties commented that it has premium subsidies, and a higher A&O
administration and the balance for
taken many years to develop the current subsidy rate. However, the primary
losses. As private enterprises, only 23.5
delivery system of providing insurance stated objective of the premium
cents is paid for administration. A
to the farmers. That was accomplished reduction plan, as reflected in the
commenter states that this shows the
in part with the partnership of legislative history of section 508(e)(3) of
private enterprise should not be kicked
independent agents across rural the Act, was to foster price competition
out of the current program. You get
America. Commenters state that under in the crop insurance marketplace. This
what you pay for, and cheap is not
the current system the government objective has yet to be accomplished
always the answer.
receives an efficient and effective Response: RMA agrees that the private and the presumption is that such price
delivery system and the farmer receives sector has a well established and competition will further benefit farmers
a good product at a fair price with equal valuable role in the delivery of Federal because it will allow approved
access to the approved insurance crop insurance. However, RMA insurance providers and agents now to
providers. A commenter stated that disagrees with the implication of the compete on service and price, which
farmers like it and approved insurance comment that the interim rule somehow can benefit the farmer and the crop
providers and agents have been seeks to replace the private sector role. insurance program.
knowledgeable and expert distributors. On the contrary, the stated objective of Comment: Several agents and
A commenter states that no farmer has the premium reduction plan is to foster interested parties commented that if the
ever complained that premiums are too price competition in the program. The premium reduction plan program is not
high. A commenter stated that when whole premise of price competition is to rescinded and stopped, it will cause the
used as a risk management tool, crop be able to provide the same product or current crop insurance program to fail
insurance works well. A commenter service for less money. in its ultimate goal to replace disaster
states that the program has made many Further, cheap is not the goal. As programs. A commenter stated that ad
improvements over the years, new stated above, as with all competition in hoc disaster programs would be needed
products and new crops have been the business world, the goal is to allow on even a greater scale. A commenter
added, and participation and value to approved insurance providers and stated that crop insurance has the ability
the farmer has continued to improve. agents to provide a better product, better to eliminate ad hoc disaster and that the
Response: RMA generally agrees that service, at a better price. current farm program, with loan
the current crop insurance program deficiency payments, counter-cyclical
provides a system that can claim many iii. Program Harm payments, fixed-direct payments, etc., is
successes in helping farmers protect Comment: Several approved less productive and provides less true
their livelihood and demonstrates a insurance providers, farmers, interested protection to the American farmer than
successful partnership between the parties and agents commented that the does the crop insurance program.
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41886 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
Response: RMA is unsure of why the RMA does not agree with the limited tangible economic benefits
commenters predict that the premium implication that the introduction of cost associated with the premium reduction
reduction plan will cause the failure of efficiencies by approved insurance plan implementation, these benefits are
crop insurance to replace ad hoc providers will necessarily lead to a small relative to the risks to farmers,
disaster aid and that ad hoc disaster aid deterioration in service, less value, or and the political and economic costs
demands will increase as a result of the fewer products available to farmers. The that will be required to achieve them.
premium reduction plan and the purpose of price competition is to Commenters state that the premium
commenters provide no information to provide a framework whereby the reduction plan risks the most
support these predictions. In fact, the participants in the market will try to fundamental principle of crop
premium reduction plan does not affect provide a better product, better service, insurance—universal access by all
the coverage provided to the farmer. for less money. However, to ensure that farmers, regardless of size.
Therefore, it should not have any service is not reduced, RMA has added Response: RMA disagrees with the
impact on the need for ad hoc disaster provisions to provide sanctions in the commenters’ assessment that the
programs. event service fails to comply with the premium reduction plan will cause
If the commenters are premising their requirements of the SRA and approved significant damage to the crop insurance
statements on the fact that agent procedures. In addition, the requirement program; harm farmers, agents, and
commissions will decrease to the point to sell all insurance products offered by approved insurance providers; and
that agents can no longer serve farmers, RMA contained in the SRA still applies. impair program delivery. The crop
who will then have no access to crop Further, adoption of the alternative insurance industry is not the first to
insurance and require ad hoc disaster proposal will allow price competition to have price competition and for the most
programs, these issues have been proceed in an orderly, managed manner, part, industries thrive under such
addressed above. As with all without market disruptions. competition and there is no reason to
competition, prices will only change by Comment: A few agents and believe the crop insurance program
an amount the market will bear. This interested parties commented that, would respond any differently. Further,
includes agent commissions. Approved nationwide, the program would not be as stated above, RMA has built in
insurance providers have the incentive as profitable. A commenter stated this safeguards into the interim rule to
to retain agents to maximize their would certainly reduce the financial ensure that farmers receive the required
potential underwriting gains and to strength of the industry and affect the level of service. In addition, adoption of
service their customers. Therefore, ability of the RMA to meet its intended the alternative proposal will allow price
approved insurance providers and goal of a 1.075 national loss ratio. A competition to proceed in an orderly,
agents will negotiate a fair commission commenter stated it may actually result managed manner, without market
rate. Further, as stated above, RMA has in an increase in premiums. disruptions.
Response: It is unclear to RMA why
built in safeguards into the interim rule Commenters also point to the
the premium reduction plan will
to ensure that farmers receive the complexity of the current program, the
adversely affect expected underwriting
required level of service. In addition, success of the public/private
gains of approved insurance providers,
adoption of the alternative proposal will RMA’s ability to maintain a national partnership; limited benefits of the
slow down price competition and allow loss ratio of 1.075, or crop insurance premium reduction plan relative to
it to proceed in an orderly, managed premium rates. Any premium discounts risks; and the threat to universal access
manner, without market disruptions. are paid through savings achieved in the by all farmers as the principle factors
With respect to the benefits of other operations of the approved insurance supporting this assessment.
farm programs, such programs are providers. The amount of premium paid RMA agrees that the current program
outside the scope of this rule and RMA to cover losses and the potential is complex but, as stated by
is not in any position to comment. underwriting gains of the approved commenters, approved insurance
Comment: Several agents commented insurance provider will remain providers and agents are doing a
that it is common knowledge in the unchanged. Therefore, there should not superior job in delivering that program
industry today that every approved be any negative impact on the financial to farmers. Further, the complexity of
insurance provider, with the exception strength of the industry, the ability of the program will remain unchanged
of one, opposes any premium reduction RMA to hit its targeted program loss under the interim rule. In addition, as
plan. However, these approved ratio, or premium rates. stated above, it is up to farmers to
insurance providers must develop a Comment: Many agents, approved determine whether the premium
plan in order to compete and hold their insurance providers and other interested reduction plan will benefit them. Under
share of business. A commenter states parties commented that they opposed the premium reduction plan, farmers
this will ultimately require the the premium reduction plan. will be able to determine what is the
approved insurance providers to cut Commenters stated that the premium greatest value to them, service or price,
cost, which will lead to less service, less reduction plan will cause significant or a combination of the two. Lastly, as
value, and possibly less products damage to the federal crop insurance stated above, RMA has taken steps to
available to the farmer regardless of size. program and harm farmers, agents and ensure universal access to the premium
Response: RMA acknowledges that approved insurance providers, and the reduction plan by requiring approved
the commenters may be correct in credibility and delivery of the program. insurance providers to specifically
asserting that there may be resistance Commenters state that there are too market it to small, limited resource,
among approved insurance providers many disruptive problems with the women and minority farmers.
with respect to the premium reduction premium reduction plan at a time when Comment: Several interested parties
plan concept. However, Congress has the program is more complex, with commented that the premium reduction
enacted section 508(e)(3) and RMA must more products and less income. plan would disrupt the delivery of crop
respond to approved insurance Commenters stated that the federal crop insurance to many farmers and this
providers who wish to take advantage of insurance program is one of the most would negatively impact many banks
this provision, which does benefit successful public-private partnerships. that strongly urge farmers to purchase
farmers. Commenters state that while there are crop insurance as a backstop to help
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41887
farmers repay their loans in the event of determine the appropriate amount of insurance providers may have achieved
a disaster or significant loss. commission and other expenses. efficiencies, they may also sustain
Response: RMA assumes that the Moreover, approved insurance significant underwriting losses in years
commenters are referring to the providers can fail because of any where there are multiple widespread
possibility of reductions in agent number of factors, possible excess agent disasters. The payment of premium
commissions causing agents to leave the compensation being only one. discounts under such circumstances
business and farmers to be left without Comment: An agent commented that could stress the financial condition of
insurance. These issues have been if RMA wants to save money, get rid of the approved insurance provider. RMA
addressed above. As with all the Crop Revenue Coverage or Revenue has addressed this issue in the interim
competition, prices will only change by Assurance as they are almost identical. rule in two ways. The first is to only
an amount the market will bear. This The commenter stated RMA could save require approved insurance providers to
includes agent commissions. Approved millions in not having to support both pay premium discounts if the approved
insurance providers have the incentive systems. insurance provider makes a request to
to retain agents to maximize their Response: This comment is beyond pay such discounts and it is approved.
potential underwriting gains and to the scope of the proposed rule. Therefore, if the approved insurance
service their customers. Therefore, Therefore, RMA is unable to respond. provider determines it is not in the
approved insurance providers and However, RMA has considered such financial position to pay the premium
agents will negotiate a fair commission cost saving measures, agrees with the discount, it could not request approval
rate. Further, as stated above, RMA has commenter, and has announced its to pay any discounts. The second is to
built safeguards into the interim rule to intent to merge the CRC and RA give RMA the authority to deny the
ensure that farmers receive the required policies. payment of a premium discount if there
level of service. In addition, adoption of Comment: A farmer commented the is evidence it may weaken the financial
the alternative proposal will allow price agriculture budget is roughly 1⁄2 of 1 condition of the approved insurance
competition to proceed in an orderly, percent of the Federal Budget but the provider.
managed manner, without market agricultural industry is responsible for Comment: An agent commented that
disruptions. Therefore, the premium 15 percent of the nation’s gross RMA should not offer both the existing
reduction plan should not adversely domestic product, and provides for 25 multi-peril program and the proposed
impact banks or other lenders. million jobs. The commenter stated the premium reduction plan. The
Comment: A few interested parties President needs to increase the commenter states there is no reason to
and agents commented that the federal subsidies by 20% to give all farmers complicate crop insurance more than it
crop insurance program has been highly better coverage at the higher levels at a already is. The commenter suggested
successful in the past primarily because lower rate. finding a level of subsidy that keeps the
of the larger subsidies passed on to its Response: This comment is beyond insurance affordable to the farmers and
customers the last few years. the scope of the proposed rule. still provides a fair return to the
Response: RMA agrees that larger Therefore, RMA is unable to respond. approved insurance providers and the
subsidies provided under the Comment: Several approved independent agents that write for them.
Agricultural Risk Protection Act of 2000 insurance providers and interested Response: The commenter appears to
resulted in farmer participation at parties commented that premium assume that the premium reduction
higher levels of coverage. However, as reduction plan should be implemented plan will complicate the crop insurance
stated above, the primary purpose of the only with the strictest caution only for policy. However, this is not the case.
premium reduction plan is not to those economically viable approved The obligations of the parties and the
increase participation, even though that insurance providers who have already coverage remain the same under the
may be one of the effects. The purpose demonstrated the capacity to fairly serve policy regardless of whether the
is to stimulate price competition so that all farmers. Commenters stated it seems premium reduction plan is in effect.
farmers receive the benefits of somewhat risky to be offering reduced Further the requirements regarding
competition for both price and service. premiums through a start up approved service, loss adjustment, etc. remain the
insurance provider in a weak financial same. The premium reduction plan will
iv. Alternative cost cutting condition. If a widespread disaster were simply provide the farmer with the
Comment: An interested party stated to occur, the approved insurance opportunity to receive a payment if the
that if RMA is trying to regulate what provider may not survive and there may approved insurance provider achieves
the agents are getting paid, then RMA be problems with everyone getting paid the requisite level of cost savings for the
should put in the SRA what the without a considerable infusion of cash reinsurance year.
maximum all approved insurance from the federal government. With respect to the issue of subsidy,
providers can pay an agent. The Response: There are guidelines in this comment is beyond the scope of the
commenter stated that by using a ceiling place to ensure the financial stability of proposed rule. Therefore, RMA is
on what all approved insurance approved insurance providers through unable to respond.
providers can pay an agent will almost the approval process when an approved Comment: A farmer commented that
guarantee no more bankrupt approved insurance provider submits an the problem with the crop insurance
insurance providers. application for an SRA or its annual program is not the amount of subsidies,
Response: The purpose of the Plan of Operations. Nothing in the it is the low yields.
premium reduction plan is not to premium reduction plan changes these Response: This comment is beyond
regulate agent commissions. An agent’s requirements. Therefore, no approved the scope of the proposed rule.
compensation is freely negotiated insurance provider that was not Therefore, RMA is unable to respond.
between an agent and an approved economically viable would be approved Comment: An agent commented that
insurance provider and nothing in the for a SRA, much less be eligible to any farmer that has any quantity of land
proposed or interim rule would change participate in the premium reduction carries crop insurance, and has done so
or preclude it. Further, approved plan. for the past 15–20 years. The reason
insurance providers are in the best However, RMA does share the there are ‘‘large’’ farmers is that they
position to examine their operations and concern that even though approved know the programs inside and out. The
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41888 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
commenter stated that these large price. Nothing in the premium crop insurance program so that farmers
farmers form new ‘‘entities’’ and move reduction plan will decrease the overall can benefit from the competition for
one or two extremely high yielding costs to the crop insurance program both price and service.
pieces (APH) of ground into these new because the payment of A&O subsidy With respect to the issue of raising all
‘‘entities’’ and then ‘‘add land to an will remain the same, or could actually premium subsidies for all farmers, this
existing unit’’ and transfer their high increase if additional levels of coverage comment is beyond the scope of the
yielding ‘‘new entity’’ land to all the were purchased. proposed rule. Therefore, RMA is
ground they just took away from their With respect to the comments unable to respond.
neighbors. The commenter claims this is regarding other subsidy programs, this Comment: An agent suggested that
one of the processes destroying family comment is beyond the scope of the when balancing budget needs and
farms. Large farmers know the programs proposed rule. Therefore, RMA is approved insurance provider stability, it
inside and out, and will do anything unable to respond. made more sense just to reduce A&O
and everything to have the advantage in Comment: Several approved and commissions 3.5% and leave crop
our so-called free market. The insurance providers and agents insurance the same price with less need
commenter claims this has crippled the commented that farmers do not need for additional subsidies.
concept of free enterprise by a program further reductions to the highly Response: The comment assumes that
designed to do good. Over the last ten subsided premiums. A commenter the purpose of the premium reduction
years, land prices have tripled and cash stated that if it is the intent of Congress plan is to balance the budget. This is not
rents have also tripled while small to further reduce premiums to farmers the case. As stated above, the primary
farmers continue to go out of business. then it is best to increase subsidies to all purpose of the premium reduction plan
Meanwhile the taxpayer funds an farmers uniformly. The commenter is to introduce price competition into
average of 55% of the crop premium. stated that any attempt to reduce farmer the crop insurance program so that
Adding an additional 3%–5%–8% premium through premium discount farmers can benefit from the
discount to this program will again be plans which cannot reach all farmers in
competition for both price and service.
greeted by smiles from the people that an equitable manner should be
In addition, RMA does not regulate
benefit the most—large farmers. The abolished.
Response: As stated above, section agent commissions. Such commissions
commenter stated that if RMA wants to are determined by free market
save money and positively impact 508(e)(3) of the Act obligates RMA to
consider requests by approved negotiations between the agent and
agriculture, change the practice that approved insurance provider.
only large farmers use—multiple insurance providers to provide premium
discounts. This obligation was not Comment: Several agents commented
entities. These educated farmers will that it would make sense for discounts
find ways to circumvent changes unless changed, even when Congress
substantially increased the premium be based on loss ratios. A commenter
it is plain and simple. stated that any other lines of insurance
Response: This comment is beyond subsidy rates. Therefore, RMA has no
choice but to implement section operate in this fashion but due to the
the scope of the proposed rule.
508(e)(3) as written. fear of discrimination federal crop
Therefore, RMA is unable to respond.
Comment: Several agents commented With respect to the issue of raising all insurance can not operate in this way.
that the premium reduction plan is premium subsidies equally, this This is unfortunate.
being used to cut program costs. A comment is beyond the scope of the Response: The commenter is correct
commenter stated to save costs, either proposed rule. Therefore, RMA is that one of the fundamental principles
the farmer should pay more premium or unable to respond. of crop insurance is equal access and
the approved insurance providers Further, RMA does not agree with the equitable treatment. However, crop
receive less A&O, which will result in assumption that the premium reduction insurance does operate like other lines
agents getting paid less commission. A plan cannot reach all farmers in an of insurance in that the higher the risk
commenter stated this goal was already equitable manner. As stated above, the of loss, the higher the premium rate, and
met when A&O was reduced in the 2005 interim rule provides specific vice versa. Therefore, in a sense, farmers
SRA and the large reduction in A&O protections against unfair with good loss ratios do receive a
that has occurred between 1994 and discrimination and requirements for ‘‘discount’’ in the form of lower
today. The commenter stated that if broad and equitable marketing of the premium rates. However, in the context
savings is the goal, keep the premiums premium reduction plan. of the premium reduction plan, there is
the same for all approved insurance Comment: Many agents, approved no rational basis to tie such discounts to
providers in all states and cut the insurance providers, farmers and loss ratios because, unlike other lines of
reimbursement and cut the paperwork interested parties suggested that if RMA insurance, the cost savings are not
requirements. A commenter stated that wants to increase participation in the achieved through underwriting gains.
if RMA wants to cut back in spending program it should increase the The cost savings are from operational
get rid of all the subsidy programs and percentage of subsidy for all farmers. structures or changes that allow the
force all farmers to buy crop insurance This would have the same effect to the approved insurance provider to operate
if they want any government assistance farmer but would not drive out of for less that the A&O subsidy it receives.
or take the farm program payments and business the independent agency. A Comment: An agent suggested that
put them into the crop insurance commenter suggested that it would like farmers be given a 1% discount for
program. This would tell farmers they to see the subsidies around 60% to help every year they’ve been in the program,
can protect themselves if a disaster the younger farmers protect their up to 10 years, without breaking
happens but it is their choice. investments. continuity. The commenter suggested
Response: The comments assume that Response: As stated above, the making the discount standard and
RMA is seeking to reduce program costs primary purpose of the premium available to all farmers.
through the interim rule. This is not the reduction plan is not to increase Response: With respect to the issue of
case. The premium reduction plan is participation, although that may be an giving all farmers a discount based on
intended to allow approved insurance effect. The primary purpose is to the length of time participating in the
providers to compete on the basis of introduce price competition into the program, this comment is beyond the
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41889
scope of the proposed rule. Therefore, simple as acreage reporting date for crop Response: RMA agrees that the
RMA is unable to respond. insurance to coincide with acreage premium reduction plan should help
Comment: An interested party reporting deadline at the local FSA small farmers. To accomplish this goal,
commented that deliberation and office. Another commenter suggested the interim rule will require that
implementation of the premium that FSA and RMA remove duplicate approved insurance providers
reduction plan requires an allocation of reporting. The commenter stated that specifically market the premium
political and economic resources by this would result in program savings, reduction plan to small, limited
FCIC, RMA, private industry, and other which could be passed on to the farmer resource, women and minority farmers.
interested parties. The commenter states as reduced premiums. This should ensure that all farmers, both
that, in lieu of the premium reduction Response: As stated above, the large and small, have equal opportunity
plan, these groups could be working on purpose of the premium reduction plan for premium discounts.
an alternative set of program endeavors, is to introduce price competition to With respect to the issue of not
which have a much greater potential for allow farmers to benefit from both price allowing large conglomerates to
social return and overall economic and service competition. As stated participate in the crop insurance
benefit to the program, such as above, RMA is obligated to consider program, this comment is beyond the
successful implementation of the requests by approved insurance scope of the proposed rule. Therefore,
Combo Policy. providers to offer premium discounts. RMA is unable to respond.
Response: As stated above, RMA is Premium discounts can only be paid if Comment: Many agents and interested
obligated to consider requests by the approved insurance provider’s costs parties and an approved insurance
approved insurance providers to offer to deliver the program are less than its provider commented that the crop
premium discounts in accordance with A&O subsidy. In fact, the cost saving insurance program is a complex
section 508(e)(3) of the Act. RMA has no measures discussed by the commenter program that requires extensive time
choice but to implement the premium can be the foundation for the cost with each customer if all available
reduction plan. savings under the premium reduction options are to be adequately explained
Comment: Several agents and plan. However, while RMA is always and that such requirements continue to
interested parties commented that RMA looking for ways to simplify the increase. They state it takes the same
should just decrease premium rates. A program and reduce costs to approved amount of time to sell a small account
commenter stated that this new rule is insurance providers, it cannot simply as it does with the larger one. The
ultimately saying that rates are too high pass those savings on to farmers as commenters stated that if all of the
and RMA can afford to step back the reduced premiums. Premium rates must larger accounts are switched to the
rates in certain cases. A commenter be sufficient to cover anticipated losses discount plan, then agents will barely
stated that this would allow real savings and a reasonable reserve and are not survive on the large accounts and will
to every farmer. Less premium is affected by the premium reduction plan. lose money on the smaller accounts,
generated so less commission is paid. A Comment: A few agents and which they already do, meaning that
commenter stated that once again, RMA interested parties commented that if overall they would be losing money and
is choosing to make this much harder cuts need to be made, eliminating would have to go out of business due to
than it has to be and if RMA truly cared premium subsidies to large corporate a marketing scheme. The commenters
about whether or not this was a good farmers would do more for the state that they are able to serve small
idea, why have they not asked agents economic stability of the farmers the farmers partly because the larger
directly for input. premium reduction plans are supposed farmers’ policies help with the low or
Response: This comment assumes that to help. non-existent profits from the smaller
the purpose of the premium reduction Response: This comment assumes that farmers. They also claim that if the
plan is to reduce premium rates and this the premium reduction plan is intended premium reduction plan becomes a
is not correct. Premium rates must be to cut costs and that it can seek other reality, they do not know how they will
sufficient to cover anticipated losses methods for accomplishing this be able to take care of everyone and
and a reasonable reserve. The premium objective. This is not the case. As stated provide the service they have done in
discount plan is based on whether above, the purpose of the premium the past. Commenters claim that this
approved insurance providers can reduction plan is to introduce price flies in the face of what Congress
deliver the crop insurance program for competition to allow farmers to benefit intended when it passed the
less than the A&O subsidy it receives from both price and service Agricultural Risk Protection Act of
and will not affect the premium rates. competition. 2000.
These cost savings can be passed from With respect to the issue of Response: RMA recognizes that,
the approved insurance provider to the eliminating premium subsidies to large because servicing a policy by an agent
farmers to help defray the cost of the corporate farmers, this comment is entails a relatively large fixed cost,
premium normally paid by farmers, but beyond the scope of the proposed rule. certain small policies must currently be
premium rates themselves are Therefore, RMA is unable to respond. serviced at a loss to the agent and the
unaffected. Therefore, RMA cannot Comment: An interested party approved insurance provider and that
reduce premium rates under the commented that this plan has no value larger policyholders tend to subsidize
premium reduction plan. at all unless it helps the small farmers. these small policies. This condition
Further, through this rulemaking The commenter states that large currently exists in the crop insurance
process, RMA has sought the input of agribusiness should be ineligible for this program and is not the result of the
agents and has carefully considered program because it is clear taxpayers premium reduction plan.
their comments when developing the have been funding huge agribusiness Further, the commenters predict that
interim rule. conglomerates and American citizens reductions in agent commission will
Comment: A few agents commented should not be insuring them at all. The make it uneconomical to service small
that the current program is a wonderful commenter recommends RMA policies. As stated above, it is unlikely
program, and has worked very well. The restructure this program to help small that there will be any reduction in
commenter stated that if the program poor farm families and downsize the service to any farmer, including small or
needs changing it suggests something as rest. high risk farmers, from the requirements
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41890 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
in the SRA and approved procedures. the authority of whether to implement Comment: Several agents and
Approved insurance providers are not the provision or not. It gives the right to interested parties commented that it
going to pay a commission so low that make application to the approved would be wise for RMA to spend a little
selling crop insurance is no longer insurance providers. more time investigating some lending
economically viable for the agent and RMA is also unsure of the basis for institutions and other entities that offer
risk them going out of business. This the commenter’s allegations that RMA rebates to loan customers if they will
may result in approved insurance has shown bias and will ignore the move their crop insurance to the bank’s
providers not having sufficient agents to issues raised by the commenters, in insurance agent. This is illegal. The
properly service their policyholders. In violation of the Administrative commenter states that the premium
addition, approved insurance providers Procedure Act. In fact, RMA has reduction plan will create the same
are not going to risk losing the agent or carefully considered all the comments problem. Some farmers will be offered
their book of business to a competitor received and made numerous, the plan and some will not and that this
thereby decreasing the potential for significant changes to the proposed rule is also illegal. A commenter stated that
underwriting gains. The marketplace as outlined in this Notice. there are a lot of cases where customers
will determine the fair and equitable Comment: An agent commented that of these businesses when approached
commission for the agent. it would be better for RMA to help the for their crop insurance say they can’t
In addition, RMA has taken steps to agent by dissolving illegal cooperatives help but feel obligated since they are
ensure that service to small farmers is and those that are fraudulently selling dependent on these businesses in order
available and is not reduced. One step crop insurance than by proceeding with to run their farming operations. In some
is to clarify the requirements regarding the premium reduction plan. case these farmers are being told they
service in the interim rule. Another is to Response: This comment is beyond will have to place their insurance with
specifically require that approved the scope of the proposed rule. them in order to get a crop loan.
insurance providers develop and Therefore, RMA is unable to respond. Response: This comment is beyond
implement a marketing plan designed to Comment: An agent asked who is the the scope of the proposed rule.
reach small, limited resource, women backbone behind the premium
Therefore, RMA is unable to respond.
and minority farmers. Provisions have However, if the commenter has specific
reduction plan—large approved
also been added to allow farmers to information regarding such practices, it
insurance providers that pay their staff
complain directly to RMA if they feel should notify RMA.
little to nothing thus creating a profit for Comment: An agent commented that
they have been denied access to the
themselves. The commenter asked what the rebating done by cooperative and
premium reduction plan or have
they are going to propose when they trade associations is what was
received reduced service. In addition,
have driven out all the agents that could authorized or previously approved and
failure to comply with either the service
no longer hold on to their agencies and that state approval is required but
or marketing requirements could result
they have all the farmers insured under seldom provided.
in the imposition of significant
the premium reduction plan. The Response: RMA is unsure of what the
sanctions under the SRA or the interim
rule against the approved insurance commenter states that the way crop commenter is referring to since rebating
provider and agent. insurance has been for the last two by cooperatives and trade associations
Comment: An interested party decades will become very attractive to are not referred to anywhere in section
commented that RMA was incorrect them at that point and they will need 508(e)(3) of the Act. It is possible that
when it made statements that it is the extra commission dollars at that the commenter is referring to section
compelled to offer the premium point because they have accomplished 508(b)(5) of the Act, which does
reduction plan unless Congress passes a what they have set out to do. authorize the payment or all or a part of
law instructing them otherwise. The Response: As stated above, it is the premium by cooperative or trade
commenter states that section 508(e)(3) unlikely that there will be mass exodus associations. However, that provision is
of the Act is not in a vacuum and RMA of agents from the program as a result beyond the scope of the proposed rule.
has no authority to implement a of the premium reduction plan. Therefore, RMA is unable to respond.
program that is contrary to the other Approved insurance providers are not Comment: Many agents and interested
requirements of the law and regulation. going to pay a commission so low that parties commented that RMA outlines 9
The commenter also suggests that RMA selling crop insurance is no longer pages of historical problems with the
has shown bias and has determined it economically viable for the agent and premium reduction plan program, but
will ignore the many issues and legal risk their going out of business. This the 4 pages of rules simply do not
deficiencies raised by the comments in may result in approved insurance adequately address them. Commenters
violation of the Administrative providers not having sufficient agents to stated that RMA should seek additional
Procedures Act. properly service their policyholders. In comments and not approve any
Response: The commenter states that addition, approved insurance providers premium reduction plan applications.
