[Federal Register Volume 81, Number 156 (Friday, August 12, 2016)]
[Rules and Regulations]
[Pages 53658-53686]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18743]
[[Page 53657]]
Vol. 81
Friday,
No. 156
August 12, 2016
Part III
Department of Agriculture
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Federal Crop Insurance Corporation
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7 