RMA is not obligated to offer the are not going to risk losing the agent or Commenters also state that the premium
premium reduction plans because it their book of business to a competitor reduction plan should be shelved. A
would be contrary to the other thereby decreasing the potential for commenter states that there is
requirements of the law and regulation. underwriting gains. Further, approved precedence because RMA did it with the
However, the commenter fails to insurance providers are not going to risk 1999 proposes rule.
identify the laws or regulations to which the possibility that they will have Response: RMA agrees that the
it is referring. Therefore, RMA is unsure insufficient agents to service the proposed rule did not address all the
of how to respond except to state that business as required under the SRA and concerns raised by RMA in the
section 508(e)(3) of the Act states that if approved procedures. preamble to the proposed rule.
an approved insurance provider can It is generally acknowledged that However, through this rulemaking
deliver the program from less that its agents are a necessity in the crop process, RMA has been able to consider
A&O subsidy it may request the insurance program and, because of this, these problems and the concerns of the
authority to offer a premium discount. the marketplace will determine the fair interested parties and has developed an
This is not a provision that gives RMA and equitable commission for the agent. interim rule that adequately addresses
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41891
them. The premium reduction plan know the facts of the premium attempted to minimize any market
under the interim rule is simpler, less reduction plan as it relates to agents and disruptions as a result of potentially
burdensome, verifiable, is less likely to to otherwise obtain the perspective of widespread implementation of the
cause market disruptions, is less likely agents through the many comments premium reduction plan.
to adversely impact the financial provided by agents to the proposed rule. Comment: A few interested parties
condition of the approved insurance Comment: An interested party and agents stated that hundreds of
providers, and guarantees access by all commented that the Board makes all claims were paid on soybeans in Iowa
farmers. For this reason, even if RMA kinds of spending decisions on without any complaints to Congress.
could, there is no reason to shelve the American taxpayers backs without The commenter stated that this was
premium reduction plan. In addition, letting American taxpayers know or amazing for a government program.
although RMA received a considerable have any input on any of this excessive Response: RMA assumes that the
number of comments to the proposed bureaucratic boondoggle spending. context of this comment is that the
rule, RMA acknowledges that it may Response: The premium reduction claims were serviced by the approved
want additional input and, therefore, plan is not a spending decision insurance provider currently authorized
has elected to publish this rule as an determined by the Board. Further, it is to offer the premium reduction plan. As
interim rule in order to obtain more the approved insurance providers that stated above, the requirements to
comments as RMA begins the process of would be paying for any premium provide service, loss adjustment, etc.,
implementing this regulation. discount and even if approved contained in the SRA and approved
Further, although RMA never insurance providers did not pay a procedures continues to apply under the
published a final rule in 1999, the premium discount, it could still take premium reduction plan and approved
premium reduction plan was not whatever action it wanted to cut costs insurance providers and agents could be
shelved. RMA determined that the Act as long as it still complied with all subject to sanctions it they failed to
permitted it to implement the program requirements of the SRA and approved comply with such requirements.
through procedures. As soon as the first procedures and keep whatever savings
Comment: A farmer commented that
application for the premium reduction accrued.
the new rules to protect against fraud
plan was received, such procedures In addition, the public was informed
of the proposed rule and provided an are overkill. The commenter stated that
were implemented. most farmers use the program for risk
Comment: A few agents commented opportunity to comment. Such
comments were considered when the management and realize the need to
that in order to keep up with the daily
interim rule was developed. Therefore, protect program integrity. The
changes, the agent looks at the RMA
the public did have input. commenter stated that it is only a few
website on a daily basis and did not see
Comment: An agent commented that who abuse the system and the approved
any mention about the new premium
farmers rely on crop insurance and insurance providers are better equipped
reduction plan and the comment period
that ends on 4/25/05. The commenter reducing subsidies will set farming back to detect them than is RMA.
states it did not know about this in time. The commenter states that with Response: This comment is beyond
proposed plan until it received the Big products like Crop Revenue Coverage the scope of the proposed rule.
‘‘I’’ Agent News Update dated 4/14/05 and Revenue Assurance, the program is Therefore, RMA is unable to respond.
and then an e-mail from Rain & Hail state of the art. The commenter states Comment: An agent commented that
dated 4/20/05. The commenter asks why that farmers are better managers today a premium discount has been around
the notice of the New Crop Insurance and one reason is crop insurance. since the early 1980’s for multi-year
Premium Reduction Plan and the Response: The commenter has the policies and good loss experience. The
comment period was not put on the mistaken assumption that the premium commenter stated that no matter who
RMA Web Site and was the intention to reduction plan will reduce subsidies. In the farmer insured with, it got the
pass this new plan and not let crop fact, the premium reduction plan is reduction.
insurance agents know about it. An intended to benefit the farmer through Response: The commenter is
agent also commented that there is no the payment of a premium discount. apparently referring to the fact that a
agent representation on the Board so Comment: Several agents asked what policyholder’s rates already reflect
RMA does not know all the facts. the intent is of the premium reduction certain risk factors, including whether
Response: An announcement plan, to save money for the government, the farmer’s production history has been
regarding the proposed rule was posted make crop insurance delivery more maintained and whether losses have
on the RMA website on February 24, efficient or force more agents out of the occurred. This means the higher the
2005, the same day the proposed rule business of delivering crop insurance. risk, the higher the premium. Nothing in
was published in the Federal Register. Response: As stated above, the intent the interim rule would change this
This announcement was prominently of the premium reduction plan is to system. The premium discount paid
displayed on the front page of the introduce price competition to allow under the premium reduction plan is
website for every day of the public farmers to benefit from competition on based on the efficiencies of the
comment period through April 25, 2005. both price and service. The government approved insurance provider, not the
Even though it is only required to does not save money through the risk associated with the farmer.
publish noticed of proposed rulemaking premium reduction plan. The amount of Comment: Several agents commented
through the Federal Register, RMA A&O subsidy paid to the approved that they saw a letter from Crop1 asking
announced the proposed rule on its insurance provider and premium everyone to write a letter to show they
website to ensure that interested parties subsidy paid on behalf of farmers want the premium reduction plan and if
had notice and an opportunity to remains the same regardless of whether the farmer forwards a copy of the letter
comment. The overwhelming number of there is a premium reduction plan in to RMA, the farmer would receive free
respondents confirms that this effort place or not. Further, the goal is not to leather gloves. The commenters asked if
was successful. drive agents out of the business. As Crop1 is rebating as well as offering a
Although no agent is currently serving stated above, RMA is in agreement discount to large farmers. A commenter
on the FCIC Board, an agent has served regarding the importance of agents to stated that this was a perversion of the
in the past. Further, RMA is able to the crop insurance program and has rulemaking process.
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41892 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
Response: RMA has investigated this been followed or adhered to by either rule, RMA acknowledges that it may
case. The precise offer was if the Crop1 or RMA. want additional input and, therefore,
commenter sent a copy of the comment Response: Any approved insurance has elected to publish this rule as an
to Crop1, it would receive a set of provider participating in the premium interim rule.
leather gloves. Nothing in the law reduction plan, including Crop1, must Comment: An interested party
prevents an approved insurance first meet all requirements of the SRA commented that without the agent force,
provider from offering an item of and approved procedures. In addition, there is a complete breakdown in the
nominal value to its clients to obtain RMA developed procedures and the premium reduction plan delivery
copies of comments filed with RMA FCIC Board resolutions that prescribe system for crop insurance. For crop
regarding this regulation. It is assumed the premium reduction plan insurance to be of any value, someone
that such an offer would encourage requirements. Beyond those will need to perform the agent function.
some to make favorable comments to requirements specified in the SRA, Response: RMA would agree that crop
RMA. However, since the proposed rule Crop1 has been subject to RMA insurance agents perform a valuable and
was not a referendum, the positive votes procedures and FCIC Board passed a necessary function in the delivery of the
did not matter. RMA considered all the resolution that contain requirements for crop insurance program. Nothing in the
comments to determine how it could participating in the premium reduction interim rule would change this
improve the premium reduction plan plan. There is no evidence that Crop1 principle. Further, as stated above, the
and believes the interim rule has not complied with the SRA, adoption of the alternative proposal
accomplishes this goal. approved procedures, or the procedures should minimize market disruptions
Comment: Several agents and and Board resolution. and permit agents to continue to
interested parties commented that the Further, there are many requirements participate in the crop insurance
premium reduction plan was someone’s in the proposed rule that were not program. Further, as stated above,
idea to gain an unfair marketing applicable to Crop because that rule is
approved insurance providers have an
advantage so an approved insurance not yet in effect. When the interim rule
incentive to retain their agents in order
provider could quickly grow. This is published, it will be applicable to all
to maximize their potential
approved insurance provider could not participants, including Crop1.
Comment: An agent commented that underwriting gains and ensure that all
have had the impact it did without some policyholders receive the required level
marketing advantage such as price. it took 4–8 weeks for checks to arrive
after they were written, which is not of service.
Response: As stated above, the very
purpose of the premium reduction plan good for the survival of the program. Comment: Several agents and
is to introduce the concept of price Response: RMA has not received any approved insurance providers
competition into the crop insurance complaints regarding the timing of commented that the way the system was
program. Under the premium reduction payments by Crop1. If the commenter setup with Crop1 was a person was to
plan all approved insurance providers has specific information, it should receive a discount if they bought
have the opportunity to compete on provide this information to RMA or through the Internet and this is not the
price as long as their A&O costs for the through the procedures for complaints case now. A commenter questioned
reinsurance year are below the A&O provided for in the interim rule. whether it was possible to show a hard
subsidy they receive. Since all approved Comment: An agent commented that efficiency. A commenter stated that
insurance providers are subject to the until all the issues are resolved, there once Crop1 changed the way they
same standard, there is no unfair should not be any more policies written administered the purpose of the
marketing advantage. The whole even for the approved insurance discounts, RMA should have shut their
premise of price competition is to be provider currently selling the premium doors to the discounts. A commenter
able to provide the same product or reduction plan. The commenter asked that RMA not make the decision
service for less money. suggested they could leave those to allow everyone to sell at a discount
Comment: A few agents commented policies they have but not be allowed to to cover-up this past mistake.
that many agents selling the premium write any more under the premium Response: The purpose of Crop1’s
reduction plan now do not carry errors reduction plan but could write any new premium reduction plan was not to
and omissions insurance and many policies the same as all approved deliver crop insurance over the Internet.
selling do not have a license to market insurance providers can write. Use of the Internet was simply the
crop insurance as is required by Response: As stated above, RMA has means that Crop1 stated it was using to
Independent Insurance Agents. no choice but to implement the achieve the cost savings required by
Response: Any approved insurance premium reduction plan. However, section 508(e)(3) of the Act to be able to
provider participating in the premium through this rulemaking process, RMA pay a premium discount. However,
reduction plan, including Crop1, must has been able to consider the issues and there is nothing in the Act that limits
first meet all requirements of the Act the concerns of the interested parties the means used by an approved
and the SRA, including that all agents and has developed an interim rule that insurance provider to achieve savings,
must be properly licensed to offer crop adequately addresses them. The provided such means do not violate
insurance in the states in which they premium reduction plan under the existing provisions of the SRA or
write. There is no requirement in the interim rule is simpler, less approved procedures or jeopardize the
Act, SRA or approved procedures that burdensome, verifiable, is less likely to integrity of the crop insurance program.
would require an agent to carry E&O cause market disruptions, is less likely Therefore, RMA did not have the
insurance. If the commenter has specific to adversely impact the financial authority to prevent Crop1 from
information regarding an agent that is condition of the approved insurance implementing any other cost saving
writing crop insurance policies in a providers, and guarantees access by all measures. In fact, approved insurance
state without a license, such farmers. For this reason, even if RMA providers that currently operate under
information should be provided to could, there is no reason to shelve the the A&O subsidy do not have to make
RMA. premium reduction plan. In addition, any changes to their operations to
Comment: An agent commented that although RMA received a considerable qualify to pay such savings as a
the current proposed rules have not number of comments to the proposed premium discount.
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41893
This same standard applies to all referring, RMA cannot provide a specifically how it will be used. The
other approved insurance providers. As substantive response. commenter also stated the sub points 1,
long as they can deliver the program for 2 and 3 seem easily manipulated
B. Program Provisions
less than their A&O subsidy, they can because profit sharing arrangements can
request to pay a premium discount and Section 400.701 be used if they are contractual or
under the interim rule, approved Comment: An approved insurance triggered by something other than
insurance providers will not have to provider commented that the definition underwriting gains, but yet the
report how they intend to achieve their of ‘‘administrative and operating costs’’ underwriting gains are profit. A
cost savings. This will be solely within should exclude the costs associated commenter stated that subpoint 1 is
the discretion of the approved insurance with CAT because CAT policies will not confusing because most profit sharing is
provider subject to the conditions stated be subject to the premium reduction contractually obligated if certain
above. plan because the farmer pays no conditions are met. The commenter
Comment: An agent commented that suggested it would be better if it read
premium. The commenter stated it is
it believed that the Crop1 agents are ‘‘1) the payments under such
also not clear what expenses should be
using the premium reduction plan to arrangements are guaranteed regardless
included, such as cost of reinsurance,
transfer customers that may not have a of the approved insurance provider’s
fronting fees, allocated costs, etc.
clue to what would happen if Crop1 overall underwriting performance.’’
Response: RMA agrees with the
does not have the funds to pay out Response: RMA agrees with the
commenter that the costs associated
indemnities in case of a poor crop year. commenters regarding the omission of
with CAT should be excluded and has
The commenter also stated that the the word ‘‘not’’ and has revised the
revised the provisions accordingly. In
farmer does not understand that there is provision accordingly. RMA also agrees
addition, RMA has clarified that
a possibility that the premium that they that the reference to profit sharing
policies insured at the CAT level of
were quoted may not be as low as they arrangements within the definition of
expected. insurance are not eligible for a premium
discount. ‘‘compensation’’ needs clarification and
Response: To participate in the crop has revised the definition of both ‘‘profit
insurance program, all approved Further, because the costs associated
with CAT are removed from the A&O sharing arrangement’’ and
insurance providers must satisfy all ‘‘compensation’’ accordingly.
requirements of the SRA, which costs, the loss adjustment expense
subsidy for CAT policies is removed The intent of the reference to profit
includes the financial solvency to
from the A&O subsidy. To simplify the sharing arrangements within the
withstand several consecutive poor crop
removal of these costs and ensure definition of ‘‘compensation’’ is
years. Nothing in the premium
consistency between approved important because it prevents approved
reduction plan changes this
fundamental requirement. Therefore, insurance providers, RMA has fixed insurance providers from reducing agent
before Crop1 was approved to these costs as the amount of the loss commissions to show a reduction in
participate in the premium reduction adjustment expense subsidy for CAT compensation for the purposes of
plan, it had demonstrated the requisite policies. Therefore, the same amount is calculating the A&O costs from later
financial ability. If there ever is a reduced from the A&O costs and A&O making up the difference through an
situation where an approved insurance subsidy. arrangement to classify as a profit
provider can no longer satisfy the With respect to which costs must be sharing arrangement so such costs
requirements of the SRA, including the included, RMA cannot provide a list would not be included as A&O costs.
ability to pay indemnities, the SRA because each approved insurance This provision is intended to preclude
contains provisions that allow RMA to provider will have different costs. RMA such manipulation of costs.
ensure that losses are timely and has included in the definition those The commenter is correct that
properly paid. costs that are specifically excluded. underwriting gains are profit but only if
The comment that a farmer’s Further, as the definition states, only the whole book shows an underwriting
insurance quote may not be as low as those costs associated with the delivery gain. If several states showed an
expected is unclear. When a farmer of crop insurance can be included. underwriting gain and other states are in
applies for insurance, agents can give These are generally the same costs that a loss situation such that overall, the
them a general idea of the amount of are annually reported on several of the approved insurance provider is in a loss
premium that may be owed but such Expense Exhibits provided with the position, it is hard to argue that the
premium amount is subject to many Plan of Operations. approved insurance provider earned a
factors such as the number of acres Comment: An approved insurance profit. These definitions are provided to
insured, the coverage level selected, the provider comments that the definition ensure that only profits for the entire
actual production history of the farmer, of ‘‘administrative and operating book of business is the ultimate
whether any acreage is classified as high subsidies’’ should exclude the subsidies determinant for profit sharing
risk, etc. If the commenter has specific associated with CAT. arrangements.
information where a commenter was Response: As stated above, RMA Comment: A few approved insurance
actually misled by Crop1 or an agent agrees and has revised the provisions providers and interested parties agreed
regarding the amount of premium accordingly. that in the definition of ‘‘compensation’’
discount to which the farmer was Comment: A few approved insurance the concept for the underwriting gain
entitled, the commenter should provide providers asked if, in the definition of for the whole book should be used when
such information to the local RMA ‘‘compensation,’’ this statement should determining contingent commissions.
office. be ‘‘will be’’ rather than ‘‘will not’’ be. The commenter states that if approved
Comment: An agent commented that A commenter stated that the reference to insurance providers were allowed to
it hopes Crop1’s problem with its profit sharing within the pay contingent commissions on a state
reinsurer does not rub off on other ‘‘compensation’’ definition needs to be basis, it could pay in one state even
approved insurance providers. reviewed and further refined. The though the entire book of business had
Response: Since the commenter did commenter states it does not understand a loss. The commenter stated that this
not identify the problem to which it is the intent of the provision as written or could reduce the financial stability of
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41894 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
the approved insurance provider in a the ‘‘compensation’’ calculation. A statutory accounting rules, it is not
catastrophic year. commenter stated that ceding directly related to selling and servicing
Response: RMA agrees that, to be commission would reduce the approved the Federal crop insurance program.
considered a profit sharing arrangement, insurance provider’s direct expenses. Further, the expenses reported for the
the payment under such profit sharing The commenter stated that the rule was purpose of the premium reduction plan
arrangement must contain the unclear whether this reduction in are required to be compared to the A&O
requirement that the approved expense is included. The commenter subsidy received. For years, RMA has
insurance provider’s whole book of stated including ceding commission required approved insurance providers
business show an underwriting gain, would be unfair to approved insurance to report the costs that RMA considered
even though other requirements to providers that only cede a small amount directly related to the delivery of the
trigger the payment may also be of their business to outside reinsurers. Federal crop insurance program on the
included, and has clarified the The commenter asked why approved Expense Exhibits provided with the
provision accordingly. insurance providers that rely heavily on Plan of Operations. Ceding commission
Comment: An interested party reinsurance should have an unfair has not been included as a negative
commented that RMA started a program advantage when calculating the expense on these Exhibits and there is
and it is strict in its offering and many premium reduction plan. A commenter no rational basis to include such
approved insurance providers cannot states that ceding commission changes negative expenses for the premium
comply with the rules without change. each year. A commenter stated that if reduction plan when they would not be
The commenter stated that changing the RMA allows approved insurance considered for expense reporting
rules for approved insurance providers providers to consider any other forms of purposes under the SRA.
and allowing underwriting gains to play income beyond FCIC-paid expense In addition, these Expense Exhibits
a part or allowing payment if they are reimbursement in qualifying for a are used by RMA and its oversight
profitable makes very little sense as premium reduction plan, FCIC would bodies to determine whether the amount
there is a system already in place and open the door to situations where no of A&O subsidy is appropriate to cover
available to all through stock and real efficiency exists and would invite these expenses. When reviewing the
cooperatives. reinsurance schemes designed to issue of ceding commission, RMA’s
Response: RMA agrees with the artificially inflate an approved oversight bodies have directed RMA to
commenter that allowing the use of insurance provider’s ceding commission exclude non-related expenses, such as
underwriting gains to show an in order to provide sufficient ‘‘income’’ commercial reinsurance payments.
efficiency should not be permitted. In for the approved insurance provider to Therefore, RMA has excluded ceding
fact, such a practice is specifically demonstrate an efficiency. commissions and reinsurance premiums
precluded by section 508(e)(3) of the Response: RMA agrees with all from A&O costs and A&O subsidy.
Act that requires approved insurance comments that reinsurance transactions Comment: An approved insurance
providers be able to show they can should not be a factor in the evaluation provider suggested another argument for
deliver the program for less than the of an approved insurance provider’s not including ceding commission as
A&O subsidy. Underwriting gains are cost efficiencies under the premium ‘‘compensation’’ is that the reinsurer is
not considered, except, as stated above, reduction plan. Currently, ceding paying the ceding commission because
in the determination of whether certain commissions and reinsurance premiums they expect an underwriting gain large
profit sharing arrangements are are expressly excluded from the enough to pay the commission.
considered as compensation. Expense Exhibits provided with the Therefore, it has nothing to do with
Comment: Several approved Plan of Operations. One reason is the expense efficiency.
insurance providers and interested A&O subsidy is suppose to reimburse Response: RMA agrees that ceding
parties commented that contingency approved insurance providers for their commissions should not be allowed as
commissions should be included as selling and servicing of Federal crop an offset to costs included in the
expense. insurance policies and these types and expense statement and the provisions
Response: RMA agrees that there are amounts of payments from commercial are revised accordingly.
circumstances where contingent reinsurance transactions would appear Comment: A few approved insurance
commissions are considered as A&O to be a cost or income associated with providers and interested parties
costs. In its definition of the financial risk management strategy commented that excess-of-loss
‘‘compensation,’’ RMA identifies of an approved insurance provider, reinsurance cost paid by an approved
situations where contingency rather than a necessary expense in the insurance provider should be included
commissions or payments may be delivery of crop insurance. as compensation because it applies to
classified as profit sharing arrangements RMA acknowledges that the National the entire book of business and is a cost
but they are considered compensation if Association of Insurance Commissioners of doing business. The commenter
they are not contingent upon the (NAIC) allows ceding to be offset against stated that in many cases it is a
profitability of the approved insurance the approved insurance providers necessary expense because approved
provider’s whole book of business. The expenses. However, for the purpose of insurance providers could not afford to
proposed rule was also revised to NAIC, all expenses of the approved absorb catastrophic losses and it is
specify that other conditional payments insurance provider are reported, required to be reported on the expense
will be considered as compensation if regardless of whether such expenses are exhibit.
they are contingent upon something specifically related to the delivery of the Response: As stated above,
other than underwriting gains, such as crop insurance program. However, commercial reinsurance ceding
bonuses paid for agents turning in their section 508(e)(3) of the Act specifically commissions or premiums are not
applications, production reports or refers to the costs to deliver the Federal included on the Expense Exhibits that
acreage reports timely, etc. crop insurance program, which is a contain the costs for delivering the
Comment: Several approved much narrower definition of the Federal crop insurance program
insurance providers and interested expenses that is allowed by NAIC. As provided with the Plan of Operations.
parties commented that ceding stated above, while ceding commission As stated above, this is because ceding
commissions should not be included in may be treated as a negative expense by commission or premiums for
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41895
commercial reinsurance transactions are position to determine whether their providers would be able to have
not necessary to the delivery of the financial condition will permit profit expenses less than the A&O subsidy and
Federal crop insurance program to sharing payments. Further, RMA gave the example 21.5% minus (1)
farmers. They are expense associated monitors the financial conditions of the reinsurance costs ≥ 3%, (2) Loss
with the management of the approved approved insurance providers as a adjustment ≥ 4%, (3) General & admin
insurance provider’s risks. Further, means to ensure the financial stability of ≥ 5% and commissions ≥ 10). A
allowing commercial reinsurance ceding the crop insurance program and can commenter stated that the negative gap
commissions or premiums to be require remedial measures if the between A&O reimbursement and actual
included to offset expenses could also approved insurance providers are approved insurance provider expenses
create potential distortions in the unable to meet the financial is an enormous hurdle that approved
commercial reinsurance market. requirements of the SRA and applicable insurance providers would need to
Therefore, no change has been made in regulations. However, there is no overcome in order to qualify for the
response to this comment. rational basis for RMA to impose the premium reduction plan.
Comment: A few approved insurance requirements suggested by the Response: RMA assumes that the
providers and interested parties commenters when there is no evidence caveats to which the commenter refers
commented that approved insurance that the approved insurance providers is the preclusion of the use of cost
providers must include all expenses, are in financial jeopardy. Therefore, no savings attributable to projected
including general management, change has been made in response to increased sales or proposed reductions
underwriting overhead, information this comment. in loss adjustment expenses as an
systems and allocated and unallocated Comment: An agent commented there efficiency. The caveat regarding the cost
claims expense, as well as the direct is no definition in the rule for the term savings attributable to projected
expenses of salaries, commissions, ‘‘efficiency’’. The commenter stated that increased sales has been removed from
benefits, travel, phones, rent, etc. as presently written, this could allow an the interim rule because premium
Response: RMA agrees with the approved insurance provider to reduce discounts are now based on actual costs
comment that all operational expenses agents’ commissions or lower wages not projected costs. Further, because
that involve the delivery of the Federal paid to loss adjusters, to name a few, premium discounts are now based on
crop insurance program should be and call it an ‘‘efficiency’’. The actual cost savings, the limitation with
incorporated into the Expense Exhibits commenter stated that while this would respect to reduction in loss adjustment
provided with the Plan of Operations be a cost savings, one would be hard expenses has also been removed. Since
and used to determine efficiencies and pressed to show this as more efficient. losses vary by year, it would be
premium discounts under the interim The commenter stated this was clearly impossible to verify that cost reductions
rule. These are already required for the not the intent of Congress when the Act were the result of the premium
Expense Exhibits provided with the was written, and is not their intent reduction plan and now RMA will have
Plan of Operations so no changes would today. an opportunity to determine whether
be required in the reporting Response: RMA disagrees with the loss adjustment was conducted properly
requirements. comment. First, there is a definition of before approving the payment of a
Comment: An approved insurance ‘‘efficiency’’ in the proposed and premium discount.
provider suggested that the amount of interim rules. Second, section 508(e)(3) The commenter also opines that
any profit sharing payment under the of the Act specifically states that qualifying for the premium reduction
premium reduction plan should be approved insurance providers can pay plan would be extremely difficult for an
subject to the same limit as the premium premium discounts when approved approved insurance provider because of
discount. For example, if the maximum insurance providers can demonstrate a large negative gap between actual
premium discount is 4% under the they can deliver the program more expenses of approved insurance
premium reduction plan, the efficiently than their A&O subsidy. The providers and the A&O expense
commenter recommends that this be the use of the monetary term A&O subsidy reimbursement. This may be true
maximum profit sharing payment to determine whether an efficiency although the commenter mistakenly
allowed in the year covered by the exists allows RMA to look at efficiencies includes reinsurance costs, which are
premium reduction plan. In addition, to as cost savings as well as changes in expressly excluded in the interim rule.
enhance the stability of the crop operations and the interim rule has been However, section 508(e)(3) of the Act
insurance program, the commenter clarified to more clearly reflects this was only intended to provide approved
suggests that approved insurance position. RMA has deleted those insurance providers with the
providers should not be allowed to pay provisions in the definition of opportunity to compete on price. The
a ‘‘profit sharing bonus’’ if they have not ‘‘efficiency’’ that would require a fact that Congress conditioned such
generated an average underwriting gain change to an approved insurance competition on the condition that
of at least 15% of gross premium over provider’s operation because this approved insurance providers operate
the preceding two years. provision unfairly penalized approved below their A&O subsidy shows that the
Response: Section 508(e)(3) of the Act insurance providers that were currently opportunity is not guaranteed.
is only intended to provide the operating before their A&O subsidy. Comment: An approved insurance
conditions under which approved However, RMA has retained the provider commented that it supported
insurance providers can pay premium requirement that an efficiency must not the complete definition of ‘‘efficiency’’
discounts. It is not intended to permit come exclusively from a reduction in and felt that RMA’s effort not to place
RMA to regulate the general agents’ commissions. specific limits on compensation is
management decisions of the approved Comment: A few approved insurance appropriate. The commenter states that
insurance providers. RMA has no providers and interested parties asked an approved insurance provider’s
authority to preclude an approved that with respect to the definition of overall cost of operation is what is most
insurance provider from making profit ‘‘efficiency,’’ whether the same caveats important and that the free market will
sharing payments or to limit when such apply to reductions in compensation. ultimately determine the appropriate
payments can be made. Approved The commenter also stated that it was balance between agent compensation
insurance providers are in the best unlikely that approved insurance levels and service provided. The
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41896 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
commenter states that agents should of ‘‘compensation’’ in the interim rule expense, raises several questions. Any
have the option to seek the most reflects that. departure from the practice of allowing
attractive compensation available in a Comment: An approved insurance only A&O income from FCIC to be
competitive market, just as farmers provider supported allowing only a considered when determining an
should be able to seek the most portion of the savings come from ‘‘efficiency’’ for purposes of the
attractive crop insurance program reductions in compensation, without premium reduction plan would
available to them. The commenter states which the playing field would be tilted contradict legislation and create
that the most attractive program for in favor of large approved insurance opportunities for abuse. The commenter
agents and farmers will likely require providers over smaller providers. The stated that allowing any A&O expenses
them to consider both associated costs commenter stated it was a strong to be excluded from consideration when
and the level of service provided. believer in free market competition, determining the discount would open
Response: RMA agrees that the which requires a fair, level playing field the door to creative accounting schemes
premium reduction plan should operate in which small and large providers alike detrimental to the stability of the
within the free market principles may compete for the benefit of farmers. approved insurance provider and the
expressed. Price competition is Response: RMA agrees that only a delivery system overall as well as
premised on the ability to provide the portion of savings should come from RMA’s ability to regulate the system.
same product or service at a better price, reductions in agents’ compensation and Response: RMA agrees with the
or provide a better product or service for has clarified and retained this provision commenter that only A&O subsidy paid
the same price. Therefore, farmers are in the interim rule. by RMA can be included as income and
Comment: An approved insurance all costs directly related to the delivery
likely to consider both service and cost
provider asked if the efficiency is more of the Federal crop insurance program
when they select an approved insurance
than commissions, how RMA will be must be included as A&O costs. For this
provider. However, to protect the
able to verify the accuracy of such reason, RMA has elected to use the
integrity of the program and ensure that
savings. It is easy to verify that the current mechanism for reporting these
all farmers have equal access to at least
agent’s commission has been reduced at costs through the Expense Exhibits
the same level of service, RMA has
no loss of service to the insured by provided with the Plan of Operations to
clarified that a reduction in service
auditing approved insurance provider determine whether there has been an
means when the agent or approved numbers and calling insureds. The
insurance provider fails to comply with efficiency. As stated above, these
commenter asked how long it takes to Expense Exhibits are verifiable and
all the requirements of the SRA or verify adjusters are following claim’s
approved procedures regarding service. must be audited and certified regarding
procedures, agents are following their completeness, accuracy and
Further, as stated above, RMA had to underwriting guidelines, or compliance compliance with the SRA. However, as
revise the definition of ‘‘efficiency’’ to reviews are being completed stated above, because the premium
reflect that premium discounts will now thoroughly. The commenter is reduction plan is not available for
be based on actual costs, not projected. concerned that when these errors are policies with the CAT level of coverage,
Comment: An approved insurance finally discovered, many millions of the A&O costs and A&O subsidy
provider commented that approved dollars may need to be recovered from associated with such policies have been
insurance providers should not be farmers. excluded.
penalized because they have a different Response: As stated above, premium Comment: Several approved
business philosophy. The commenter discounts are now based on actual cost insurance providers and interested
states that ‘‘efficiencies’’ currently savings, not projected. Further, RMA parties commented that the definition of
exclude projected or actual has elected to use Expense Exhibits ‘‘efficiency’’ is vague because it is silent
underwriting gains. The commenter provided with the Plan of Operations to as to the meaning of the terms ‘‘portion’’
states that it does not operate within the determine efficiencies and premium or ‘‘a reduction in compensation.’’ A
A&O paid under the SRA because of its discounts because such Expense portion is a vague, nonspecific amount
expenses associated with training and Exhibits can be verified by the approved that is ‘‘a part of the whole.’’ Webster’s
oversight, which allows it to minimize insurance provider’s statutory Third Internatl. Dictionary at 1768 (Rev.
fraud, waste, and abuse and outperform accounting reports and must be audited Ed. 1993). A commenter stated that this
other approved insurance providers. and certified by a certified public means a ‘‘portion’’ may vary from one
The commenter asks RMA to revisit the accountant experienced in insurance percent to 99 percent and asked if 99
issue and allow gains when considering accounting. percent of the savings could be
efficiencies. Since the premium discount is based predicated on reduced compensation. If
Response: Section 508(e)(3) of the Act on actual cost savings determined after not, the commenter asked what
precludes the consideration of the end of the reinsurance year, RMA ‘‘portion’’ of savings may be associated
underwriting gains when determining can determine an approved insurance with ‘‘a reduction in compensation.’’ A
an efficiency. Underwriting gains would provider’s compliance with all the commenter proposed it should be
be considered an income and the only requirements of the SRA and approved restated as follows: ‘‘Not more than 25%
income that can be considered under procedures regarding service, loss of the approved insurance provider’s
the Act is the A&O subsidy. As stated adjustment, quality control, etc., before monetary savings can come from a
above, it is up to the approved approving the payment of any premium reduction in compensation, the rest
insurance provider to evaluate its discount. Such requirements will be must come from changes in
operation to determine whether it can monitored in the same manner as administrative and operating
attain cost savings and still comply with currently under the SRA. procedures.’’
all requirements of the SRA and Comment: An approved insurance Response: RMA agrees with the
approved procedures. However, RMA provider commented that with respect commenter that the term ‘‘portion’’ in
does recognize that certain profit to the definition of ‘‘efficiency,’’ the the definition of efficiency could reflect
sharing arrangements can legitimately procedural determination of what is to a wide range of possibilities. However,
be considered distribution of profits be allowed as A&O income, and what it would be impossible to set a specific
rather than A&O costs and the definition must be accounted for as an A&O standard for ‘‘portion’’ because of the
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41897
wide variety of business operations of effectively with a minimum of waste, then be based on actual not projected
the approved insurance providers. It is expense, or unnecessary effort and efficiencies.
the approved insurance provider that exhibiting a high ratio of output to Response: RMA agrees that definition
must evaluate its operation to determine input. The commenter stated that in the of efficiency in the proposed rule may
where it can cut its costs. The proposed business world, this means to produce have discriminated against approved
and interim rule simply requires that to more with a given amount of resources insurance providers that currently
qualify to pay a premium discount, at or produce the same with fewer deliver the crop insurance program for
least some of these savings must come resources. The commenter stated that less than the A&O subsidy and has
from changes other than compensation. cost cutting is not considered an removed the requirement from the
With respect to a definition for efficiency. Cost cutting generally results interim rule. Further, as stated above,
‘‘reduction in compensation,’’ such a in receiving less goods or services or RMA is requiring that premium
definition is not required. The term both. The commenter stated that this discounts be based on actual cost
‘‘compensation’’ is defined in the does not meet the requirements of savings.
interim rule and standards for reporting ‘‘more efficiently’’ in the Act. Comment: An approved insurance
compensation on the Expense Exhibits Response: RMA disagrees with the provider commented that limiting the
currently exist. Further, as stated above, commenter. Section 508(e)(3) of the Act amount of the savings that is related to
RMA has developed a formula that will specifically uses the term efficiency to ‘‘a reduction in compensation’’ is
be used to determine when there has compare the difference between the contrary to FCIC’s goal of ensuring
been a reduction in compensation and costs to deliver the Federal crop easily verifiable efficiencies. Indeed, the
changes in the operation. insurance program with the A&O proposed rule recognizes that savings
Further, as stated above, approved subsidy. Therefore, cost cutting would based on state-by-state reductions to
insurance providers have an incentive meet this requirement. Further, the agent commissions ‘‘would be
to retain agents so they would not set intent of section 508(e)(3) of the Act is straightforward,’’ and ‘‘easy to verify.’’
commission rates at so low a rate that to allow price competition. As stated Moreover, the proposed rule
they risked agents going out of business above price competition occurs when acknowledges that the expert reviewers
or moving their books of business to there is the same level of service for a confirmed the economic rationale
other approved insurance providers. reduced price, or a higher level of underlying a system in which an
The free market forces will determine service for the same price. Another approved insurance provider based its
what will constitute a fair commission. commonly accepted definition of efficiencies on reduced commissions.
Therefore, no change has been made in ‘‘efficiency’’ (Webster’s Third New The commenter questions why FCIC has
response to this comment. International Dictionary) is ‘‘capacity to decided to limit the amount of an
Comment: Several interested parties produce desired results with a approved insurance provider’s
commented that the premium discount minimum expenditure of energy, time, ‘‘monetary savings can come from a
should be shared at least 50/50 with the money or materials.’’ To ensure that this reduction in compensation.’’
approved insurance provider. A principle remains in the premium Response: RMA does not agree that
commenter recommends a split of 75/25 reduction plan, RMA mandates that limiting reductions in compensation
with the insured provider contributing a there cannot be a reduction in service, reduces RMA’s ability to verify other
majority to the premium discount. A which is defined as the requirements cost saving measures. As stated above,
commenter stated it would show that contained in the SRA and approved RMA is using the Expense Exhibits to
both the agent and approved insurance procedures. the SRA, which contain costs that are
provider are willing to participate. A Comment: An approved insurance verifiable. In addition, RMA has
commenter stated that coupling this provider commented that the definition developed a formula that will allow it
with approved insurance providers of ‘‘efficiency’’ is discriminatory against to allocate costs not attributable to agent
staying below A&O and keeping any approved insurance providers that are compensation or loss adjustment
reinsurance gain or loss out of the operating under the A&O because it expense to each state. This formula is
schedule will guarantee the program’s states that the monetary savings must straightforward, relatively simple to
integrity and longevity. result from changes in the apply, and will be provided to approved
Response: As stated above, it would administrative and operating procedure insurance providers through approved
be impossible to set a specific standard and expenses of the approved insurance procedures.
for ‘‘portion’’ because of the wide provider. The commenter stated that the As stated above, it is up to the
variety of business operations of the original language did not require approved insurance provider to analyze
approved insurance providers. It is the changes in procedures or expenses. The its operation to determine where any
approved insurance provider that must commenter stated that an approved cost savings can be achieved. Further,
evaluate its operation to determine insurance provider should be able to the use of the term ‘‘portion’’ provides
where it can attain efficiencies and still show it is operating under the A&O approved insurance providers
comply with all the terms of the SRA under its current procedures. The considerable latitude in making this
and approved procedures. Further, as commenter stated the proposed analysis.
stated above, the approved insurance language favors approved insurance Comment: An approved insurance
provider’s incentive to retain agents providers that pay high commissions provider commented the definition of
should mitigate the possibility of because they can demonstrate the ‘‘efficiency’’ is inconsistent with the
approved insurance providers making changes and disfavors approved Act. The definition distinguishes
such drastic cuts in agent commissions insurance providers who are keeping between costs relating to compensation
that agents can no longer afford to sell commission costs down. The and costs relating to administrative and
crop insurance or are forced to move commenter proposes that an approved operating procedures. The Act does not
their book of business to other approved insurance provider demonstrate for not define the term ‘‘administrative and
insurance providers. less than a year that they can operate operating.’’ However, section
Comment: A few interested parties below the A&O before they have a 516(a)(2)(A) of the Act authorizes the
commented that ‘‘efficiency’’ is defined premium reduction plan in place. The appropriation of ‘‘such sums necessary
in the dictionary as acting or producing commenter stated that the plan would to cover * * * [t]he administrative and
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41898 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
operating expenses of the Corporation service to all farmers, the commenter approved waiting period in which the
for the sales commissions of agents.’’ views the division of books of business agent can complete record keeping, and
The administrative and operating costs to create such incentives/disincentives RMA needs the opportunity to spread
for which FCIC subsidizes the approved and any resulting market segmentation its work load evenly.
insurance providers pursuant to section as likely to result in approved insurance Response: RMA recognizes and
516(a)(2)(A) and which approved providers and/or their agents avoiding appreciates the commenter’s concerns
insurance providers must reduce to their legal obligation to serve all farmers about the timing and workload burden
qualify for the premium reduction plan on an equal basis. required for preparing requests for the
pursuant to section 508(e)(3) Response: RMA agrees that profit opportunity to pay premium discounts
contemplate only one type of expense— sharing arrangements must be based on under the proposed rule. However, as
agent commissions. For FCIC to restrict the total underwriting gain of the stated above, those burdens have been
the degree to which approved insurance approved insurance provider’s book of significantly reduced in the interim
providers reduce agent commissions in business. To allow otherwise would not rule. Under the interim rule there will
order to achieve program efficiency only allow approved insurance be two deadlines for requests. The first
contravenes both the meaning and providers to divide its book of business will be when an approved insurance
intent of the Act. for the purpose of creating incentives, as provider seeks eligibility to offer a
Response: To adopt the commenter’s stated above, it would permit the premium reduction plan. This request
interpretation would mean that RMA approved insurance provider to pay will be very limited in the information
would only be able to reimburse profits even though it earned no profits required and will be due with
approved insurance providers for the for the reinsurance year. This could submission of the Plan of Operations.
agent commission they pay and not the jeopardize the financial stability of the Because of the limited nature of the
other expenses they incur, which means approved insurance providers in loss information, approved insurance
the entire amount paid as A&O subsidy years. providers should have little difficulty
must be paid by approved insurance Comment: An approved insurance providing this information at that time.
providers to agents as commission. Such provider commented that it supported Because RMA will also be reviewing the
an interpretation would be contrary to the definition of ‘‘unfair discrimination’’ Plans of Operation during this time and
section 508(k)(4) of the Act which states because it ensures that approved RMA needs sufficient time to evaluate
that the A&O subsidy is to ‘‘reimburse insurance providers and their agents the requests before the beginning of the
approved insurance providers and serve all farmers. reinsurance year. The second request is
agents for the administrative and Response: RMA agrees with the for RMA approval to pay a discount,
operating costs of the providers and commenter and this definition is which is due not later than December 31
agents.’’ included in the interim rule. after the end of the reinsurance year.
Further, this interpretation is Comment: An approved insurance Comment: An approved insurance
incorrect because it refers to the provider suggested a clear definition for provider comments that, with respect to
‘‘administrative and operating expenses ‘‘producer.’’ The commenters § 400.714(c), it supports this provision
of the Corporation for the sales recommend that ‘‘producer’’ be defined because it is committed to a level
commissions of agents.’’ FCIC does not as a ‘‘crop insurance policy holder.’’ playing field in which farmers have the
incur any administrative and operating Response: Producer cannot be defined opportunity to make insurance choices
expense for the sales commissions of as a ‘‘crop insurance policyholder’’ having full access to the information
agents. Such expenses are incurred by because many of the references refer to they need to make informed business
the approved insurance providers who farmers who may not yet have applied decisions. In order to allow farmers this
contract with and pay agent for insurance and become opportunity, the premium reduction
commissions. These commission policyholders. Further, producer is a plans must be submitted by all
payments would be considered as part common, well known term in the crop approved insurance providers and
of the approved insurance providers insurance program, used on the Act, approved by the RMA in a timely and
administrative and operating expenses regulations, the SRA, and approved consistent fashion.
and payment is authorized under procedures. Therefore, no change is Response: RMA agrees that the
sections 516(a)(2)(B) and 516(b)(1)(C) of made. proposed rule provides a framework for
the Act. requesting the opportunity to offer a
Comment: An interested party Section 400.714 premium discount that provides equal
commented that the definitions of Comment: An approved insurance opportunity to all existing approved
‘‘compensation’’ and ‘‘profit sharing’’ provider comments that, with respect to insurance providers and retained the
are not well crafted and require § 400.714(a), the ‘‘15 day’’ window for provisions in the interim rule. However,
extensive editing before the interim rule submission of revised Plans of RMA determined that additional
can be effectively analyzed. Operations is appropriate for this year provisions were necessary to address
Response: RMA agrees that the only, since the finalization of the the situation where approved insurance
definitions in the proposed rule require proposed rule will leave a very tight providers that enter the crop insurance
clarification and has revised both time frame. program after the start of the
definitions. Response: RMA agrees with the reinsurance year. Therefore, RMA has
Comment: An approved insurance comment and has preserved this added provisions to the interim rule to
provider supported the definition of provision in the interim rule. allow new approved insurance
‘‘profit sharing arrangements’’ as a Comment: An approved insurance providers to include their requests for
whole, but point out specifically that provider comments that, with respect to an opportunity to offer a premium
‘‘ * * * gain on the total book’’ is § 400.714(b), May 1 would be a more discount with their application for a
important because the alternative would appropriate deadline for subsequent SRA.
allow an approved insurance provider applications because an April 1 Comment: An approved insurance
to divide its book for purposes of deadline for submissions comes too provider comments that, with respect to
creating incentives and disincentives for closely after the spring crops sales § 400.714(d), it supports the provision
agents. Since the law requires equal closing deadline, there is also an since the law clearly requires that
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approved insurance providers who insurance program, the A&O may be cost efficiencies achieved by the
make savings must pass them on to reduced even more. Only an participating approved insurance
farmers, there would be no valid reason irresponsible approved insurance provider. The commenter urges RMA to
to withdraw the premium reduction provider would make such a filing. This consider carefully the impact of
plan once savings are proven since they approved insurance provider would increases in the future maximum
must be passed on to the farmers. This need to take shortcuts to make such a limitations on the premium discount
provision benefits farmers, as well as filing possible. RMA should consider and what those changes will mean to
the crop insurance program as a whole, capping the discount at 2 percent until other approved insurance providers,
because it provides strong protections to it is sure that approved insurance while maintaining competition in the
farmers. providers can write at such a low marketplace. A commenter stated no
Response: Since the interim rule expense ratio and still service the caps would result in a bidding war and
revised the requirement that premium business properly. service to farmers would be drastically
discounts be paid on actual savings Response: Since the interim rule hindered.
determined at the end of the reinsurance requires that all premium discounts be Response: As stated above, the use of
year, there is no longer a requirement based on the actual cost savings of the actual cost savings to determine
for a provision to allow approved approved insurance providers, the premium discounts may eliminate the
insurance providers to withdraw their commenters concerns that a 4 percent need for the cap in the future, but RMA
request. Premium discounts are no reduction A&O costs is unrealistic have is retaining it to manage expectations of
longer guaranteed and farmers are already been addressed. An approved the limits of this program and to ensure
expressly informed that such discounts insurance provider can only pay the 4 that there are no market disruptions.
may not be approved to be paid. percent maximum premium discount if RMA will consider the effect on the
Therefore, approved insurance it can prove that it had the requisite cost market when it determines whether
providers that are unable to, or elect not savings and it was in compliance with there is a need for such a cap and the
to, pay a premium discount can simply all requirements of the interim rule, the appropriate amount in the future.
not request approval for the payment of SRA, and applicable procedures, Comment: An approved insurance
a discount. including the requirements regarding provider commented that § 400.715(a)
Comment: An approved insurance service, loss adjustment, quality control, allows premium discounts to vary from
provider comments that, with respect to etc. Compliance with these 1.0 to 4.0 percent between approved
§ 400.714(e), it is absolutely necessary requirements will be monitored under insurance providers. The commenters
that all trade secrets and confidential the SRA and approval of the payment of state that this is inherently
commercial or financial information in a premium discount will not be discriminatory and farmers do not have
submissions remain completely provided until compliance has been equal access to the best reductions. It
confidential. However, the commenter determined. However, RMA will retain depends upon the approved insurance
notes that 5 U.S.C. 554(b)(4) protects the cap to allow it to manage the provider writing their insurance.
‘‘trade secrets’’ as well as commercial or premium reduction plan to ensure there Premiums charged the farmers for their
financial information. Accordingly, the are no market disruptions from crop insurance are the same regardless
commenter suggest adding the following approved insurance providers trying to of the approved insurance provider that
language to this subsection in order to cut costs too drastically. Therefore, no insures them so it only follows that the
track 5 U.S.C. 552(b)(4): ‘‘Any trade change has been made in response to discounts should be identical between
secrets and commercial or financial this comment. approved insurance providers.
information submitted with a revised Comment: An approved insurance Response: Section 508(e)(3) of the Act
Plan of Operations will be protected provider commented that philosophical clearly gives the right to any approved
* * *.’’ and competitive impact concerns insurance provider that can deliver crop
Response: Since this provision only notwithstanding, from solely a cost insurance at a cost less than the A&O
referred to the existing protections in accounting view, the cap on premium subsidy to pay a premium discount on
law, there is no need to include such a discounts should not be a concern if the the basis of such savings. There is no
provision here. Existing law regarding cost savings from efficiencies are valid. requirement that each approved
the protection from disclosure of such However, the commenter suggests they insurance provider pay the same
information will continue to apply. may not be valid. premium discount. Such a requirement
Response: Since premium discounts would be contrary to the very price
Section 400.715 are based on the actual cost savings of competition that section 508(e)(3) was
Comment: An approved insurance the approved insurance provider, the intended to promote. Further, it would
provider commented that in § 400.715(a) maximum premium discount may not be impossible to impose such a burden
RMA is allowing as much as a 4 percent be needed. However, as stated above, to on the approved insurance providers
reduction in the net book premium. ensure that there are no market because their operations are so different.
With the reduced A&O reimbursements disruptions from approved insurance Only they can determine where it would
found in the 2006 SRA, the commenter providers trying to cut costs too be appropriate to cut costs while still
states a four percent reduction is too drastically, RMA is retaining the cap. It complying with all requirements of the
much. Most premium is produced from can be removed or adjusted at a later SRA and approved procedures.
revenue coverage such as Crop Revenue date if it proves not to be necessary. Further, allowing these differences is
Coverage or Revenue Assurance, and in Comment: A few interested parties not discriminatory because every farmer
a number of states, the 80 percent agreed with the cap. A commenter has the free market choice to be insured
coverage and higher is selected, driving stated that the limits to adjusting and with the approved insurance provider
the average A&O near 20 percent. There other costs outlined in § 400.715(a), that historically pays the highest
is no way for an approved insurance § 400.716(h) and § 400.719 are premium discount. RMA agrees that its
provider to service such a complicated particularly crucial to the viability of election to allow approved insurance
line of business at today’s commodity the program as well as the solvency providers to select the states in which
prices in the 16 percent range. With issues raised above. These limitations it will participate in the premium
threatened budget cuts to the crop will ensure that reductions are based on reduction plan could result in farmers
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41900 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
not having access to premium of these unpopular states might allows RMA and approved insurance
discounts. However, as stated above, withdraw to file a premium reduction providers to determine the amount of
when weighed against the possibility plan to compete in the profitable premium discount. Further, there
that approved insurance providers will Midwest. should not be an issue regarding unfair
withdraw from such states, leaving Response: As stated above, RMA has competitive advantage because the
these farmers without any insurance reconsidered the requirement that purpose of the premium reduction plan
protection, the loss of the opportunity to approved insurance providers offer the is to introduce price competition and
receive a premium discount at such premium discount in all states in which now all approved insurance providers
later date seemed the most appropriate they write business for the very reasons have the option to select the state in
option. mentioned by this commenter. RMA which to participate in the premium
Comment: An approved insurance determined that the possibility of a reduction plan so the playing field is
provider comments that, with respect to farmer being left without insurance level.
§ 400.715(a), it supports the imposition protection was far worse than that same Comment: Several approved
of a cap. The commenter states it farmer not having an opportunity to insurance providers commented that in
provides a benefit to farmers by acting receive a premium discount in the § 400.715(b), now redesignated
as a stabilizer to the marketplace and future. As a result, the interim rule will § 400.715(h), forcing an approved
making sure that approved insurance allow approved insurance providers to insurance provider to offer the premium
providers who seek approval of a select the states in which it will reduction plan in all states in which it
premium reduction plan do so with due participate in the premium reduction does business penalizes national
care and submit only accurate plan. carriers and, as explained in connection
information. However, the commenters Comment: Several approved with § 400.175(c), ignores critical
suggest the cap be raised to 5.0%. The insurance providers and agents differences that exist among the various
commenter stated it will continue to commented that the premium reduction states, crops and policies. Only two
benefit farmers while maintaining plan should only be done over all approved insurance providers sell and
stability in the market if the RMA policies, plans and states. Otherwise, service policies nationally and nothing
allows this additional amount of expense loading could be easily shifted precludes them from withdrawing from
flexibility for approved insurance to those policies which the premium high-risk, low-reward states. The
providers to identify and pass through reduction plan is not offered. A commenter stated that RMA’s
cost savings to farmers, and for the RMA commenter stated that such shifting will shortsighted decision to prohibit the
to approve them if they are adequately likely occur due to the questionable premium reduction plan from varying
documented. ability for any approved insurance by state only increases that likelihood.
Response: As stated above, premium provider to operate within A&O Response: RMA agrees with the
discounts are based on the actual cost reimbursement. A commenter stated commenter and, as stated above, the
savings achieved by the approved that it is not fair to allow an approved interim rule now allows approved
insurance provider. However, RMA has insurance provider to offer the premium insurance providers to select the states
elected to retain the maximum 4.0 reduction plan and the traditional crop in which it will participate in the
percent cap to manage program insurance in the same state. The premium reduction plan and to vary its
expectations and to avoid market commenter stated agents should not be requested discount by state within the
disruptions that could occur if approved able to ‘‘pick’’ who would be offered the maximum discount allowed. However,
insurance providers attempt to cut costs premium reduction plan. A commenter within a state, the interim rule still
too drastically. Until it has more stated that to suddenly allow a myriad requires that the premium discount be
information, RMA is reluctant to raise of state-by-state choices could foster an the same for all crops, plans of
the cap but, in the future, RMA will re- unstable situation and that the ‘‘all insurance, and coverage levels.
evaluate the cap to determine whether states/all crops/all insurance policies Comment: An approved insurance
it is necessary or what would be the and plans’’ requirement minimizes the provider commented that, with respect
appropriate amount. Therefore, no risk of unfair competitive disadvantage to § 400.715(b), now redesignated
change is made in response to this among premium reduction plans. § 400.715(h), if the marketplace and
comment. Response: RMA agrees with the competition compel the approved
Comment: An approved insurance comment that, within a state, an insurance provider to implement the
provider commented that in approved insurance provider premium reduction plan, the approved
§ 400.715(b), now redesignated participating in the premium reduction insurance provider will do so. To that
§ 400.715(h), RMA is proposing that the plan must pay the approved premium end, if FCIC mandates that the approved
premium reduction plan be instituted discount to all policyholders, regardless insurance provider offer its plan in all
for all premium written by the approved of the crop insured, the coverage level states or in none, the approved
insurance provider regardless of crop or or the plan of insurance. This insurance provider likely will
state of location. Some approved requirement has been retained. reconsider its role as a national carrier.
insurance providers only write in the However, as stated above, the real The commenter stated the approved
Midwest where the underwriting gain concern that approved insurance insurance provider would sooner
has been good. In states where the providers may withdraw from states abandon marginal states than allow its
results have been less favorable, necessitated allowing approved quality business to be eroded by
sometimes the only reason to write there insurance providers the ability to select regional carriers who would profit from
is for the A&O subsidy. The commenter the states in which to participate in the FCIC’s inability to recognize or
stated that an approved insurance premium reduction plan. As stated unwillingness to acknowledge the
provider may consider withdrawing above, RMA has dealt with the expense economic variables that exist between
from such a state to keep rates loading issue through the use of the states.
competitive in profitable states. The Expense Exhibits to the SRA to Response: As stated above, RMA
commenter asked whether RMA is determine efficiencies and the agrees with the commenter and the
concerned that the few approved development of the formula that interim rule now allows approved
insurance providers writing in a number contains the allocation of costs and insurance providers to select the states
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in which it will participate in the discount based on whether they are requires that the premium discount be
premium reduction plan. However, small, limited resource, women, or the same for all crops, plans of
within a state, the interim rule still minority farmers or on their loss history, insurance, and coverage levels.
requires that the premium discount be which is exactly what the interim tried Comment: An interested party
the same for all crops, plans of to avoid. Therefore, no change is made expressed concern that the premium
insurance, and coverage levels. in response to this comment. reduction plan may, in fact, be a form
Comment: Several approved Comment: An approved insurance of rebating, which is prohibited under
insurance providers, agents, farmers and provider commented that varying levels most state laws. The commenter stated
interested parties suggested that with of agent compensation from state to anti-rebating laws prohibit insurance
respect to § 400.715(b), now state should not be allowed to justify a agents and/or insurers from returning
redesignated § 400.715(h), approved difference in premium discount from any portion of a commission as an
insurance providers who offer the state to state, although the commenter inducement for an applicant to do
premium reduction plan make it acknowledges that market forces cause business. The commenter stated that the
available for all insurance plans and for approved insurance providers typically language in § 400.715(b) and
all crops grown in all of the states they to pay different rates of agent § 400.715(c) of the current proposed
serve. If an approved insurance provider compensation around the country. premium reduction plan, requiring that
offers the discount in one area then they Response: The proposed rule did the rebate be distributed equally across
should make it available in all areas and require that the approved insurance ‘‘all states and for all crops, coverage
not discriminate by crop, insurance provider pay the same premium levels, policies or plans of insurance, or
plan, or state location. discount in each state. This would mean on any other basis’’ does not provide or
Response: RMA agrees with the that approved insurance providers eliminate an inducement to do business
comment that a premium discount would need to cut the same amount of for any particular applicant or group of
should not vary by crop, plan of costs from each state in order to meet applicants.
insurance, or coverage level. However, the requirement in section 508(e)(3) of Response: As stated above, whether
RMA has assessed the possible impact the Act that efficiencies correspond to the previous premium reduction plan or
of not allowing approved insurance the premium discount. However, as the the proposed or interim rule may allow
providers to select the states in which commenter correctly states, approved a form of rebating that is prohibited
it will participate in the premium insurance providers already vary the under most state laws is not material.
reduction plan and has determined that amount of agent commissions by state. Under section 506(l) of the Act, any
the adverse effect of possible Further, the costs within each state may state law that is in conflict with the Act
withdrawal of approved insurance well be different and to require that the or any regulation promulgated by FCIC
providers significantly outweighs the same cost savings could very well is preempted. As stated above, since
effect on farmers if they do not have the jeopardize the operations of the section 508(e)(3) of the Act expressly
opportunity to receive a premium approved insurance provider in the state allows premium discounts to be
discount in the future. and its ability to comply with all the provided and is not expressly made
Comment: An approved insurance requirements of the SRA. For these and subject to state law, the fact that such
provider recommends that, with respect the other reasons stated above, RMA has discounts may be an inducement to
to § 400.715(b), now redesignated elected to allow approved insurance purchase insurance does not override
§ 400.715(h), and § 400.715 (c), providers to select the states in which this express authority. The provisions of
approved insurance providers have the it will participate in the premium the interim rule preempt state law.
option not to offer a premium discount reduction plan and the amount of Comment: Several approved
on CAT policies as farmers do not pay premium discount to vary between insurance providers, farmers and agents
a premium (only an administrative fee) states. However, within a state, the suggested that with respect to
for CAT policies. Further, the amount of premium discount must be § 400.715(b), redesignated as
commenter would recommend the the same. § 400.715(h), to simplify the programs
clause ‘‘or any other basis’’ be Comment: Several agents commented accessibility and accountability the
eliminated and replaced with ‘‘or any that the concept of the premium program should be offered to all states
basis which could limit or restrict reduction plan is good, but the rules and crops that the approved insurance
access to a premium reduction, in whole that the RMA has proposed are too provider operates in. The commenter
or in part, to some producers.’’ As long restrictive. The commenter states that stated that due to recent accounting
as cost savings programs are fair and § 400.715(b), which forces the approved problems the program should remain
equally available to all farmers, they insurance providers to offer the the same throughout with the same
should be presented to and considered premium reduction plan in all reduction available to all states. This
by the RMA. geographies makes the premium would also help in monitoring the
Response: As stated above, RMA has reduction plan a very bad idea. The program. A commenter also stated that
added a provision that would make commenter stated that if approved all approved insurance providers
policies insured at the CAT level of insurance providers agree to all of the operating under the premium reduction
coverage ineligible for the premium rules of the premium reduction plan as plan should do so within the A&O and
reduction plan. they stand today they are putting reinsurance funds should not be filtered
However, RMA disagrees with the themselves at a huge financial risk. This back into the program. A commenter
suggestion to replace the clause ‘‘or any in turn creates the potential for stated that the intent of the program is
other basis.’’ This clause is intended to destabilizing the industry. to learn to operate below the A&O
be all inclusive to prevent any means to Response: RMA agrees with the reimbursement by implementing
exclude a policy from receiving a commenters and, as stated above, the creative and process altering systems or
premium discount. RMA is concerned interim rule now allows approved procedures that will make it easier for
that making the recommended change insurance providers to select the states the farmer to participate. The ability of
could lead to farmers being denied in which they will participate in the the approved insurance provider to
access to the premium discount or premium reduction plan. However, document their plan in such a way that
receiving a different amount of premium within a state, the interim rule still expense reductions can be easily
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41902 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
verified by RMA is essential to the requirement’’ also makes it easier for adjustment expense, etc.). The
integrity of the program. A commenter customers, and eases the accounting and commenter states it does not follow that
stated that this will also eliminate any other necessary tracking of its business premium discounts should be identical
concerns of discrimination that some systems. The commenter states it allows as a percent reduction in premium.
have suggested would occur. RMA to verify savings, and allows Farmers in states with the highest
Response: RMA agrees with the farmers to make informed business premiums, or plans of insurance with
commenters that offering a premium decisions without having to evaluate the highest premiums, would receive
discount in all states and for all crops different pricing structures offered by the largest discounts in terms of dollar
that an approved insurance provider multiple providers based on numerous savings. The commenter stated that
services would simplify accounting and factors. In addition, state variability business generating the largest losses
monitoring issues and ensure that all would require additional, more would receive more discount. The
farmers would participate equally. This complicated bookkeeping not only for commenter claimed that savings derived
feature was included in the proposed the RMA, but also for the approved because of operating efficiencies should
rule. However, after considering the insurance provider and agent. It would be affected based upon a dollar amount
concerns raised by several commenters also disadvantage captive agent per policy or per crop insured. The
regarding the factors approved approved insurance providers, for fixed cost to process and service a
insurance providers must consider in whom such bookkeeping would be even policy is the same regardless of the
deciding to enter or leave a state and more burdensome and complex. amount of premium. The commenter
how the requirement that approved Response: While RMA expressed most states that only commissions vary by
insurance providers must provide the of these same reservations in the state so the discount should be the same
same premium discount in all states in preamble to the proposed rule, as stated unless the commissions are reduced by
which the approved insurance providers above, RMA had to rethink its position differing amounts between states.
do business might affect this decision, because of the very real possibility that Response: RMA agrees with the
as stated above, RMA determined that national approved insurance providers commenter that premiums charged by
the adverse effects of not allowing an may pull out of certain states, leaving state, crop, plan of insurance, and
approved insurance provider to select those farmers without access to any crop coverage level vary considerably and
the states in which it participates in the insurance protection. To protect these that delivery cost structures for policies
premium reduction plan or allowing the farmers and the financial stability of the also differ considerable depending on
amount of premium discount to vary approved insurance providers and crop these factors. RMA further agrees that
between states outweighed the potential insurance program, RMA is allowing for the policies that have the same
benefit that a farmer may receive a approved insurance providers to select amount of acreage, policies with higher
premium discount in the future. states in which they will participate in losses pay higher premiums. However,
Therefore, as stated above, the interim the premium reduction plan and allow the same is true for policies with higher
rule now allows for both selection of a variation in premium discounts coverage levels, different unit
states and variability in premium between states based on the actual cost structures, additional options, revenue
discounts between states. savings. coverages, etc. Therefore, the higher
RMA also agrees with the comment As stated above, this will allow premium is not necessarily as a result of
that the integrity of the premium approved insurance providers to better higher actual losses but because of a
reduction plan depends on the ability of determine where savings can be higher risk of loss or the potential for a
RMA to verify actual delivery expenses. achieved while still allowing them to higher indemnity if a loss is paid.
As stated above, the interim rule remain in compliance with the SRA. It Further, premiums do not take into
strengthens this effort through the should not be confusing to farmers consideration loss adjustment expense.
requirement that premium discounts be because the premium discount within Such expense is part of the A&O
based on actual cost savings, the use of the state will remain the same and subsidy the approved insurance
Expense Exhibits provided with the cannot vary by crop, coverage level or provider receives or the CAT loss
Plan of Operations, which can be plan of insurance within a state. adjustment expense, which as stated
verified through the statutory expense To address the cost accounting issues, above, is no longer taken into
accounts and by requiring that the as stated above, RMA has found ways to consideration under the premium
Expense Exhibits be audited and simplify such accounting and reduce reduction plan.
certified by an independent certified the burden on approved insurance While it is possible to structure the
public accountant experienced in providers. One is through the adoption premium discount as a set amount
insurance accounting. of the alternative proposal, which based on the fixed costs of delivery and
RMA agrees with the comment that eliminates the burden to project cost savings, this process would not be fair
the potential for discrimination will savings up front and allows premium or equitable. It could result in small
likely be reduced to the extent that an discounts to be based on actual cost farmers paying little or no premium, or
approved insurance provider can savings. Another simplification is the actually receiving money back, and
accurately report its expenses and RMA use of existing Expense Exhibits. large farmers receiving very small
can verify the cost savings. Again, the Further, RMA has developed a standard premium discounts that are
interim rule includes provisions to formula that can be applied to all insignificant in terms of their operation.
ensure that these activities occur. approved insurance providers to RMA has determined that a percentage
Comment: A few approved insurance allocate certain costs and determine the of premium was the most fair and
providers commented that, with respect amount of premium discount that could equitable payment structure because it
to § 400.715(c), there should not be any be paid in each state. allowed proportionally the same savings
variability of discounts among states, Comment: An approved insurance for all farmers and did not favor one size
crops, and insurance plans and policies. provider commented that, with respect operation over another.
A commenter stated that variability to § 400.715(c), currently premiums The commenter also suggested that
requires complex accounting decisions. charged by state, crop or plan of premium discounts be allowed to vary
The commenter states that ‘‘all states/all insurance differ based upon actuarially by state only if the agent commission
crops/all insurance plans and policies determined differences (loss costs, loss varies by state. RMA does not believe
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the rule should be so restrictive. Under RMA has sought to avoid and operations, would be burdensome to
the formula, all costs will be placed into commenters have stated would be administer by both RMA and the
one of three categories: Agent detrimental to the program because of approved insurance provider, and could
compensation, loss adjustment expense the undue burdens that would be adversely affect program integrity
or overhead. Loss adjustment expense imposed and the potential for because of the potential for
and agent compensation are reported on misallocation of costs. misallocation of costs.
a state basis so that reductions in either Comment: An agent commented on As stated above, RMA has
could allow for state variability. § 400.715(c) and expressed concern reconsidered its position to require the
Therefore, no change is made based on about the equity of the premium same premium discount be provided in
this comment. reduction plan in terms of applying the all states in which the approved
Comment: Several approved discount to various sizes of farm insurance provider does business and
insurance providers, loss adjusters, operations and also within various the interim rule allows the approved
farmers and interested parties states where loss ratios can vary by insurance provider to select the states in
commented that the requirement in incredible margins. As it stands now, which to participate in the premium
§ 400.715(c) that the amount of the farmers in SW Nebraska would receive reduction plan and allows variation in
premium discount offered may not vary the same discount as those in say the amount of premium discount
between states, crops, coverage levels, Eastern Iowa. The commenter suggested between states based on the actual cost
policies, or plans of insurance, or any that RMA check some loss ratios and savings. This is because, as stated above,
other basis fails to recognize the justify that because it can’t be justified. RMA found ways to eliminate most of
significant differences between states, Response: As stated above, now the concerns regarding the burdens and
crops, coverage levels, policies, plans of approved insurance providers will be other risks of such an approach.
insurance. A commenter stated that it able to select the states in which they However, RMA is retaining the
does not appear feasible to mandate participate in the premium reduction limitation of varying the premium
non-variable efficiencies in an plan and can vary the amount of discount by crop, coverage level or plan
environment full of variable costs. A premium discount between states based of insurance because, as stated above,
commenter stated that RMA should not on the actual cost savings. However, the costs are not currently reported in this
expect costs to be the same for corn variation in premium discount between manner and all the concerns raised by
versus a fruit or tree policy and policies states is based on the actual cost savings RMA would still exist. Cost accounting
in Iowa versus those in Florida. A achieved in each state, not the loss ratio rules would be complex and allow for
commenter stated that this proposed of the state. Section 508(e)(3) of the Act the potential of misallocation of costs
regulation may have the unintended only allows premium discounts to be and there would be significant burdens
result of an approved insurance based on the cost savings of the on RMA and the approved insurance
provider not doing business in states approved insurance provider and while provider to administer the program.
that are not profitable and therefore loss ratios may play a factor in the Comment: An approved insurance
depriving or limiting the choices of approved insurance provider’s election provider commented that with respect
farmers in those states relative to crop to participate in a state or the amount to § 400.715(c) the most persuasive
insurance. A commenter also stated that of cost savings that can be achieved, it evidence supporting the argument that
regional approved insurance providers, cannot be used to determine the amount approved insurance providers should be
operating only in historically profitable of the premium discount. permitted to vary premium discounts by
states, would have an unfair advantage Comment: An approved insurance state and by plan of insurance is the
over national operations in determining provider commented that with respect A&O subsidy provided by FCIC. The
efficiencies and discounts. A to § 400.715(c) FCIC is incorrect that the A&O subsidy paid by FCIC varies by
commenter stated that consideration Act requires uniformity with respect to plan of insurance and by coverage level.
should be given to allow for these cost the amount of the reduction and For example, in 2005, the A&O subsidy
variances and a differing reduction in prohibits distinctions based on states, for the revenue plans ranges from 21.0
premium based upon those factors. crops, coverage levels, policies, plans of percent (75 percent coverage level or
Response: RMA agrees that the insurance. The commenter states that less) to 19.6 percent (85 percent
proposed rule, which required the same although the language may support coverage level). By contrast, the A&O
premium discount for all states, could FCIC’s contention that the premium subsidy associated with the APH plan of
result in some approved insurance discount must correspond to the insurance varies between 24.4 percent
providers deciding to withdraw from efficiency underlying that discount, (75 percent coverage level or less) to
certain states. RMA also agrees that this nothing in section 508(e)(3) of the Act 22.8 percent (85 percent coverage level).
provision could favor regional over precludes an approved insurance The approved insurance provider asked
national approved insurance providers. provider from establishing different if FCIC recognizes the differences in
Consequently, the interim rule allows premium discounts on a state-by-state or plans of insurance and coverage levels
the premium discount to vary by state plan-by-plan basis. for purposes the A&O subsidy, why
based on the actual cost savings and for Response: Section 508(e)(3) of the Act FCIC disregards those same differences
approved insurance providers to select states that premium discounts are for purposes of the premium reduction
those states in which to participate in subject to the limits and procedures plan.
the premium reduction plan. However, established by FCIC. The requirement in Response: RMA agrees that the A&O
the premium discount within a state the proposed rule that the same subsidy varies by plan of insurance and
will remain the same and may not vary premium discount be offered across all by coverage level. However, section
by crop, coverage level or plan of states, crops, coverage levels, policies, 508(e)(3) of the Act states that premium
insurance. While the costs may be and plans of insurance was such a discounts must be based on the savings
different for the different crops, costs limitation based on the concerns of achieved by the approved insurance
are not reported by crop, coverage level RMA that to allow variability would provider, not the manner in which the
or plan of insurance. Therefore, require complex cost accounting rules A&O subsidy is paid. While variation by
complex accounting rules would have to that may not be suitable for all the coverage level or plan of insurance may
be developed, which is the very thing approved insurance providers’ business be permitted under the Act, premium
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41904 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
discounts are subject to the limits significant burden on approved insurance plan basis. RMA also does not
established by RMA and RMA must be insurance providers. Further, because know whether all approved insurance
able to verify that premium discounts there is no way to verify such costs, the providers may calculate or accounted
correspond to cost efficiencies. As possibility of misallocation is for costs in this manner.
stated above, costs are not reported by significant. Further, even if approved insurance
the approved insurance provider by While RMA agrees that section providers did calculate costs in this
coverage level or plan of insurance. 508(e)(3) of the Act does not preclude manner, agent compensation and loss
Therefore, there is no way to ensure that premium discounts based on coverage adjustment expenses may be reported to
the cost savings corresponded to the levels or plans of insurance, that section RMA on a state-by-state basis, it is not
premium discount on a coverage level does give RMA the authority to impose reported on a plan of insurance basis.
or plan of insurance bases without such rules and limitations as are Further, all other costs are reported on
complex accounting rules. As stated by necessary to protect the integrity of the a book of business basis. Therefore, even
other commenters, RMA must avoid the program. Not allowing variability of if approved insurance providers
need for complex accounting rule. premium discounts by coverage level or calculate such costs on a state-by-state
While RMA has avoided the need for plan of insurance is such a limitation. basis, RMA has no way to verify
such rules with respect to state selection Therefore, no change has been made in whether such costs were correctly
and variability of the premium discount response to this comment. allocated. This means that complex
between states, there is no easy way to Comment: The approved insurance accounting rules would be required and
further break down these costs within a provider commented that, with respect the burden on the approved insurance
state by coverage level or plan of to § 400.715(c), the proposed rule providers and RMA would significantly
insurance. oversimplifies the manner in which an increase. This is precisely the situation
Comment: An approved insurance approved insurance provider might that RMA has sought to avoid in the
provider contends that, with respect to reduce costs. To wit, the proposed rule interim rule.
§ 400.715(c), FCIC has a statutory includes, as an example, this statement: Comment: An approved insurance
obligation to permit approved insurance ‘‘if the approved insurance provider can provider commented that, with respect
providers to vary the premium discount reduce costs by 2.5 percent, such to § 400.715(c), the proposed rule’s
by product and coverage level. More reduction must be provided to all prohibition against variances in
specifically, section 508(e)(3) of the Act policyholders in all states.’’ The premium reduction plan submissions is
provides that an approved insurance commenter states that this example at odds with the experts that reviewed
provider may offer a premium discount assumes, incorrectly, that all approved the proposed rule prior to its
‘‘[i]f an approved insurance provider insurance providers gauge their publication. The commenter asked that
determines that the provider may respective costs on a program-wide if the expert reviewers recognize that
provide insurance more efficiently than basis. In fact, the commenter states it the difference between states, crops,
the expense reimbursement amount calculates its costs on a state-by-state policies, and plans of insurance, why
established by the Corporation.’’ The and product-by-product basis. does FCIC not and on what basis did
term ‘‘expense reimbursement amount’’ Accordingly, the approved insurance FCIC reject these suggestions.
refers to the A&O subsidy, and, as provider’s ability to decrease costs by Response: The expert reviewers
shown above, the A&O subsidy varies 2.5 percent on corn in Iowa does not recognized that costs varied between
by insurance plan and coverage level. correlate to a 2.5 percent reduction in states, policies and plans of insurance.
Thus, to provide insurance more the costs associated with nursery in RMA acknowledges that this is correct.
efficiently than the 21.0 percent expense Florida. However, the expert reviewers did not
reimbursement amount established by Response: The proposed rule examine the complex cost accounting
FCIC for revenue plans may necessitate contained the requirement that all rules that would be required to verify
different cost reductions than are premium discounts be the same because and approve savings on this basis or
necessary to provide insurance more of RMA’s concern stated above assess the burden on approved
efficiently than the 24.4 percent expense regarding the projections of costs, the insurance providers or RMA to
reimbursement amount established by burdens on approved insurance administer the program in this manner.
FCIC for the APH plan. In short, to providers to administer the program, RMA has done this assessment and
comply with section 508(e)(3)’s and the potential for misallocation of determined that it could structure a rule
requirement that the efficiency be costs. RMA considered all the that would permit variability among
judged in relation to the expense comments on this issue, including the states because certain costs are already
reimbursement amount, FCIC must comments regarding the variability of allocated and reported by state and the
allow approved insurance providers to costs between states, and determined others could be allocated by state
tailor the premium discount to plan of that it could address these concerns and through a formula designed by RMA.
insurance and coverage level. The still allow variability of premium However, as stated above, because
commenter states that FCIC was so discounts by state, which it did. costs are not reported on a crop or plan
concerned with satisfying the condition However, even though the commenter of insurance basis, RMA has no way to
established in the second clause of the claims it calculates costs on a state-by- verify that such costs are correctly
first sentence in section 508(e)(3) that it state and plan of insurance basis, RMA allocated. Further complex accounting
neglected to implement the first clause. has no way of knowing whether all costs and allocation rules would be required
Response: The flaw to the are calculated in this manner. For and the burdens on RMA and the
commenter’s logic is that even though example, RMA knows that agent approved insurance providers would
the A&O subsidy is tied to the coverage compensation and loss adjustment increase significantly. This is precisely
level or plan of insurance, the expenses expenses are calculated and accounted the situation that RMA has sought to
are not necessarily on the same basis. for on a state-by-state basis but it does avoid in the interim rule.
Since costs are not reported by coverage not know whether such overhead costs,
level or plan of insurance, complex other employee or contractor Section 400.716
accounting rules would need to be compensation, etc., is also calculated Comment: An interested party
developed that would impose a and accounted for on a state-by-state or commented that regulators are always
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41905
concerned about the possibility of Comment: An interested party have been removed from the interim
financial stress placed on approved commented that the initial application rule and the process considerably
insurance providers who feel they have process should include an analysis of streamlined.
to reduce essential operating costs in the impact on how the premium Comment: An approved insurance
order to compete in the marketplace. discount would affect minority farmers. provider asked, with respect to
Such competitive pressures can reduce Response: As stated above, the initial § 400.716(e), redesignated § 400.716(c),
competition in the marketplace as application process has been revised if RMA will be advising approved
approved insurance providers are no significantly and now approved insurance providers of specific
longer able to write business profitably, insurance providers will only be standards or criteria that must be met
or in the worse case scenario, causes requesting the opportunity to be able to for marketing to small farmers, limited
insolvency, which is a burden to the offer a premium discount in the event resources farmers, women and
regulatory authority, state guaranty it can deliver the Federal crop insurance minorities. The commenter asked if
funds, the RMA and not least, the program for less than the A&O subsidy. RMA will test such standards or criteria
consumer. Transparency of the However, RMA has taken several to determine if the marketing plan is
efficiency and constraints on what types measures to ensure that small, limited acceptable to prevent discrimination.
of expenses can be included in the resource, women and minority farmers The commenter also asked if the
premium reduction plan are essential to are not adversely impacted by the approved insurance provider does not
the integrity of such a program and the premium reduction plan. RMA has meet the RMA standards, will the
financial well being of the participating retained the requirement that approved approved insurance provider be
approved insurance providers. The insurance providers submit marketing assessed penalties.
commenter states the language in plans that demonstrate how they will Response: RMA has revised
§ 400.716 sufficiently documents the market the premium reduction plan to redesignated § 400.716(c) to clarify that
approved insurance provider’s premium small, limited resource, women and the marketing plan must identify the
reduction plan such that the extent and minority farmers. RMA has also added media used, that such media must be
nature of the efficiencies are known and provisions that such marketing plan designed to reach small, limited
understood by regulators. must be addition to any solicitation resource, women and minorities
done by the agent and that if RMA farmers, and that such advertising must
Response: RMA shares the concern of
discovers that the marketing plan is not be in addition to any solicitation done
the commenter that the provisions of the
effectively reaching such farmers, RMA by the agent. However, RMA cannot set
interim rule need to protect against the
can require remedial measures or specific standards because it would be
possibility that increased price
impose sanctions. RMA has also impossible for RMA to know in advance
competition under the premium of a request being received what would
clarified that all farmers must receive at
reduction plan would lead to be the most appropriate form of media
least the level of service required by the
unnecessary insolvencies. RMA has in a particular market. The approved
SRA and approved procedures and
reduced the financial stress on approved insurance providers, because they have
added consumer complaint provisions
insurance providers to cut costs in local personnel such as agents or loss
that allow farmers to complain directly
essential operations in several ways. adjusters, would be in the best position
to RMA.
One is to only require premium Comment: An approved insurance to know how to reach these farmers.
discounts to be based on actual costs provider commented that § 400.716 Further, RMA recognizes that each
savings and no promise that any addresses the contents of a revised Plan approved insurance provider will face
discount will be made unless savings of Operations. The commenter stated different circumstances, depending on
are achieved. This will reduce the stress that the reporting requirements detailed its geographical presence and other
on approved insurance provider to fund in this rule will substantially add factors. RMA will provide feedback
promised premium discounts. Another operating expense to the approved during the review process if the
way is the allowance of approved insurance provider and works counter marketing plan is deemed inadequate in
insurance providers to select the states to the intent of generating operating providing a level of outreach that is
in which they will participate in the efficiencies to pass along to farmers in commensurate with the size and
premium reduction plan and vary the the form of a premium discount. The geographical presence of the approved
amount of premium discount between commenter states that subsections (h) insurance provider.
states. This will allow approved and (i) are particularly onerous and that Regarding whether RMA will test to
insurance providers to select those the alternative proposal offered by RMA determine whether the marketing plan
aspects of its operation where it can for consideration would be less costly to is acceptable to prevent discrimination,
safely cut costs without jeopardizing administer and would assure that the the purpose of the marketing plan is to
their ability to comply with all efficiencies derived are actual rather ensure that all farmers are aware of how
requirements of the SRA. RMA has also than projected. to have access to a premium discount in
retained the premium discount Response: As stated above, the initial a state in which it is offered. RMA will
maximum of four percent. application process has been revised monitor indicators of possible
RMA also agrees with the commenter significantly and now approved discrimination and the success of the
that transparency and consistency in the insurance providers will only be marketing plan under the SRA, based on
application of expense reporting is requesting the opportunity to be able to the number of consumer complaints,
essential in a sound premium reduction offer a premium discount in the event and a comparison of the composition of
plan and, as stated above, the use of they can deliver the Federal crop the approved insurance providers’
existing Expense Exhibits that are insurance program for less than the books of business in the area. An
verifiable and certified and the use of a A&O subsidy. Further, as stated above, ineffective marketing plan could result
standard formula applicable to all RMA has adopted the alternative in the imposition of remedial measures
approved insurance providers to proposal, which will significantly or sanctions.
determine the amount of premium reduce the burdens on the approved Comment: An interested party
discounts for each state creates a insurance provider. In addition, the commented that, with respect to
transparent and consistent process. requirements in subsections (h) and (i) § 400.716(e), redesignated § 400.716(c),
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41906 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
a marketing plan must be a minimal estimate of any costs that have not yet seems excessive, except for years such
requirement of the program. Most been paid. RMA will be able to as from 2004 to 2005 in which the
farmers participating in the crop determine whether costs have commodity prices are significantly
insurance program obtain crop coverage improperly been shifted by comparing dropping. The commenter asked if the
as well as marketing and other farm the costs reported on the various 25 percent reserve was determined from
related educational advice from their statutory accounting statements and judgment only or were there
trusted agents. The commenters stated Expense Exhibits. If there is improper calculations used to determine this
that minority farmers should have reporting, RMA may impose sanctions percentage.
access to this same level of added on the approved insurance provider. Response: The adoption of the
information. The commenter also stated Comment: An interested party alternative proposal in the interim rule
that this requirement helps the agency commented that RMA states that the eliminates the need for § 400.716(i) and
to implement section 10708 of the 2002 workload on RMA and approved it has been removed from the interim
Farm Bill, which states that approved insurance providers to identify cost rule.
insurance providers should actively allocations and determine whether the Comment: An approved insurance
seek the assistance of community based projected cost savings from efficiencies provider commented that, with respect
organizations in such data collection are reasonable and correspond to the to § 400.716(i), it supports this
and analysis. premium discount in the state would be provision, but suggests that it be
Response: RMA agrees that an enormous. The commenter states that clarified to recognize that additional
adequate marketing plan should be this conflicts with RMA’s statement that ‘‘income’’ may come from contracts or
included as a condition for participation ‘‘in accordance with §§ 400.716(h) and third party agreements executed by the
in the premium reduction plan and the 400.719(a)(6) of the proposed rule, RMA approved insurance provider that are
interim rule reflects this requirement. would track the expense performance of designed to provide a reserve for such
RMA has also referenced community the approved insurance provider at the a contingency.
based organizations to identify them as state level to ensure that costs are Response: The adoption of the
a valuable resource to reach small, reduced in each state by an amount that alternative proposal in the interim rule
limited resource, women and minority is at least equal to the premium eliminates the need for § 400.716(i) and
farmers. Further, the interim rule will reduction.’’ The commenter states that it has been removed from the interim
provide a process for farmers to §§ 400.716(h) or 400.719(a)(6) do not say rule.
complain about their treatment directly anything about a state level accounting Comment: An approved insurance
to RMA. requirement yet it is clear that RMA provider commented that § 400.716(i)
Comment: An approved insurance intends to enforce an ‘‘enormous’’ would not account for a major
provider comments that, with respect to expense on the industry. misrepresentation in the premium
§ 400.716(h), to ensure that efficiencies Response: As stated above, reduction plan. The commenter stated
are evaluated accurately, any § 400.716(h) has been removed. Further, that if such a plan is necessary, the
efficiencies related to agent by adopting the alternative proposal in approved insurance provider should be
compensation be evaluated on the basis the interim rule, RMA has removed the responsible for the entire amount of the
of information that must be reported to burdensome requirement for the savings and be willing to provide access
the IRS and counted on 1099 tax forms. approved insurance provider to forecast to those additional funds.
The commenter also notes there is a and justify proposed efficiencies for the Response: The adoption of the
conflict here in terms of reporting— reinsurance year and for RMA to verify alternative proposal in the interim rule
annual basis vs. crop year basis—for the reasonableness of such forecasts and eliminates the need for § 400.716(i) and
bonuses which could be paid to agents then to go through the same process at it has been removed from the interim
after the crop season is over and after the end of the reinsurance year. Under rule.
providers have accurately determined the interim rule, cost efficiencies are to Comment: An agent commented that
the amount of realized profits, if any. be determined based on information with respect to § 400.716(l), if agents
Response: As stated above, subsection currently reported in the Expense have state approval for marketing the
(h) has been removed from the rule. Exhibits provided with the Plan of product, then this plan will never
However, with respect to the Operations and verified after they have happen in Kansas. The commenter
demonstration of actual cost savings, the been realized. This will significantly stated that its agency proposed a plan to
current Expense Exhibits provided with reduce the workload on RMA and the allow agents to offer $20 gift cards to
the Plan of Operations requires that an approved insurance providers. anyone wishing to stop by an agent’s
approved insurance provider submit Further, although RMA now allows office for an auto insurance quote. The
information on both a calendar and variations in premium discounts commenter stated that this proposal
reinsurance year basis. RMA also between states, it has developed a never made it out of committee because
provides instructions as to how costs standard formula that can be applied to the concept was rejected on the basis of
should be allocated between these all approved insurance providers and violating existing rebating statutes. The
formats. Therefore, since these existing will allow the allocation of certain costs commenter claims this example also has
Expense Exhibits will be used for by state. This will reduce the burden on implications for § 400.719(a)(10), which
determining cost efficiencies and the approved insurance providers to says that the premium reduction plan
amount of premium discounts, no maintain and report certain costs by must not violate applicable state laws
conflict exists. Further, the adoption of state that are currently reported on a concerning solicitation and sale of
the alternative proposal in the interim book of business basis. This formula insurance. The commenter states that if
rule eliminates concerns regarding costs will be provided to the approved it cannot get approval to offer a $20 gift
incurred after the crop year. The cost insurance providers through card how can anyone be expected to be
accounting occurs after the end of the procedures. able to get approval to offer a premium
reinsurance year when a majority of all Comment: An approved insurance discount for hundreds of dollars.
expenses, including bonuses, have been provider commented that in § 400.716(i) Response: Section 400.716(l) required
paid, and the approved insurance a financial reserve of 25 percent of the approved insurance providers to submit
provider is required to report an projected savings as a contingency fund to the states its marketing strategy
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41907
submitted under proposed § 400.716(d). commenter stated that requiring an 400.352 is not sufficiently clear to
However, with the adoption of the approved insurance provider to provide support this proposition. Also, the
alternative proposal, RMA determined the state approved insurance provider a commenter suggests that the text of
that such marketing strategy was no copy of its marketing strategy would not § 400.716(l) of the proposed rule could
longer required because premium only be confusing, but burdensome to be viewed as a voluntary surrender by
discounts would be based on actual cost the state government. Furthermore, the RMA of its supremacy powers. At a
savings and approved insurance commenter stated that if the state minimum, the proposed premium
providers should not be locked in insurance department elected to review reduction plan rule introduces a very
regarding how those savings are the plan, their timing could be long after complex set of considerations involving
achieved as long as all provisions of the the initiation of the plan. The the interplay of federal and state
SRA and approved procedures are commenter asked what happens to the regulation of approved insurance
complied with. Therefore, proposed policies that have already been sold. A providers, and RMA should think this
§ 400.716(l) has been removed from the commenter stated it supported the idea through very carefully and strengthen
interim rule. RMA will work with state that if one state rejects the marketing the proposed rule before promulgation
insurance regulators, which have the plan, the approved insurance provider as a final rule. Such strengthening must
responsibility to monitor marketing cannot offer the premium reduction address both the breadth of federal
conduct with respect to any advertising plan. preemption and the details of resolving
and promotion of the premium Response: As stated above, proposed potential federal-state conflicts.
reduction plan and ensuring that all § 400.716(l) has been removed from the Response: As stated above, proposed
agents are properly licensed by the state. interim rule. RMA agrees that the states § 400.716(l) has been removed from the
Comment: An agent commented that will continue to monitor market interim rule. Further, nothing in the
the requirement that approved conduct with respect to advertising and interim rule changes the relationship
insurance providers provide their promotion of the premium reduction between state and Federal law with
premium reduction plan to the state to plan and ensure that all agents are respect to the premium reduction plan.
determine whether the licensing and properly licensed by the state. This Federal preemptive authority under the
conduct of the agents complies with responsibility is no different than their Federal Crop Insurance Act is limited,
state law ignores the fundamental existing responsibility. not general. As a result under the
principle of state law that all agents Comment: A few approved insurance interim rule, states will still have the
must be licensed if they sell, negotiate providers and interested parties same responsibility to monitor market
or solicit any type of insurance. commented that an issue that must be conduct with respect to any advertising
Response: As stated above, proposed addressed is potential conflicts between and promotion of the premium
§ 400.716(l) has been removed from the federal and state law and among the reduction plan and ensure that all
interim rule. RMA agrees that the states states. If adopted, § 400.716(l) would agents are properly licensed by the state.
will still monitor market conduct with require approval of various State RMA looks forward to working with
respect to any advertising and Departments of Insurance with respect state insurance regulators to address any
promotion of the premium reduction to marketing issues, including the advertising or market conduct concerns
plan and continue to ensure that all licensing of agents and the conduct of that arise in the implementation of this
agents are properly licensed by the state. agents in the solicitation and sale of regulation.
Comment: An interested party insurance. The commenter states that
commented the language in § 400.716(l) this approach is understandable, Section 400.717
requiring the approved insurance especially given the potential for Comment: An interested party
provider to provide a copy of its premium reduction plan abuse and the commented that newly formed
marketing strategy to the State Insurance risk of illegal rebating. On the other approved insurance providers would be
Department for review in all states in hand, the federal crop insurance required to amortize start-up costs up to
which the approved insurance provider program is national in scope and, in three years in the premium reduction
does business is crucial for state accordance with 7 U.S.C. 1506(l) and 7 plan. The commenter is concerned that
regulators to perform their market CFR 400.352, virtually all state including start-up costs in the premium
conduct regulatory functions. regulation is preempted. Commenters reduction plan will create a
Response: Since a review of the stated that there are substantial risks disadvantage to start-ups as they
marketing strategy by the State is no that individual states would view the compete with larger established
longer required, proposed § 400.716(l) is premium reduction plan offerings by approved insurance providers who are
rendered moot. However, the interim multi-state approved insurance able to pass along efficiencies under the
rule makes it very clear that approved providers differently. Because state-by- plan. This provision could deter
insurance providers and agents must state review explicitly is required in the approved insurance providers from
comply with all requirements of the proposed rule, RMA is inviting this entering the market and thereby
SRA and approved procedure and RMA level of regulatory conflict and resulting reducing competition.
agrees that the RMA and the states confusion. If this approach is to be Response: RMA shares the concern of
already share responsibility to monitor utilized, RMA should not publish a final the commenter that the interim rule
market conduct with respect to rule until it has established a should not contain unnecessary barriers
advertising and promotion and ensure mechanism for resolving all such to a new approved insurance provider
that all agents are properly licensed by potential conflicts among state participating in the premium reduction
the state. regulators. The commenter also states plan. However, the intent of the interim
Comment: A few approved insurance that there is a distinct risk that market rule is to provide neither established
providers asked if one state does not conduct issues will be viewed nor new approved insurance providers
approve the marketing plan, whether differently between RMA and a with a competitive advantage, and to
the plan can be offered in the other particular state. While the Supremacy exclude start-up costs could provide a
states as an exception to the premium Clause of the Constitution generally competitive advantage to new approved
reduction plan rule that requires all should favor RMA’s position, the insurance providers, especially when
policies be allowed the discount. A commenter states that the text of 7 CFR established approved insurance
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41908 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
providers are still incurring the same in favoring neither existing nor new rule strikes the right balance between
type costs because of updating systems approved insurance providers in allowing new entrants into the crop
or equipment, etc. The interim rule determining whether approved insurance marketplace, but with
must recognize that there may be some insurance providers can pay premium adequate controls to ensure that farmers
costs incurred regardless of whether the discounts. are protected.
approved insurance provider is new or Comment: An approved insurance Response: RMA agrees with the
established but that generally the costs provider concurs with RMA comment.
to create a system are generally larger clarification limiting new entrants to Section 400.718
than those for updating or modifying a those that have not participated in the Comment: An agent does not believe
system. Therefore, three year program previously or are not affiliated September 1, 2005 is a realistic date.
amortization represents a reasonable with a managing general agent, another The commenter states the date should
compromise in that such start-up costs approved insurance provider or other be pushed back considerably because
must be reported on the Expense such entity that already has the the timeline would not support this as
Exhibits but that all the costs will not infrastructure necessary to deliver crop a realistic date. The commenter hopes
count against one reinsurance year. insurance. Requiring new entrants to that after receiving comments to the
Comment: An approved insurance include startup costs over a three-year proposed rule it will conduct another
provider objects to the provision that period shows a commitment to new round of review and comments. The
grants new approved insurance entrants without unfairly discriminating commenter suggested Congress may
providers the right to amortize so-called against approved insurance providers want to hold hearings.
‘‘one time start-up costs.’’ The costs involved in the program since its Response: As stated above, adoption
briefly described in the parenthetical are inception. of the alternative proposal has permitted
costs that all approved insurance Response: RMA agrees that allowing RMA to significantly reduce the
providers incurred when they entered amortizing of start-up costs would allow reporting requirement and burden on
the crop insurance program. The new approved insurance providers to approved insurance providers. Many of
commenter asked why FCIC affords enter the program and compete with the requirements in the proposed rule
these new approved insurance providers existing approved insurance providers regarding the cost accounting, state
benefits not provided the existing without a competitive advantage or review, etc., have been removed and
approved insurance provider and how disadvantage. essentially all approved insurance
FCIC rationalizes providing new Comment: An approved insurance providers must do is select the states in
approved insurance providers with an provider commented that, with respect which they will participate in the
economic advantage. In proposing the to § 400.717, approved insurance premium reduction plan and develop
premium reduction plan regulations, providers would amortize over one year and submit their marketing plans.
FCIC claims to be ‘‘striving to develop to develop a higher ‘‘efficiency’’ in year However, because RMA was unsure of
procedures that provide a level playing two. The commenter stated that RMA’s the date the interim rule would be
field.’’ Allowing new approved ‘‘level playing field’’ objective would published, it revised the provision to
insurance providers the ability to suggest they permit new entrants to require RMA to respond not later than
amortize start-up costs, a benefit not exclude those costs. 30 days after the date the approved
afforded existing approved insurance Response: The purpose of the insurance provider submits its request
providers, is inconsistent with this amortizing is not to create efficiencies. for eligibility to offer a premium
purported goal. The purpose is to put new and existing discount under the premium reduction
Response: RMA agrees that some of approved insurance providers on plan.
the costs included as start-up are relatively the same footing with respect With respect to the solicitation of
incurred by all approved insurance to reporting the A&O costs for the crop additional comments, RMA recognizes
providers when they start up. However, year. Further, the interim rule requires that additional comments may be
the premium reduction plan identifies that if the approved insurance provider desirable to determine whether the
whether an approved insurance is going to amortize start-up costs, they premium reduction plan is operating
provider would be able to deliver the must be amortized equally over the properly and, therefore, has elected to
Federal crop insurance program in the three years. However, any new implement the rule as an interim rule.
current reinsurance year. If the start-up approved insurance provider could elect This would allow RMA to solicit
costs were not incurred in the current not to amortize the start-up costs and additional comments.
reinsurance year, they would have no report them all in the first year. For However, there is no legal basis for
bearing on whether the approved every year thereafter, the approved RMA to not implement the premium
insurance provider has such an insurance provider would be treated as reduction plan for the 2006 reinsurance
efficiency for such year. Therefore, new every other approved insurance year. As stated above, section 508(e)(3)
approved insurance providers are not provider and would have the same of the Act obligates RMA to consider all
being provided a competitive advantage. opportunity to achieve savings. requests by approved insurance
In fact, if RMA did not allow the RMA considered allowing new providers. The interim rule simply
amortization of such costs, new approved insurance providers to provides the framework under which to
approved insurance providers would be exclude start-up costs but it realized consider such requests. Further, as
at a competitive disadvantage because that existing approved insurance stated above, RMA has responded to the
they would be incurring costs that providers still incur similar costs, such comments by creating a more simple,
established approved insurance as updating or modifying systems. streamlined, less burdensome, more
providers would not. This means the Therefore, it would be inequitable to verifiable rule that should benefit all
new approved insurance providers’ exclude all such costs. However, since participants.
A&O costs would be higher, decreasing such costs are generally higher with
the likelihood they could achieve an start-up than maintenance, amortization Section 400.719
efficiency. The three year amortization provides a more equitable solution. Comment: Several agents and
is a reasonable compromise that RMA Comment: An approved insurance interested parties asked that any and all
anticipates will neutralize these factors provider commented that the proposed applications for the premium reduction
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41909
plan be considered by the full FCIC However, as stated above, RMA agrees may not participate, as stated above,
Board. RMA would still be able to that requiring the same premium there is a difference between being
evaluate the applications. The discount in all states in which the treated differently than other farmers
commenter also asked that a guideline approved insurance provider does where the premium reduction plan is
be added that fully reviews the impact business could create a strain on the available and residing in a state where
to approved insurance providers and business operations of the approved no approved insurance provider may be
agents. insurance providers by requiring them participating in the premium reduction
Response: The FCIC Board has the to achieve the same cost savings in each plan. The former would be prohibited
authority to review requests to state. As stated above, RMA has and, as stated above, provisions have
participate in the premium reduction eliminated this requirement and now been added to ensure that all farmers in
plan and approve the payment of allows approved insurance providers to a state are paid the same percentage of
premium discounts. However, as with elect the states in which it will premium discount, have awareness and
many of the day-to-day operations, it participate in the premium reduction access to the premium reduction plan,
has chosen to delegate that authority to plan and allows variation of premium do not suffer from reduction in service,
the Manager of FCIC, i.e., the discount among states. As stated above, etc. In addition, as stated above, agents
Administrator of RMA. The Board has this is to allow approved insurance that write for more than one approved
not rescinded this delegation because providers to better evaluate their insurance provider must notify their
the changes to the interim rule have operations to determine the best means customers of all the approved insurance
mitigated many of the concerns of the to achieve savings while still complying providers they write for that are
Board, as expressed in the preamble, with all requirements of the SRA and participating in the premium reduction
and that RMA has the personnel and approved procedures. plan in the state so farmers can make
knowledge to best administer the Comment: An approved insurance informed decisions.
program. However, the Board has asked provider commented that proposed Comment: An approved insurance
the FCIC Manager to review with the § 400.719(a)(7)(ii) requires that ‘‘The provider comments that, with respect to
Board the agency’s analysis of the efficiency must not be derived from any proposed § 400.719(a)(9), now
premium reduction plan requests before marketing or underwriting practices that redesignated § 400.718(c)(2), it very
the Manager determines the approved are unfairly discriminatory.’’ The much supports the need to actively
insurance provider is eligible to commenter states that in order for market to small, limited resource,
participate or approves the payment of premium reduction plans to not be women and minority farmers, as defined
any premium discount under the unfairly discriminatory, all approved above. However, the commenter states it
existing delegation. insurance providers must be able to is concerned that as the size of acreage
offer the plans. Otherwise, all farmers declines, so do the savings. The
With respect to adding a requirement
do not have equal access to premium commenter respectfully suggests that
for an impact review, it is RMA’s
discounts. Furthermore, unless all the standard should focus only on
position that an approved insurance
approved insurance providers are whether the plan is reasonable in its
provider would likely already consider
approved to offer premium discount approach and not on the marketing
the full impact of the premium
plans the situation will exist that an ‘‘effectiveness’’ of the plan’s reach. In
reduction plan on it, its competition,
agent representing more than one cases where it appears that the plan’s
and its agents before requesting to approved insurance provider may have reach is not working effectively, the
participate in the premium reduction one approved insurance provider RMA will work with the approved
plan. Further, many of the changes to approved and others not approved for insurance provider to strengthen the
the interim rule were in response to premium discount plans. Agents will be plan.
comments expressing concerns able to write some farmers with Response: RMA agrees that when the
regarding these impacts. In addition, discounts and others without. There marketing plan is submitted, it will be
through publication of the rule as an will be no guarantee that all farmers difficult to determine whether it
interim rule, RMA has left open the have been offered the discount plan. effectively reaches small, limited
possibility that it will solicit additional Response: As stated above, unfair resource, women, and minority farmers.
comments regarding the impacts of the discrimination occurs when farmers are Therefore, RMA has revised the
rule. denied access to the crop insurance provision to require that the marketing
Comment: An approved insurance program or the premium reduction plan. plan be designed to effectively reach
provider commented the discount must Since such conduct is regulated under such farmers. However, size of the
be offered ‘‘in all states where the the SRA, it was not necessary to farming operation and declining savings
approved insurance provider does reiterate the requirement here, are not considerations when
business.’’ The commenter asks why the especially since approved insurance determining whether a marketing plan
provision indicates that the reduction providers no longer report the actions is designed to reach small, limited
‘‘correspond to the location where the they propose to take to achieve the cost resource, women, and minority farmers.
premium reduction is offered.’’ The efficiency when requesting eligibility for The interim rule requires the approved
commenter asserts that this statement in the opportunity to offer a premium insurance provider to use the
the standards for approval appears discount. Therefore, § 400.719(a)(7)(ii) appropriate media to reach such
inconsistent with the intent discussed has been removed. In addition, equal farmers. Further, RMA has added
in the proposed rule. access to the premium reduction plan is provisions that state that RMA will
Response: The requirement that any accomplished through other means, monitor the marketing plan and if RMA
premium discount correspond to the such as the marketing plan. determines the marketing plan is not
cost efficiency comes directly from With respect to the concern that effective, it can require remedial
508(e)(3) of the Act. The legislative unfair discrimination occurs if not all measures or impose sanctions, as
history of this section confirms that the approved insurance providers appropriate.
‘‘corresponding’’ principle was added participate in the premium reduction Comment: A few approved insurance
intentionally and, therefore, must be plan or agents write for more than one providers stated RMA is requiring that
given meaning. approved insurance provider, which the approved insurance provider not
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41910 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
reduce its service to the insureds. The be provided at a better price or can Because all approved insurance
commenter asked how RMA will audit superior service be provided for the providers are being held to the same
to determine that service is remaining same price. It is up to the marketplace standards, the integrity of the insurance
constant to their farmers and whether to determine the value of these program is maintained. If the
RMA has standards of service additional services and whether the commenter has evidence of any
developed. A commenter asked how farmer wants to bear the cost. As some particular instance where the approved
FCIC measures ‘‘service.’’ commenters have stated, some farmers insurance provider was not in
Response: As stated above, service is will value the superior service over the compliance with the training or any
required to be provided in accordance possibility of a premium discount, other requirement of the SRA, it should
with the SRA and approved procedures. which maintains the possibility of provide such evidence to RMA.
Any violation with one of these competition on both price and service, Comment: An approved insurance
requirements would be considered a which can only benefit the farmer. provider commented that, with respect
reduction in service. Therefore, there Comment: An approved insurance to proposed § 400.719(a)(13), now
are clear standards that are applicable to provider commented that, with respect redesignated § 400.718(c)(3) and (5), this
all approved insurance providers and to proposed § 400.719(a)(12), now cannot be achieved unless all approved
agents. RMA will monitor service as it redesignated § 400.718(c)(3), RMA has insurance providers are approved to
currently does through the SRA and not been able to enforce this provision offer the premium reduction plan and
RMA has added provisions to the in the past two years. Agents and agent commissions are not reduced to a
interim rule to allow consumer adjusters have reported from the field level which removes the incentive for
complaints to be made directly to RMA. that the one approved insurance offering premium discount plans to the
Comment: An approved insurance provider approved for the premium farmers.
provider and interested party reduction plan is not providing the Response: Section 400.719(a)(13),
commented that, with respect to required training for agents and now redesignated § 400.718(c)(3) and
proposed § 400.719(a)(11), now adjusters. This was required by Manual (5), requires that participation in the
redesignated § 400.718(c)(4), the one 14 and also is required by the 2005 SRA, premium reduction plan not result in a
approved premium reduction plan addendum IV. The commenter states reduction in the total delivery system’s
provides commissions for agents that this is harmful to the interests of ability to service all farmers. RMA
substantially below what are offered to farmers and potentially undermines the agrees that the provision as drafted
agents from other approved insurance integrity of the crop insurance program. would appear to judge each individual
providers. The commenter states that Furthermore, if these training approved insurance provider by the
agents have reported that they cannot requirements were adhered to it would ability of all other approved insurance
afford to provide the same level of add to the operating expenses of the one providers to deliver the Federal crop
service to farmers. Fewer visits to the approved insurance provider and make insurance program and this is not the
farms and less assistance is offered to it difficult for it to operate within the intent. The reference to total delivery
the farmers to complete the complex A&O expense reimbursement from system was intended to refer to the
paperwork and advise the farmers RMA. The principal reason asserted by whole delivery system of the approved
concerning which plan is best suited to RMA in its declining the applications insurance provider, such as managing
them. The commenter stated that the for the premium reduction plan of the general agents, agents, loss adjusters,
premium reduction plan and the entire other approved insurance providers was any service providers, etc. Redesignated
Federal crop insurance program is a that they currently were not operating § 400.718(c)(3) and (5) are much clearer
very complex line of insurance and it within the A&O expense that the requirement applies to the
requires well trained agents to assist the reimbursement. The proposed premium performance of the approved insurance
farmers in making the appropriate reduction plan will not cure this provider, not competitors.
decisions and following all the rules deficiency. Comment: An approved insurance
and procedures. Less service is harmful Response: RMA disagrees that it has provider asked what is meant by ‘‘a
to the interests of farmers and not enforced the provision of the reduction in the total delivery system’s
potentially undermines the integrity of proposed rule regarding the required ability to serve all producers . . .’’ in
the crop insurance program. training of agents and loss adjusters for proposed § 400.719(a)(13), now
Response: As stated above, the the premium reduction plan, which is redesignated § 400.718(c)(3) and (5). The
interim rule outlines the standards for the same requirement as that contained commenter asked how FCIC determines
service that must be maintained for an in the SRA. As stated above, all whether there has been ‘‘a reduction in
approved insurance provider to approved insurance providers are the total delivery system’s ability to
participate in the premium reduction required to provide information serve all producers’’ and how FCIC
plan, which are identical to those regarding the training provided to its determines whether that reduction
needed to operate under the SRA. loss adjusters and agents. In its resulted from the premium reduction
Therefore, at a minimum, all farmers monitoring of the approved insurance plan or from other causes. The
will receive at least the level of service provider currently authorized to offer commenter asked if an approved
that would permit them to understand the premium reduction plan, RMA has insurance provider’s ability to
the available plans of insurance, received, reviewed and confirmed implement the premium reduction plan
program requirements, etc. This should training activity logs, training curricula, is contingent upon the overall crop
ensure that program integrity is and other documentation showing that insurance program. The commenter
maintained. the approved insurance provider is in asked if the approved insurance
As stated above, RMA recognizes that compliance with SRA training provider would otherwise qualify for
some agents may wish to offer special requirements. the premium reduction plan, does FCIC
educational and other services above In addition, the approved insurance have the ability to reject the approved
these standards to differentiate provider has demonstrated that it can insurance provider’s plan based on the
themselves from other agents in a operate at less than the A&O subsidy service provided to ‘‘all producers.’’ If
competitive marketplace. This is part of and still comply with all requirements so, it seems FCIC is penalizing the
cost competition; can the same service of the SRA and approved procedures. approved insurance provider for the
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41912 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
the premium discount and some may has been made as a result of this savings can be achieved without risking
elect not to if it would adversely affect comment. non-compliance with the requirements
the payment under other farm programs. Comment: An interested party of the SRA or approved procedures.
However, to allow approved insurance commented that proposed § 400.720(g), Comment: An interested party
providers to select who receives a now redesignated § 400.719(d), would commented that the approved insurance
premium discount could lead to unfair require that approved providers providers should be required to report
discrimination. periodically report to the RMA on the the proposed impact of the premium
In addition, the whole purpose of the average number of acres insured both reduction plan on the various types of
premium reduction plan is to introduce before and after the premium reduction products offered, by race, gender and
price competition. Therefore, it is plan, the number of small, limited ethnicity. In lieu of comprehensive data
assumed that there will be differences resource and minority farmers insured, on race, gender and ethnicity, the
between those approved insurance and the number of agents selling and approved insurance providers should
providers that participate in the servicing policies by state. Such further be required to report by scale
premium reduction plan and those that reporting would not identify efforts by and value of operation the number of
do not and even among approved approved providers to consolidate farmers of various sizes enrolled in
insurance providers that participate. business among agents with only large, basic CAT coverage and other levels of
Comment: An approved insurance low risk customers. The commenter more comprehensive coverage, and
provider comments that, with respect to states that under the proposed rules, where reduced premiums were
§ 400.720(e), now redesignated approved providers could effectively allocated.
§ 400.715(h), it supports this provision use agent business as a litmus test for Response: As stated above, much of
because approved insurance providers choosing the states in which they do the information collected in proposed
who offer the premium reduction plan business and the agents who sell and § 400.720(g), now redesignated
must be required to serve all farmers/all service their policies. § 400.719(d), has been removed because
Response: RMA agrees that the such information is already collected
crops in the states in which they are
required report would not identify under Appendix III to the SRA and
licensed. This prevents ‘‘cherry-
efforts by approved insurance providers maintained in RMA databases. It is only
picking’’ and thus furthers
to consolidate agents or select agents that information that is not currently
Congressional intent. However, the
with only large, low risk customers, nor collected, such as the number of small,
commenter strongly feels that this
is the report intended to accomplish women, and minority farmers making
sentence should include the word,
this. Neither the current SRA nor the application and the resolution of any
‘‘applicable’’ following the words
proposed or interim rule precluded this complaints that RMA will require
‘‘receive the’’ in the preceding sentence.
conduct. To ensure that small, limited approved insurance providers to report.
As previously noted, for CAT policies,
resource, women and minority farmers The remaining information listed by the
no premium discount would be have access to the premium discount commenter is retained in RMA
applicable as the farmer pays no plan, approved insurance providers are databases so there is no need for an
premium. required to target market through the additional information collection.
Response: RMA agrees with the appropriate media designed to reach Comment: An approved insurance
comment regarding the requirement that these farmers and agents are required to provider commented that the
premium discounts will automatically inform all customers of the names of all requirements in § 400.720(g), now
be provided to all of an approved approved insurance providers they redesignated § 400.719(d), requiring
insurance provider’s insured in a state write for that are eligible for the approved insurance providers to report
where it has been approved to pay a opportunity to offer a premium the average number of acres insured
premium discount. RMA also agrees discount. This report, which has been under all policies by State before and
that there should be language stating substantially modified to remove the after implementation of the premium
that CAT policies or ineligible farmers information collections that could be reduction plan could create inaccuracies
will not receive the premium discount obtained through the summary of where a farmer has policies in different
and has revised redesignated business or other RMA databases, is counties. The commenter stated that, at
§ 400.715(h) accordingly. intended as a tool to assess the a minimum, the requirement should be
Comment: A few approved insurance effectiveness of the marketing plan. restated to include ‘‘the average number
providers and interested parties Further, as stated above, because of of acres on a crop, county, and entity
commented that proposed § 400.720(f), the real possibility that approved basis insured under all policies by State
now redesignated § 400.720(a)(1), which insurance providers would withdraw before and after implementation of the
requires certification by a CPA, should from states if they were required to premium reduction plan,’’ and should
be signed by the person authorized to participate in the premium reduction also require premium growth by crop in
sign the SRA to emphasize the plan in all states in which they do each state. In addition, these semi-
importance of the document. business, RMA has elected to allow annual reports should be made available
Response: As stated above, under the approved insurance providers to select to the public.
alternative proposal adopted in the the states in which they will participate Response: As stated above, this
interim rule, only actual costs will be in the premium reduction plan. This is information collection has been
provided to determine whether there because the risks associated with the removed from the interim rule because
has been an efficiency and the amount possibility of no insurance coverage such information is already collected
of any premium discount and such costs outweigh the risks associated with the under Appendix III to the SRA.
will be based on the Expense Exhibits possibility of not receiving a premium Therefore, there should not be a
provided with the Plan of Operations, discount in the future. problem with inaccurate reporting. In
which is already signed by the person Further, the selection criteria of the addition, much of this information is
authorized to sign the SRA. Therefore, states is solely in the discretion of the available to the public in the aggregate
it is not necessary to have such person approved insurance provider because in the summary of business published
sign the audit and certification of these only the approved insurance provider is on RMA’s website. However, to the
Expense Exhibits. Therefore, no change in the position to determine where extent that the semi-annual reports
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required by the interim rule contain Comment: An approved insurance § 400.720(i), now redesignated
confidential business information, such provider comments that, with respect to § 400.719(e), Congress and RMA has
information is protected from release to § 400.720(h), it supports this provision been very clear that no ‘‘cherry-picking’’
the public. on the basis that an ‘‘overstated’’ is allowed in the delivery of the crop
Comment: An approved insurance premium discount is unfair to farmers. insurance program. Exceptions for the
provider comments that, with respect to Any approved insurance provider premium reduction plan should not be
proposed § 400.720(g)(3), now applying for approval to offer the made. The commenter specifically
redesignated § 400.719(d), it is very premium reduction plan should be supports this provision on the basis that
important that premium discounts are required to accurately document their a premium reduction plan is and should
offered to all farmers. The required savings, allowing for the ‘‘financial be good for all farmers.
reporting, however, should not be of the reserve plan’’ as a back-up. Overall, the Response: RMA agrees with the
numbers of small, limited resource, commenter states it see this as comment. While RMA cannot prevent
women and minority farmers that have protection to farmers, since approved agents from competing for large
made applications. In some regions of insurance providers might be tempted to attractive accounts, RMA can take
the country, it is likely there will be use the premium reduction plan as a action when insurance is denied to any
very few, if any, small/limited resource/ loss-leader to enter new markets if the eligible farmer, especially small, limited
women/minority farmers. It is also savings are not substantiated and if they resource, women and minority farmers.
likely for newer crop approved are not penalized for failing to achieve Comment: An approved insurance
insurance providers that their sales to the savings they represented to the RMA provider comments that, with respect to
such groups may not be statistically would be made. § 400.720(j), now redesignated
valid as they enter new states. Thus, the Response: As stated above, since RMA § 400.719(f), FCIC and RMA should not
commenter recommends that each has adopted the alternative proposal in have any liability for damages arising
approved insurance provider offering the interim rule, and premium from these matters, but is concerned
the premium reduction plan only be discounts are based on actual cost that this provision attempts to re-
required to report, and judged on, their savings, not projected, this provision is allocate liability for damages among
outreach efforts as a whole in all states no longer required and has been private parties, which should be left to
in which they are licensed. removed from the interim rule. state law. For example, in the
Response: RMA agrees that the Comment: An approved insurance implementation of an approved
number of small, limited resource, provider commented that 400.720(h) premium reduction plan, an agent could
women, and minority farmers is likely says there is no penalty for not make errors or misrepresentations for
to vary dramatically according to achieving the projected savings needed which the agent bears some or all of the
geographical regions. Further, RMA to cover the premium discount. The liability to third parties injured thereby
recognizes that such figures when approved insurance provider is limited under applicable state law. Moreover,
expressed as percentage of the total to no more than the ‘‘actual cost this provision could be interpreted to
business in the state may present savings’’ in the future year with no create a new, federal cause of action for
skewed figures, especially for new consequence for the year of these matters, which the commenter
approved insurance providers. misrepresentation to the farmers. The does not believe is or should be the
However, this information is still useful. commenter states that this creates an RMA’s intent. The commenter stated
Under the marketing plan, approved unfair competitive advantage to a that state law should govern both the
insurance providers are required to provider willing to takes its chances on existence of a cause of action for these
target these farmers. If RMA does not RMA not discovering their error with no matters, as well as the allocation of
collect the information regarding their financial impact at all to the approved liability among private third parties.
participation, RMA will have no way to insurance provider. There needs to be a Accordingly, the commenter proposes
judge whether the marketing plans are provision added to portray the severity the provision be changed to read ‘‘In no
successful. Further, as stated above, any of this type of misrepresentation, i.e. event shall RMA, FCIC or any other
comparison between approved reject any and all future premium agency of the United States Government
insurance providers would be based on discounts, charge the amount of the be liable for any damages caused by any
the composition of their books of premium discount as a policy surcharge mistakes, errors, misrepresentations, or
business, not just gross numbers. in the following year, require that flaws in the premium reduction plan or
RMA does not agree that approved amount as an additional expense in its implementation.’’
insurance providers should only be each of the next two reinsurance years, Response: RMA agrees and has
judged on the outreach effort as a whole etc. revised the provision accordingly.
in all states. The whole purpose of the Response: As stated above, since RMA Comment: An approved insurance
marketing plan is to increase has adopted the alternative proposal in provider commented that § 400.720(k)
participation of a traditionally the interim rule, and premium seems to suggest this program will only
underserved segment of farmers in each discounts are based on actual cost be ‘‘periodically reviewed’’ by RMA. It
state where these farmers are located. savings, not projected, this provision is is imperative to the integrity of this
However, because approved insurance no longer required and has been program that a formal and regular
providers can now select the states in removed from the interim rule. With review of an approved audit procedure
which they participate in the premium respect to the sanctions for be in place with necessary staff to
reduction plan, the reporting must only misrepresentation, as stated above, analyze the results annually. This
be done for those states the approved additional sanctions have been added element of control and accountability is
insurance provider selects. Without that allow RMA to tailor the sanction to essential to the fairness to all farmers
such information, RMA would not be the offense and they include the ability and to all approved providers.
able to judge whether additional to disqualify an agent or approved Response: RMA agrees that
remedial measures are required by the insurance provider from participating in monitoring is important. Under the
approved insurance providers to reach the premium reduction plan. interim rule, monitoring will occur
these farmers. Therefore, no change has Comment: An approved insurance under the SRA and under the premium
been made in response to this comment. provider comments that, with respect to reduction plan. However, since
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41914 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
adoption of the alternative proposal, reconsideration of the decision with the provisions allowing approved insurance
many of the monitoring activities stated Deputy Administrator of Insurance Services, providers to select specific crops.
in proposed § 400.720(k) have been or a designee or successor, within 30 days Allowing such a practice could lead to
rendered moot and removed from the after the effective date of such withdrawal or unfair discrimination against farmers of
modification and such request must provide
interim rule. a detailed statement of the basis for the
certain crops.
Comment: An approved insurance reconsideration.’’
Under the existing procedures, the
provider comments that, with respect to same premium discount was provided
§ 400.720(m) and (n), now redesignated Response: As stated above, RMA has in all states. The interim rule changes
§§ 400.719(j) and 400.721(a), RMA added provisions that allow RMA to this requirement to allow approved
should be able to withdraw approval or require remedial measures instead of insurance providers to vary the discount
require modification of the premium withdrawal of eligibility for the by state because the A&O costs of
reduction plan if any of the criteria in opportunity to offer a premium approved insurance providers can vary
(m) exists. However, the commenter discount. Such remedial measure could significantly by state. It is safer for the
states that before it withdraws approval, include a cure period. In addition, crop insurance program for approved
RMA should give the approved reconsideration and appeals provisions insurance providers to cut costs in those
insurance provider a thirty day cure have also been added. states where it would not affect their
period. The approved insurance Comment: An interested party ability to deliver the crop insurance
provider may not have been aware of recommended that a process should be program than to require approved
the problem, and this gives it a established to monitor compliance, insurance providers make the same cuts
reasonable period within which to fix it. planned outcomes and results of in all states.
Additionally, the commenter requests marketing plans. However, as stated more fully above,
that an approved insurance provider Response: RMA agrees that it have a the premium reduction plan has been
whose premium reduction plan has process in place that monitors approved redesigned so that RMA approves the
been withdrawn or required to be insurance provider performance with amount of premium discount that can
modified should have the right to respect to the marketing plans. The be paid in any state. Further, it allows
request reconsideration, as semi-annual reports will be used. In for true competition because the market
§ 400.719(c)(2) of the proposed rule addition, RMA can compare the will determine the appropriate amount
would allow if a revised Plan of compositions of the books of business of of premium discounts. In addition,
Operations is disapproved. the approved insurance providers to RMA is now requiring that not all
Response: Section 400.719(j) provides determine whether there are any efficiencies can come from reductions in
RMA with additional options so that anomalies that suggest the marketing agents’ compensation.
sanctions can be tailored to the offense. plan is not effective. RMA has also In the interim rule, RMA still had to
One of the options is to require remedial created a mechanism whereby farmers address the concerns expressed by
measures to eliminate the problem. In can file complaints directly to RMA for commenters that the premium reduction
addition, RMA has added a investigation and resolution. plan would require complex cost
reconsideration process if any of the Following are a summary of the accounting rules and there would be
sanctions are applied, including denial current procedures and the adopted cost allocation issues. There was also
of the payment of a premium discount changes in the interim rule. the concern that RMA would not have
or withdrawal of eligibility for the 1. Fundamental Principles. Under the the adequate skilled staff to be able to
opportunity to offer a premium existing procedures, approved insurance oversee and administer each of the
discount. RMA has also added an providers could name the states and potentially different premium reduction
appeals process to the Board of Contract crops for which the premium reduction plans that could be submitted by the
Appeals to avoid confusion regarding plan would be applicable. As stated approved insurance providers.
the proper forum to handle appeals. The more fully above, after careful As discussed more fully above,
Board of Contract Appeals was consideration of all the comments, RMA adoption of the alternative proposal
determined to be the proper forum has elected to retain the provisions mitigates or eliminates most of these
because the premium reduction plan regarding the selection of states. In the problems. Under the alternative
has been incorporated by reference into interim rule, approved insurance proposal, premium discounts are based
the SRA, monitoring will occur under providers will be able to select those on actual cost savings attained for the
the SRA, sanctions may be imposed states in which it wants the opportunity reinsurance year. Further, RMA has
under the SRA, and the documents to offer a premium discount. RMA broken the A&O costs into three
reviewed are provided under the SRA. retained this provision because of the categories and has determined simple
Comment: An approved insurance concerns raised by commenters that cost allocation rules where necessary.
provider proposes that, with respect to approved insurance providers would Approved insurance providers will be
§ 400.720 RMA add a new subsection (o) pull out of unprofitable states, leaving provided with procedures that set forth
stating as follows: those farmers without access to crop a formula that will be used to determine
insurance. RMA balanced the interests efficiencies and the amount of premium
‘‘(o)(1) Before withdrawing or modifying its
approval of a premium reduction plan, RMA of farmers potentially receiving a discount that can be paid in a state.
will notify the provider in writing of the premium discount with the possibility These procedures will be published on
contemplated withdrawal or modification of that farmers could be left with no RMA’s website at www.rma.usda.gov
approval and the reason therefore, and allow coverage and determined that it was not later than 5 days after the
the provider at least thirty days to cure. If the more important to ensure that farmers publication of the interim rule in the
provider does not cure within such period to have access to crop insurance than that Federal Register.
the RMA’s reasonable satisfaction, the they potentially receive a premium With respect to when payments can
withdrawal or modification shall be effective be made, under the existing procedures,
after the expiration of such thirty day period
discount.
and as of the date specified in the notice. However, to avoid any unfair premium discounts are based on
(2) If approval of a premium reduction plan discrimination all farmers within that projected cost savings and the approved
is withdrawn or modified, the approved state must be treated the same. insurance provider may advertise and
insurance provider may request, in writing, Therefore, RMA has removed the guarantee those savings to the farmer
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41915
before they are realized. This means that expenses but such savings cannot solely an opportunity to offer a premium
farmers see an immediate reduction in result from reductions in compensation. discount in their request for approval of
the amount they owe on their premium A definition of ‘‘approved an SRA.
bill for the crop year. procedures’’ is added for clarification. Under the existing procedures,
Under the interim rule, premium Definitions of ‘‘eligible crop insurance approved insurance providers were
discounts will be based on the actual contract’’ and ‘‘eligible producer’’ have required to implement the premium
costs realized in a reinsurance year so been added consistent with such reduction plan once it was approved by
payment of a premium discount cannot definitions in the Standard Reinsurance RMA. This provision has been removed.
be made until after all such costs are Agreement. A definition of ‘‘profit Approved insurance providers have the
accounted for, reported to RMA, and sharing’’ is added to clarify the ability to determine whether it can
RMA approves the amount of premium difference between guaranteed benefits, effectively implement cost cutting
discount that can be paid in any state. which are considered compensation, measures necessary to achieve the
This means the farmer may not see the and contingent benefits based on requisite efficiency. The interim rule
benefit of a premium discount until well underwriting gains. A definition of now reflects that if the approved
after the end of the crop year and there ‘‘reduction in service’’ is added to insurance providers requests approval
is no guarantee that any premium clarify that approved insurance to pay a premium discount, it must pay
discount will be paid for the year. While providers are only required to meet the the premium discount if it is approved
this may preclude farmers from requirements for service contained in by RMA. Since approved insurance
receiving the immediate benefits, it the SRA, procedures, and other providers have the option of requesting
allows the premium reduction plan to directives of RMA. Therefore, a approval to pay a premium discount,
operate in a manner that reduces the reduction in service occurs when there the existing procedures allowing the
possibility that an approved insurance has been a failure to comply with one approved insurance provider 15 days to
provider may not be able to attain its of the requirements. RMA acknowledges withdraw its premium reduction plan
projected savings, that such cost saving that there may be agents who have been were also not included in the interim
measures may affect the financial providing many more services than rule.
those required but RMA cannot require 4. Confidentiality Requirements. The
stability of the approved insurance
that such service be maintained. It can existing procedures contained
provider and the delivery system, and
only enforce the requirements it has set confidentiality requirements. However,
reduces the burden on approved
out. since such procedures do nothing more
insurance providers and RMA to
A definition of ‘‘underwriting gain’’ is than restate the law, RMA has elected to
administer the premium reduction plan.
added to clarify that such gains include remove them from the interim rule. This
2. Revisions of Definitions. Most of the net gain payment made to the will allow flexibility should such laws
the definitions from the current approved insurance provider on its be revised.
procedures have been included in this whole book of business under the SRA, 5. Contents of Revised Plans of
interim rule, although some have been less any costs it pays from such gains, Operations. The current procedures
modified to conform to the SRA. The including any costs related to the require five copies and both a hard copy
definitions of ‘‘administrative and delivery of the program in excess of the and electronic version of the revised
operating (A&O) costs’’ and amount of administrative and operating Plan of Operations and other
‘‘administrative and operating (A&O) subsidy received from RMA. The documentation. The interim rule has
subsidy’’ have been revised to eliminate definition of ‘‘unfair discrimination’’ been revised to remove this requirement
the costs and loss adjustment expense has been modified to clarify that because there is no longer a need to
subsidies related to the sale and service approved providers cannot exclude submit a revised Plan of Operations.
of catastrophic risk protection (CAT) farmers based on the loss history or the The current Expense Exhibits submitted
policies. This change was made because size of the policy. with the Plan of Operations will be
no premium is owed under a CAT 3. Timing of the Submission of used, along with any estimated A&O
policy. Therefore, the premium discount Revised Plans of Operations. The costs for the reinsurance year that were
would not be applicable. For the ease of current procedures require revised Plans not included in such Expense Exhibits.
cost accounting, and because there is of Operations be filed not later than 150 The current procedures require the
little variation in the sale or service of days prior to the first sales closing date approved insurance provider to provide
CAT policies because options are so where the premium discount will be the name of the person responsible for
limited, these definitions create an applicable. In the interim rule, for the the administration of the premium
assumption that the loss adjustment 2006 reinsurance year, revised Plans of reduction plan, the reinsurance year the
expense subsidy paid by RMA is equal Operations must be received by RMA plan will be in effect; a statement of the
to the amount of costs associated with not later than 15 days after publication amount of the premium discount to be
the sale and service of CAT policies. of the interim rule to allow RMA time offered to farmers, how it is calculated,
RMA has also revised the definition of to consider such revised Plans of and reported to RMA; a list of any and
‘‘compensation’’ to clarify that Operations before the fall sales closing all terms and conditions that affect its
compensation includes any benefits, dates. For subsequent reinsurance years, availability; and the projected total
including those from third parties, that all revised Plans of Operations must be dollar amount of the premium discount
are guaranteed, even though the amount received by RMA with the Plan of to be provided to the farmers. Except for
may differ year to year, regardless of the Operations for the reinsurance year. providing the name of the person who
existence of an underwriting gain for the RMA has elected to have a single will be responsible for the premium
approved insurance provider, and to submission window each reinsurance reduction plan, all these other
clarify when profit sharing year to ensure that all approved requirements have been removed from
arrangements will not be included as insurance providers are playing on a the interim rule. Such requirements are
compensation. The definition of level field, as requested by the no longer necessary because premium
‘‘efficiency’’ is revised to clarify that commenters. However, RMA has added discounts are now based on actual costs,
cost savings must be attributable to provisions that would allow new not projected costs. Further, the
operational efficiencies or a reduction in approved insurance providers to request availability or amount of the premium
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41916 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
discount is no longer known or provide an analysis of whether the may be captured if the approved
guaranteed. The interim rule does premium reduction plan is unfairly insurance provider can establish a
require that approved insurance discriminatory or could be perceived as higher expected premium volume for
providers provide a report of the actual such. This provision has been removed the year. RMA has clarified that new
premium discount payments made for from the interim rule and instead, entrants are limited to those that have
the previous year but such report must approved insurance providers are not participated in the program
be provided not later than 15 days after required to provide marketing plan for previously or are not affiliated with a
the payment of the premium discounts. all farmers, including small, minority, managing general agent, another
The existing procedures also require women and limited resource farmers to approved insurance provider, or other
the approved insurance provider to list address concerns that such farmers will such entity that already has the
the proposed crops and states where the not receive access to premium infrastructure necessary to deliver crop
efficiency is being gained and the discounts. insurance. The existing procedures have
estimated number of farmers. As stated RMA has added provisions that limit also been revised to no longer allow the
above, the requirement to list the states the marketing that can be done new entrant to exclude the startup costs
has been retained but the requirement to regarding premium discounts because from its expenses reported under the
list the crop has been removed from the they are no longer guaranteed up front. premium reduction plan. In the interim
interim rule because this provision was After the approved insurance providers rule, such startup costs must be
rendered moot by the requirement that have been determined to be eligible for included as expenses but the approved
premium discounts be paid for all crops the opportunity to offer a premium insurance provider will be permitted to
in those states listed by the approved discount, approved insurance providers spread such costs equally for up to three
insurance provider. and their contractors and employees reinsurance years.
The existing procedures also require will only be able to advertise that they 7. RMA Review Process. The current
that approved insurance providers state have been determined to be eligible and procedures require RMA to evaluate the
how they intend to deliver the premium state the premium discounts that have completeness of a revised Plan of
reduction plan and to identify the cost been paid in previous reinsurance years. Operations and notify the approved
saving measures that will be used to Disclaimers must also be prominently insurance provider within 30 days. This
attain the projected efficiency. These displayed that state that past premium provision has been removed because of
requirements were removed from the discounts to not guarantee that a future the administrative burden it places on
interim rule because RMA no longer has discount will be paid or its amount. RMA to review the revised Plan of
to determine up front whether it is RMA is also enlisting the states to assist
Operations twice and provide two
realistic for approved insurance it in monitoring the marketing conduct
separate responses. In the interim rule,
providers to meet their projected of the approved insurance providers and
efficiencies. for the 2006 reinsurance year, RMA will
their contractors and employees because
The requirements in the existing notify the approved insurance provider
states currently monitor such activities
procedures stating how projected not later than 30 days after the approved
so they already have the infrastructure
efficiencies are calculated, requiring insurance provider requests the
in place.
detailed accounting statements, and the RMA has also added a requirement to eligibility to offer a premium discount,
other accounting matters have been the interim rule that approved insurance whether it is eligible for the opportunity
removed from the interim rule. Now providers must provide a certification to offer a premium discount under the
that the premium discount will be based that their cost saving measures will not premium reduction plan. For all
on actual cost savings instead of result in a reduction in service as subsequent reinsurance years, current
projected cost savings, such information defined in the interim rule. This is to procedures require RMA to provide a
is no longer required to be provided up reinforce the importance of this response to the approved insurance
front. Cost accounting information requirement. provider regarding its eligibility for an
necessary for the approval of the 6. New approved insurance providers. opportunity to offer a premium discount
premium discount that can be offered in The existing procedures allow certain not later than 30 days prior to the first
a state is already contained in the costs associated with new approved sales closing date. This provision has
existing Expense Exhibits to the SRA. insurance providers and with respect to been revised to require that the request
Further, RMA will provide a formula for expansions by existing approved be made with the Plan of Operations.
calculating the premium discount to be insurance providers be included in the Since approved insurance providers
used in the approval process through A&O costs for the purposes of will no longer be able to market
procedures. determining the efficiency. RMA has premium discounts like they did under
The requirement that counsel from elected to remove the provisions the existing procedures, the additional
the approved insurance provider certify regarding existing approved insurance lead time is not as critical.
that the manner in which the premium providers because it is impractical to RMA has also added provisions
reduction plan will be delivered is in track those costs associated with normal setting forth the criteria under which
accordance with state law has been expansion and those attributable to the RMA will determine an approved
removed from the interim rule. It is the premium reduction plan. Further, the insurance provider eligible for the
responsibility of the approved insurance Act does not make any distinction opportunity to participate in the
provider to ensure that it delivers the between the types of costs against which premium reduction plan. A new criteria
crop insurance program in compliance to measure the efficiencies. However, it is that the marketing plan be designed
with the requirements of the SRA. is only the new entrants into the crop to reach small farmers, limited resource
Failure to comply with any insurance business that have the farmers as defined in section 1 of the
requirements can subject the approved exceptional costs associated with such Basic Provisions, 7 CFR 457.8, women
insurance provider to sanctions under entrance. Existing approved insurance and minority farmers. Disclaimers have
the SRA. Therefore, this requirement providers may incur some additional also been added to the interim rule to
was no longer necessary. costs but not nearly to the extent that inform participants in the crop
The existing procedures also required new entrants would. Further, some of insurance program that RMA
that approved insurance providers these costs associated with expansion determination of eligibility does not
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41917
guarantee that it will approve a with the review and approval process as is discovered, RMA may take such
premium discount. stated above. action as authorized in the rule.
8. Standards for Approval. The 10. Requirements After Approval of a The existing procedure requiring the
current procedures require that the Premium Reduction Plan. The current approved insurance provider to offer a
premium reduction plan not result in procedures specify that all procedural premium reduction plan has been
the reduction of service to farmers or be issues, problems, etc. will be addressed removed and new provisions added
harmful to the interest of farmers, not by the approved insurance provider; giving the approved insurance provider
place a financial or operational hardship premium discounts must be the option of whether to request
on the approved insurance provider or implemented in accordance with the approval to pay a premium discount in
undermine the integrity of the crop premium reduction plan; the approved any reinsurance year. However, once
insurance program. Further, such insurance provider is liable for all approved, the premium discount must
procedures require the approved mistakes, errors, etc. The current be paid in accordance with the rule. The
insurance provider have the financial procedures also required the approved existing procedures regarding the
and operational capacity and expertise insurance provider to assist RMA in any withdrawal of approval have been
to deliver the crop insurance program reviews conducted to determine retained but additional remedies, such
after implementation of the premium whether the efficiency is generated and as denial of all or part of a premium
reduction plan, there be adequate there is compliance with the premium discount and remedial actions have
internal controls to monitor its reduction plan and to make any changes been added.
compliance with the provisions of the required by RMA. These provisions 11. New Provisions. Unlike the
interim rule, and the premium have been basically retained in the procedures, RMA has added provisions
reduction plan meet all other interim rule, although modified slightly that expressly state the limitations and
requirements of the Act and the SRA. to reflect that premium discounts are prohibitions on the premium reduction
These requirements have been retained based on actual cost savings and they plan program in order to simplify and
in this interim rule but moved to the now apply after RMA has determined clarify the program. Such limitations
previous section because, in the interim the approved insurance provider is include a cap on the maximum amount
rule, RMA has separated the process for eligible for the opportunity to offer a of premium discount RMA may
determining eligibility for an premium discount under the premium authorize for at least the first two
opportunity to offer a premium discount reduction plan. reinsurance years a premium discount is
under the premium reduction plan from RMA has revised the procedures paid, and thereafter unless modified or
the approval of the amount of premium regarding reporting to ensure the eliminated by RMA, to allow RMA to
discount. information provided is adequate to evaluate the effect such plan may have
To be approved for a premium review and assess the impact on on the crop insurance program and
discount, the approved insurance program participants, including small ensure that approved insurance
provider must provide an audit of its farmers, limited resource farmers, providers are not leaving themselves
Expense Exhibits to the SRA and an women and minority farmers and on the financially vulnerable by cutting their
estimate of additional A&O costs for the crop insurance program. RMA will also costs too much. This means the cap
reinsurance year not included in such utilize other information it obtains to could be in effect for at least 4
Exhibits, certified by an independent monitor compliance with the rule. RMA reinsurance years depending on when
public accountant with experience in has also revised the procedures to the premium discount is paid.
insurance accounting, a detailed clarify that farmers will automatically RMA has also created a new section
description of the profit sharing receive the premium discount in those that contains provisions regarding the
arrangements, the amount and states listed by the approved insurance reconsideration of actions taken by
percentage of premium discount in each provider where it is approved to pay RMA and requires appeal of the
state determined by the approved premium discounts. RMA has also decision in such reconsideration be
insurance provider, and the amount of added provisions making it clear that made to the Board of Contract Appeals.
premium discount the approved eligibility for the opportunity to offer a A new section has also been added
insurance provider intends to pay. RMA premium discount under the premium regarding consumer complaints. These
has also added provisions requiring that reduction plan is only for one provisions provide a mechanism for
the cost of such audit be included in the reinsurance year and approved reporting violations of the interim rule.
A&O costs. The criteria for approval of insurance providers must reapply for Good cause is shown to make this rule
the amount of premium discount subsequent years. effective less than 30 days after
includes: (1) The Expense Exhibits to Additionally, RMA has added publication in the Federal Register. A
the SRA must show the approved provisions requiring agents to notify all case for good cause is needed to make
insurance provider’s A&O costs were existing policyholders or potential a rule effective less than 30 days after
less than its A&O subsidy for the policyholders of all the approved publication. Good cause exists when the
reinsurance year; (2) a determination of insurance providers the agent represents 30 day delay in the effective date is
whether the approved insurance that are eligible for the opportunity to impracticable, unnecessary, or contrary
provider had an efficiency and the offer a premium discount. As stated to the public interest.
amount of premium discount that can above, this is to help ensure that all With respect to the provisions of this
be paid in any state; (3) whether the farmers in states where premium interim rule, it would be contrary to the
amount of premium discount discounts may be available to have public interest to delay implementation
determined by the approved insurance access to such discounts. Further, RMA of the procedures under which
provider exceeds the amount added provisions specifying that it will approved insurance providers may
determined by RMA; and (4) whether closely monitor the approved insurance request to participate in the premium
the approved insurance provider has provider’s efforts to market the premium reduction plan under section 508(e)(3)
complied with all requirements of the reduction plan to small farmers, limited of the Act and seek approval to pay
rule. resource farmers, women and minority premium discounts if they have attained
9. Disapproval. RMA has revised the farmers to ensure that no unfair the requisite efficiency. The public
existing procedures and combined them discrimination takes place and that if it interest is served by this interim rule
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41918 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
because: (1) It will greatly reduce the Subpart V—Submission of Policies, operating (A&O) subsidy’’ and by adding
complexity and the burden on approved Provisions of Policies, Rates of the definitions of ‘‘Administrative and
insurance providers and RMA to Premium, and Premium Reduction operating (A&O) costs,’’ ‘‘Agent,’’
administer the premium reduction plan; Plans ‘‘Approved procedures,’’
(2) it will replace administrative ‘‘Compensation,’’ ‘‘Efficiency,’’ ‘‘Eligible
procedures that have been determined ■ 2. Revise the heading for subpart V to crop insurance contract,’’ ‘‘Eligible
by FCIC’s Board of Directors to be read as set forth above. producer,’’ ‘‘Managing General Agent
inadequate because they fail to take into ■ 3. Amend § 400.700 by designating the (MGA),’’ ‘‘Plan of Operations,’’
consideration the different business existing paragraph as paragraph (a) and ‘‘Premium discount,’’ ‘‘Profit sharing
operations of the approved insurance adding a new paragraph (b) to read as arrangement,’’ ‘‘Reduction in service,’’
providers; (3) to be given its full effect, follows: ‘‘Standard Reinsurance Agreement
the provisions of the interim rule must (SRA),’’ ‘‘Third Party Administrator
be implemented as soon as possible § 400.700 Basis, purpose, and (TPA),’’ ‘‘Underwriting gain,’’ and
applicability. ‘‘Unfair discrimination’’ in alphabetical
because the 2006 reinsurance year began
on July 1, 2005; (4) time is needed for * * * * * order to read as follows:
approved insurance providers to submit (b) The purpose of the premium
reduction plan is to foster competition § 400.701 Definitions.
requests to participate in the premium
in the crop insurance program, thereby * * * * *
reduction plan, RMA to determine their
providing producers with an Administrative and Operating (A&O)
eligibility to participate, and for agents
opportunity to receive a premium costs. The costs of the approved
to be trained ahead of key fall sales discount, as authorized in section
closing dates; and (5) approved insurance provider, and any MGA and
508(e)(3) of the Act. RMA has sought to TPA, which are directly related to the
insurance providers, farmers, and the accomplish this purpose, while still
public will not be disadvantaged by the delivery, loss adjustment and
maintaining the financial stability of the administration of the Federal crop
immediate implementation of the rule. delivery system and the integrity of the insurance program. Costs associated
If RMA is required to delay the crop insurance program, by with the sale or service of catastrophic
implementation of this rule 30 days implementing a premium reduction risk protection (CAT) eligible crop
after the date it is published, there willplan where approved insurance insurance contracts in an amount equal
be inconsistency in the administration providers participate in the premium to the loss adjustment expense subsidy
of the premium reduction plan for the reduction plan by requesting the for CAT eligible crop insurance
2006 reinsurance year because fall opportunity to offer a premium discount contracts, ceding commission received
planted crops may have to be and later requesting approval from RMA
for ceding any portion of the risk
administered under the existing to pay a premium discount if the
associated with any eligible crop
procedures while spring planted crops insurance provider has achieved an
insurance contract authorized under the
would be administered under the efficiency based on the actual savings it
authority of the Act with a reinsurer,
interim rule. This will cause confusion has attained through the reinsurance
and payments for the purchase of
year.
in the marketplace and the potential for reinsurance and related credits are not
(1) Since the payment of any premium
certain farmers to miss the opportunity considered as A&O costs.
discount is determined based on actual
to receive a premium discount. reported cost information for the Administrative and Operating (A&O)
For the reasons stated above, good reinsurance year, and must be approved subsidy. The subsidy for the
cause exists to implement this interim by RMA, the disclosure to policyholders administrative and operating expenses
rule less than 30 days after the date of of the amount of the premium discount authorized by the Act and paid by FCIC
publication in the Federal Register. and the payment of the premium on behalf of the producer to the
discount will not occur until after the approved insurance provider. Loss
List of Subjects in 7 CFR Part 400 close of any given reinsurance year. adjustment expense reimbursement paid
Administrative practice and (2) This premium reduction plan by FCIC for CAT eligible crop insurance
procedure, Crop insurance, Disaster substantially limits the burden on contracts, and any ceding commission
approved insurance providers and RMA received for ceding any portion of the
Assistance, Fraud, Penalties, Reporting
and provides for flexibility for approved risk associated with any eligible crop
and recordkeeping requirements.
insurance providers to choose the States insurance contract authorized under the
Interim Rule in which they will offer premium authority of the Act with a reinsurer are
discounts and vary the amount of not considered as A&O subsidy.
■ Accordingly, as set forth in the premium discount between States. Agent. An individual licensed by the
preamble, the Federal Crop Insurance (3) Under the premium reduction State in which an eligible crop
Corporation amends 7 CFR part 400 plan, the payment and amount of insurance contract is sold and serviced
subpart V, applicable for the 2006 and premium discounts cannot be for the reinsurance year, and who is
succeeding reinsurance years, as follows: guaranteed, or identified as to amount employed by, or under contract with,
or certainty of payment, in advance of the approved insurance provider, or its
PART 400—GENERAL the sale of an eligible crop insurance designee, to sell and service such
ADMINISTRATIVE REGULATIONS contract. However, producers will have eligible crop insurance contracts.
the potential to receive monetary
■ 1. The authority for 7 CFR part 400 assistance in defraying the costs of their * * * * *
continues to read as follows: future premium. Approved procedures. The applicable
Authority: 7 U.S.C. 1506(1), 1506(p), handbooks, manuals, memoranda,
§ 400.701 [Amended] bulletins or other directives issued by
1508(e)(3).
■ 4. Amend § 400.701 by revising the RMA or the Board. For purposes of
definition of ‘‘Administrative and §§ 400.714 through 400.722 only,
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41919
approved procedures include all conditions in effect as of the applicable applicable regulations and approved
provisions of the SRA. contract change date, which is sold and procedures. A violation of a provision in
* * * * * serviced consistent with the Act, FCIC an approved procedure will be
Compensation. The total amount of regulations, and approved procedures considered to be a reduction in service.
any guaranteed salary or payment, having a sales closing date within the * * * * *
commission, or anything that has a reinsurance year, and with an eligible Standard Reinsurance Agreement
quantifiable value or benefit that is not producer. (SRA). The reinsurance agreement
contingent on the existence of an Eligible producer. A person who has between FCIC and the approved
underwriting gain of the approved an insurable interest in an agricultural insurance provider, under which the
insurance provider, including, but not commodity, who has not been approved insurance provider is
limited to, the payment of health or life determined ineligible to participate in authorized to sell and service the
insurance, deferred compensation the Federal crop insurance program, and eligible crop insurance contracts for
(including qualified and unqualified), who possesses a United States issued which the premium discount is
finders fees, retainers, trip or travel social security number (SSN), employer proposed. All references to the SRA will
expenses, dues or other membership identification number (EIN), or such also include any other reinsurance
fees, the use of vehicles, office space, other identification as required by RMA. agreements entered into with FCIC,
equipment, staff or administrative * * * * * including the Livestock Price
support paid by the approved insurance Managing General Agent (MGA). An Reinsurance Agreement, unless
provider or its contractor either directly entity that meets the definition of otherwise stated in such reinsurance
or indirectly through a third party. managing general agent under the laws agreement.
Payments conditioned upon something of the State in which such entity is Third Party Administrator (TPA). A
other than the underwriting gains of the incorporated and in every other State in person or organization that processes
approved insurance provider are which it operates, or in the absence of claims or performs other administrative
considered as compensation, such as such State law or regulation, meets the services and holds licenses, as
bonuses or other conditional payments definition of a managing general agent applicable, in States in which services
or commission based upon whether an or agency in the National Association of are provided with respect to the Federal
agent timely turns in applications, Insurance Commissioners Managing crop insurance business in accordance
production reports or acreage reports, General Agents Act, or successor Act. with a service contract or an affiliate or
etc. A profit sharing arrangement will be * * * * * any other type of relationship.
considered compensation unless and Plan of Operations. The documents * * * * *
only to the extent that: and information the approved insurance Underwriting gain. For the purposes
(1) Such profit sharing arrangement provider must submit in accordance of the premium reduction plan, the
contains a provision that would require with section IV.F.2. and Appendix II of amount of gains paid under section
a pro rata reduction in the amount or the SRA and applicable approved II.B.10. of the SRA less any amounts
percentage of profit contained in such procedures. paid from such gains, including but not
arrangement if the total amount of Premium discount. A payment made limited to payments to commercial
underwriting gain paid by FCIC for the by the approved insurance provider to reinsurers, taxes, licensing fees,
applicable reinsurance year is not the policyholder to help defray the cost payments to parent companies or
sufficient to cover the amount or of premium, in an amount equal to the subsidiaries, etc., and any costs incurred
percentage of profit; or dollar amount or corresponding
(2) At least one of the required triggers by the approved insurance provider in
percentage of net book premium excess of the A&O subsidy related to the
for the payment under the profit sharing approved by RMA, as authorized by
arrangement is that the approved delivery, service, loss adjustment and
section 508(e)(3) of the Act. administration of the Federal crop
insurance provider receives from FCIC Profit sharing arrangement. An
an underwriting gain for its whole book insurance program.
arrangement to make a payment to an
of Federally reinsured crop insurance Unfair discrimination. An approved
employee, agent, loss adjuster or other
business for the applicable reinsurance insurance provider’s implementation of
contractor conditioned upon whether
year. the premium reduction plan will be
the approved insurance provider
considered unfairly discriminatory to a
* * * * * receives an underwriting gain on the
producer if the availability of eligible
Efficiency. Monetary savings realized crop insurance business. Payments
crop insurance contracts sold under the
when the approved insurance provider’s made to commercial reinsurers or
premium reduction plan, or the
A&O costs are less than the amount of ceding commissions paid to the
percentage of net book premium upon
the A&O subsidy paid by FCIC. If the approved insurance provider for the
which the premium discount is paid, is
approved insurance provider is reinsurance year for the crop insurance
based on the loss history of the
reducing agent compensation as a book of business are not considered as
producer, the amount of premium
means to achieve an efficiency, not all profit sharing arrangements for the
earned under the eligible crop insurance
of the efficiency can come from such purposes of determining A&O costs or
contract, the producer’s size of the
reduction in agent compensation. A&O subsidy.
operation or number of acres to be
Efficiency does not include any actual Reduction in service. When the
insured, or precludes in any manner
or projected underwriting gain earned approved insurance provider, agent and
producers from participating in the
from the SRA, private reinsurance loss adjuster, or any other contractor or
premium reduction plan in a State
revenues or expenses, or any investment employee of the approved insurance
where an approved insurance provider
returns on the approved insurance provider that assists in or provides any
is eligible for the opportunity to offer a
provider’s reserves. service for a Federally reinsured eligible
premium reduction plan.
Eligible crop insurance contract. An crop insurance contract, sells, services
insurance contract for an agricultural or administers such eligible crop * * * * *
commodity authorized by the Act and insurance contracts at a level of service ■ 5. Add a new § 400.714 to read as
approved by FCIC, with terms and less than that required under all follows:
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41920 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
§ 400.714 Requests for the opportunity to submitted by the applicable deadlines (3) Past or projected ability of the
offer a premium discount. contained in paragraphs (c) and (d) will approved insurance provider to operate
(a) To participate in the premium not be considered until the next at less than the approved insurance
reduction plan, approved insurance reinsurance year. provider’s A&O subsidy.
providers must make a request to RMA (f) The request for the opportunity to (f) After RMA has determined that the
for the opportunity to offer a premium offer a premium discount under the approved insurance provider is eligible
discount for the reinsurance year in premium reduction plan must be sent to for the opportunity to offer a premium
accordance with § 400.716. the Director, Reinsurance Services discount in a State, the approved
(b) If RMA determines that the Division (or designee). insurance provider and its
approved insurance provider is eligible ■ 6. Add a new § 400.715. representatives, agents, employees or
for the opportunity to offer a premium contractors may advertise and
discount under the premium reduction § 400.715 Limitations and prohibitions. communicate to producers that there is
plan for the reinsurance year, the (a) For the first two reinsurance years an opportunity for the approved
approved insurance provider will only that RMA approves the payment of a insurance provider to offer a premium
be allowed to pay a premium discount premium discount, the approved discount in that State and:
if: insurance provider may not pay a (1) If they advertise or otherwise
(1) The approved insurance provider premium discount under the premium communicate that there is an
has submitted the required information reduction plan to a producer greater opportunity to offer a premium discount
applicable for that reinsurance year in than 4.0 percent of the net book in that State, such advertisements or
accordance with § 400.720; premium for the eligible crop insurance other communications:
(2) The approved insurance provider contract. For subsequent reinsurance (i) Can only state the dollar amounts
has demonstrated to RMA that it has years, the 4.0 percent of the net book or corresponding percentage of net book
operated sufficiently below its A & O premium for the eligible crop insurance premium of premium discount actually
subsidy to support the payment of such contract will remain the maximum paid to producers in the State for each
discount; and amount of premium discount authorized reinsurance year for which the approved
(3) RMA has approved the dollar to be approved by RMA unless insurance provider paid a premium
amount, and the corresponding otherwise stated by RMA. discount; and
percentage of net book premium, for the (b) All premium discounts must be (ii) Must contain a prominently
premium discount. based on an actual accounting of displayed disclaimer that:
(c) For the 2006 reinsurance year: efficiencies achieved by the approved (A) States ‘‘The past payments of
(1) For an approved insurance insurance provider for the reinsurance premium discounts are not a guarantee
provider with an approved SRA for the year and may not be distributed to that future payments will be made or an
2005 reinsurance year, requests for the policyholders until the payment and the indication of the amount of future
opportunity to offer a premium discount amount of such discounts have been premium discounts’’; or
must be received by RMA not later than approved by RMA in writing in (B) States a similar statement that
August 4, 2005; and accordance with § 400.720. must be approved in writing by RMA;
(2) For an approved insurance (c) The approved insurance provider and
provider that did not have an approved may not impose any term or condition (2) RMA may impose a sanction
SRA for the 2005 reinsurance year and upon the distribution or amount of any authorized in § 400.719(j) if:
did not request such agreement until premium discount (such as conditioning (i) RMA determines that the approved
after the deadline contained in the premium discount based upon the insurance provider or its representative,
paragraph (c)(1) of this section, requests renewal of the eligible crop insurance agent, employee or contractor is not in
for the opportunity to offer a premium contract with the approved insurance compliance with the provisions of this
discount must be provided with the provider or not having a loss for the section; or
application for approval of a SRA. crop year), except those included in (ii) Any State regulatory authority
(d) For all subsequent reinsurance §§ 400.714 through 400.722. determines that an approved insurance
years: (d) Premium discounts under the provider or its representatives, agents,
(1) For an approved insurance premium reduction plan are not employees or contractors has violated
provider with an approved SRA for the available for: any State law regarding the advertising,
previous reinsurance year, requests for (1) Eligible crop insurance contracts at marketing or solicitation of customers
the opportunity to offer a premium CAT level of coverage; and with respect to a premium discount
discount must be received by RMA not (2) Ineligible producers. under the premium reduction plan.
later than April 1 before the reinsurance (e) No approved insurance provider or (g) The approved insurance provider
year, or the date RMA otherwise its representatives, agents, employees or shall not distribute any premium
determines the Plan of Operations is contractors may advertise or otherwise discount payment:
due; and communicate to any producer the (1) Until the dollar amount, and
(2) For an approved insurance availability, potential availability, or corresponding percentage of net book
provider that did not have an approved existence of: premium, for the premium discount
SRA for the previous reinsurance year (1) The opportunity to offer a have been approved by RMA in writing
and did not request such agreement premium discount under the premium (For example, RMA may approve a
until after the deadline contained in reduction plan until the approved dollar amount of premium discount in
paragraph (d)(1) of this section, requests insurance provider receives written a State of $500,000, which corresponds
for the opportunity to offer a premium notice from RMA that it is eligible for to a percentage of premium discount of
discount under the premium reduction the opportunity to offer a premium 3% of the net book premium for the
plan must be provided with the discount; State); and
application for approval of a SRA. (2) A specific amount of premium (2) In an amount that is greater than
(e) Any request for the opportunity to discount prior to such amount being the dollar amount, and corresponding
offer a premium discount under the approved in writing by RMA in percentage of net book premium, for the
premium reduction plan that is not accordance with § 400.720; and premium discount approved by RMA.
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41921
(h) If RMA approves a dollar amount, producers, in the State in which the its sole discretion, can authorize the
and corresponding percentage of net premium reduction plan will be offered, amortization of start-up costs in
book premium, for the premium such as advertising through farm accordance with paragraph (a) of this
discount in a State: journals, farm radio, community based section.
(1) All producers insured by the organizations, etc.; ■ 9. Add a new § 400.718.
approved insurance provider in that (2) Be in addition to any solicitation
State for the corresponding reinsurance or advertising done by agents of the § 400.718 RMA Review
year will automatically receive that approved insurance provider; and If an insurance provider requests
percentage of net book premium of (3) Contain a certification by the eligibility for the opportunity to offer a
premium discount (For example, if an person responsible for signing the SRA premium discount under the premium
approved insurance provider is that any cost saving measures will not reduction plan:
approved to pay a percentage of result in a reduction in service to any (a) For the 2006 reinsurance year,
premium discount of 3% of the net book producers, especially small producers, RMA will notify the approved insurance
premium for efficiencies attained during limited resource farmers as defined in provider not later than 30 days after the
the 2006 reinsurance year in a State, all section 1 of the Basic Provisions in 7 date the approved insurance provider
producers insured with that approved CFR 457.8, women and minority submits its request for eligibility for the
insurance provider during the 2006 producers in the State in which the opportunity to offer a premium discount
reinsurance year in that State will premium reduction plan will be offered. under a premium reduction plan,
receive a premium discount that is 3% (d) A report of the total dollar amount whether it is eligible.
of the net book premium for their of premium discount and the (b) For all subsequent reinsurance
eligible crop insurance contract); and corresponding premium discount years, RMA will notify the approved
(2) That same RMA approved percentage by State paid for the insurance provider at the same time it
premium discount percentage of net previous reinsurance year (Such report approves the Plan of Operations
book premium must be paid for all must be provided to RMA not later than whether it is eligible.
crops, coverage levels except the CAT 15 days after making the premium (c) An approved insurance provider
coverage level, and plans of insurance discount payments); and may be determined to be eligible for the
written by the approved insurance (e) Such other information as deemed
opportunity to offer a premium discount
provider in that State. necessary by RMA.
under the premium reduction plan if, in
(i) The approved insurance provider ■ 8. Add a new § 400.717. the sole determination of RMA, all of
must be in compliance with all the following criteria are met:
§ 400.717 New approved insurance
requirements of the approved (1) All information required in
providers.
procedures to be able to pay a premium § 400.716 is included in the request for
discount. There may be instances where a new
approved insurance provider is entering the opportunity to offer a premium
■ 7. Add a new § 400.716. discount under the premium reduction
the crop insurance program for the first
§ 400.716 Contents of the request for the time and such approved insurance plan;
opportunity to offer a premium discount. provider is not affiliated with an MGA, (2) The marketing plan is designed to
Each request for the opportunity to a TPA, another approved insurance be effective at reaching all producers in
offer a premium discount under the provider, or any other entity that the State, especially small producers,
premium reduction plan must include possesses the infrastructure necessary to limited resource farmers as defined in
all of the following: deliver the crop insurance program, that section 1 of the Basic Provisions in 7
(a) The name of the approved is currently or has previously CFR 457.8, women and minority
insurance provider; the person who may participated in the crop insurance producers;
be contacted for further information program. (3) The implementation of any
regarding the request for an opportunity (a) In such instances, the one time activities to enable the approved
to offer a premium discount under the start-up costs that are associated with insurance provider to pay a premium
premium reduction plan; and the person entering the crop insurance business discount does not impede the approved
who will be responsible for the (e.g., creation of a claims system, insurance provider’s ability to comply
administration of the premium interface with RMA’s data acceptance with all requirements of the approved
reduction plan. system, initial marketing costs, set up procedures, law, and regulation;
(b) A list of the States where the charges) must be included in the (4) There must be a reasonable
approved insurance provider wants the Expense Exhibits required by the SRA, assurance that producers, especially
opportunity to offer a premium discount or the applicable regulations or small producers, limited resource
under the premium reduction plan. approved procedures, but the costs may farmers as defined in section 1 of the
(c) A detailed marketing plan that be amortized in equal annual amounts Basic Provisions in 7 CFR 457.8, women
describes how the approved insurance for a period of up to three years for the and minority producers, insured by the
provider will promote the premium purpose of determining the efficiency approved insurance provider will not
reduction plan to all producers, on the documents described in experience a reduction in service;
especially small producers, limited § 400.720, in a manner determined by (5) The insurance provider can
resource farmers as defined in section 1 RMA. demonstrate that it is operationally and
of the Basic Provisions in 7 CFR 457.8, (b) If the approved insurance provider financially capable and ready to serve,
women and minority producers. With is affiliated with a MGA, a TPA, another all producers in that State; and
respect to the marketing plan, it must: approved insurance provider that (6) The approved insurance provider’s
(1) Identify and utilize the appropriate previously participated in the crop resources, procedures, and internal
media with the capacity to reach all insurance program but such MGA, TPA, controls are adequate to provide a
producers, especially small producers, or other approved insurance provider premium discount under the premium
limited resource farmers as defined in can demonstrate that it no longer has reduction plan, make approved
section 1 of the Basic Provisions in 7 the infrastructure to operate the premium discount payments in a timely
CFR 457.8, women and minority program, the FCIC Board of Directors, in manner, prevent unfair discrimination,
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41922 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
and comply with all applicable laws, effectiveness of the approved insurance (g) If RMA approves a dollar amount,
regulations and approved procedures. provider’s implementation of the and corresponding percentage of net
(d) If the approved insurance provider premium reduction plan, in the manner book premium, for the premium
is determined by RMA to be eligible for specified by RMA. At a minimum, each discount for a State in accordance with
the opportunity to provide a premium report must contain for each State listed § 400.720, it will be applicable to the
discount under the premium reduction by the approved insurance provider reinsurance year in which the
plan, the approved insurance provider under § 400.716(b): efficiencies were attained and the
will be notified in writing by the (1) The number of small producers, approved insurance provider must pay
Director, Reinsurance Services Division, limited resource farmers as defined in that dollar amount, and corresponding
or a designee or successor. section 1 of the Basic Provisions in 7 percentage of net book premium, for the
(e) Notification that an approved CFR 457.8, women and minority premium discount to its policyholders
insurance provider is eligible for the producers making application; and in that State for that reinsurance year. If
opportunity to offer a premium discount (2) The number, substance, and final the approved insurance provider fails to
under the premium reduction plan is or pending resolution of complaints pay this amount, the approved
not a guarantee that a premium discount from producers regarding the service insurance provider:
payment will be approved by RMA for received under the premium reduction (1) Will not be eligible for the
the reinsurance year. Approval of a plan. opportunity to offer a premium discount
premium discount cannot be provided (e) RMA will monitor the approved for the reinsurance year immediately
by RMA until the actual A&O costs and insurance provider’s efforts to market following RMA’s approval of the
A&O subsidy are reported for the the premium reduction plan to small payment of a premium discount; and
reinsurance year and RMA determines (2) Must disclose in all its
producers, limited resource farmers as
that all the requirements of §§ 400.714 promotional and advertising material
defined in section 1 of the Basic
through 400.722 have been met. that it was approved to pay a premium
Provisions in 7 CFR 457.8, women and
■ 10. Add a new § 400.719. discount by RMA but elected not to pay
minority producers.
such discount, unless approval to pay
§ 400.719 Terms and conditions for the (1) RMA may compare the
the premium discount was withdrawn
Premium Reduction Plan. composition of the approved insurance
by RMA, for the next two reinsurance
The following terms and conditions provider’s book of business in a State years subsequent to the failure to pay
apply to all approved insurance with the composition of the books of the premium discount.
providers that RMA has determined are business of other approved insurance (h) For policyholders that were
eligible for the opportunity to offer a providers in that State to assist in insured with the approved insurance
premium discount under the premium determining whether the marketing plan provider in the reinsurance year from
reduction plan: has been effective or there is credible which the approved premium discount
(a) RMA’s determination that the evidence of unfair discrimination by the is applicable but are not currently
approved insurance provider is eligible approved insurance provider or its insured with the approved insurance
for the opportunity to offer a premium agents. provider, any premium discount
discount under the premium reduction (2) If at any time RMA determines that payments must be sent to the last
plan will only be effective for one the marketing activities of the approved known address of the policyholder.
reinsurance year. Approved insurance insurance provider are not effective in (i) The approved insurance provider
providers must reapply each reaching small producers, limited and its representatives, agents,
reinsurance year in accordance with resource farmers as defined in section 1 employees and contractors must fully
§§ 400.714 through 400.716. of the Basic Provisions in 7 CFR 457.8, cooperate with RMA and any State or
(b) All procedural issues, questions, women and minority producers or there Federal government agencies in any
problems or clarifications with respect is credible evidence of unfair review of the operations or activities of
to implementation of the premium discrimination by the approved the approved insurance provider and its
reduction plan must be addressed by the insurance provider or its agents in any representatives, agents, employees and
approved insurance provider by the State listed by the approved insurance contractors, with respect to the
deadline determined by RMA. provider under § 400.716(b), RMA will premium reduction plan.
(c) The agents employed or under take the appropriate action authorized (j) At its sole discretion and upon
contract with an approved insurance in paragraph (j) of this section written notice, RMA may withdraw a
provider that RMA has determined is (Remedial measures may include determination of eligibility for the
eligible for the opportunity to offer a additional targeted advertising by the opportunity to offer a premium discount
premium discount under the premium approved insurance provider or other under the premium reduction plan or
reduction plan must disclose to all appropriate measures to ensure the approval of all or a part of a premium
producers, insured with the agent or insurance provider is adequately serving discount payment, preclude eligibility
inquiring about insuring with the agent, small producers, limited resource for the opportunity to offer a premium
in writing the names of all approved farmers as defined in section 1 of the discount, or otherwise participate,
insurance providers that the agent Basic Provisions in 7 CFR 457.8, women under the premium reduction plan for a
represents that RMA has determined are and minority producers or that such period determined by RMA
eligible for the opportunity to offer a unfair discrimination has been commensurate with offense, take such
premium discount under the premium discontinued and corrective action other actions as authorized under the
reduction plan. taken). SRA, or require appropriate remedial
(d) The approved insurance provider (f) In no event shall RMA, FCIC or any measures as determined by RMA, if
must provide to the Director, other agency of the United States RMA determines that:
Reinsurance Services Division semi- Government be liable for any damages (1) Any approved insurance provider
annual reports, or more frequent reports caused by any mistakes, errors, or its representative, agent, employee or
as determined by RMA, that, along with misrepresentations, or flaws in the contractor has failed to comply with any
other information obtained by RMA, premium reduction plan or its term or condition contained in 7 CFR
permit RMA to accurately evaluate the implementation. 400.714 through 400.721; or
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Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations 41923
(2) The payment of a premium (2) The actual dollar amount of premium, for the premium discount
discount could adversely affect the efficiency attained by the approved determined by RMA.
financial or operational stability of the insurance provider for the reinsurance ■ 12. Add a new § 400.721
approved insurance provider, its MGA year for each State where the approved
or TPA as required by applicable insurance provider was eligible for the § 400.721 Determinations and
regulations or approved procedures. opportunity to offer a premium discount reconsiderations.
(k) The insurance provider may be under the premium reduction plan. The (a) If RMA takes any action authorized
held solely responsible for the actions of dollar amount of efficiency and the in § 400.719(j), the Director,
its representatives, agents, employees or dollar amount, and corresponding Reinsurance Services Division, or a
contractors with respect to any violation percentage of net book premium, for the designee or successor will notify the
of any term or condition contained in premium discount must be prepared approved insurance provider or its
§§ 400.714 through 400.721 or action and submitted in accordance with representatives, agents, employees or
under paragraph (j) of this section may approved procedures. contractors against whom such action is
be taken individually against the (i) For the 2006 reinsurance year, such taken, as applicable, in writing:
insurance provider or its approved procedures will be issued (1) Of the action taken;
representatives, agents, employees or within 5 days after July 20, 2005; and (2) The date such action is effective;
contractors. (ii) For all subsequent reinsurance and
■ 11. Add a new § 400.720. years, such procedures will remain in (3) The basis for such action.
effect unless revised and if such (b) If eligibility for the opportunity to
§ 400.720 Standards for approval of a
approved procedures will be revised, offer a premium discount, or to
premium discount.
these approved procedures will be participate, under the premium
For approval of a premium discount: issued not later than January 1 before reduction plan is withdrawn, the
(a) If the approved insurance provider
the start of the reinsurance year. approved insurance provider or agent,
intends to offer a premium discount in
(c) For each State listed by the as applicable, must notify its
a State listed by the approved insurance
approved insurance provider under policyholders it is no longer eligible to
provider under § 400.716(b) based on
§ 400.716(b) for which the insurance offer a premium discount, cease any
efficiencies attained during the
provider requests approval to pay a advertising or other communication
reinsurance year, the approved
premium discount, RMA will compare regarding a premium discount effective
insurance provider must, not later than
the dollar amount, and corresponding for the next sales closing date, and no
December 31 after the annual settlement
percentage of net book premium, for the premium discount may be distributed to
for the reinsurance year, submit to
premium discount determined in any producer of the insurance provider
RMA:
(1) An audit, in a format approved by accordance with applicable approved or agent, as applicable, for the
RMA, of the Expense Exhibits provided procedures with the dollar amount, and reinsurance year.
with the Plan of Operations, and the corresponding percentage of net book (c) If notice is provided under
estimated A&O costs for the reinsurance premium, for the premium discount paragraph (a) of this section to an
year that were not included in such submitted by the approved insurance approved insurance provider or its
Expense Exhibits, certified by an provider. representatives, agents, employees or
independent certified public accountant (d) RMA may approve the dollar contractors:
with experience in insurance amount, and corresponding percentage (1) The approved insurance provider
accounting, who must certify to the of net book premium, for the premium or its representatives, agents, employees
accuracy and completeness of the costs discount submitted by the approved or contractors, as applicable, may
stated therein and the Expense Exhibits’ insurance provider if and to the extent request, in writing, reconsideration of
conformance with the requirements of that: the decision with the Deputy
the SRA (The costs associated with such (1) The dollar amount, and Administrator of Insurance Services, or
audit and certification will be at the corresponding percentage of net book a designee or successor, within 30 days
approved insurance provider’s expense premium, for the premium discount of the date stated on the notice provided
and must be included in the approved submitted by the approved insurance in paragraph (a) of this section;
insurance provider’s A&O costs for the provider does not exceed the dollar (2) Such request must provide a
purposes of determining an efficiency); amount, and corresponding percentage detailed narrative of the basis for
(2) A detailed description of all profit of net book premium, for the premium reconsideration; and
sharing arrangements that the approved discount determined by RMA in (3) The Deputy Administrator of
insurance provider claims are not to be accordance with paragraph (b) of this Insurance Services, or a designee or
included as compensation (RMA section; and successor will issue its reconsideration
reserves the right to request copies of (2) If all other requirements of decision not later than 45 days after
such profit sharing contracts or other §§ 400.714 through 400.722 have been receipt of the request for
agreements); and met. reconsideration.
(3) The dollar amount, and (e) If the dollar amount, and (d) Reconsideration decisions issued
corresponding percentage of net book corresponding percentage of net book in accordance with paragraph (c) of this
premium, for the premium discount that premium, for the premium discount section are considered as final
the approved insurance provider will submitted by the approved insurance administrative determinations rendered
pay in the State. provider exceeds the dollar amount, and under § 400.169(a) and if the approved
(b) RMA will use the Expense corresponding percentage of net book insurance provider or its
Exhibits required to be submitted as part premium, for the premium discount representatives, agents, employees or
of the Plan of Operations to determine: determined by RMA in accordance with contractors who received such
(1) Whether the approved insurance paragraph (b) of this section, the reconsideration decision disagrees with
provider’s A&O costs were less than its approved insurance provider will be this final administrative determination,
A&O subsidy for the reinsurance year limited to paying the dollar amount, and it may appeal in accordance with
for the entire book of business; and corresponding percentage of net book § 400.169(d).
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41924 Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / Rules and Regulations
(e) If eligibility to offer a premium Director of the Reinsurance Services for further details before RMA can
discount plan has been withdrawn by Division, or a designee or successor. pursue investigation of the complaint.
RMA under § 400.719(j), the approved (a) Consumer complaints must (c) RMA may seek additional
insurance provider may request include: information to assist in investigating the
eligibility for the opportunity to offer a (1) A specific citation of the complaint.
premium discount for the next requirement in §§ 400.714 through (d) If RMA’s investigation determines
applicable reinsurance year if the 400.721 that has allegedly been violated; there has been a violation of a
condition which was the basis for such (2) A detailed listing of the actions requirement in §§ 400.714 through
withdrawal has been remedied. alleged to have taken place that violate 400.721, it may take the appropriate
the requirement; action authorized under § 400.719(j).
■ 13. Add a new § 400.722. (3) Specific identification of persons
involved in the violation, and Signed in Washington, DC, on July 13,
§ 400.722 Consumer complaints. 2005.
(4) The date, place and circumstances
Consumer complaints regarding an under which such violation allegedly Ross J. Davidson, Jr.,
approved insurance provider’s violation occurred. Manager, Federal Crop Insurance
of the requirements of §§ 400.714 (b) Any complaint that does not meet Corporation.
through 400.721 should be sent in the requirements in paragraph (a) of this [FR Doc. 05–14037 Filed 7–13–05; 3:54 pm]
confidence to RMA, attention: The section may be returned to the sender BILLING CODE 3410–08–P
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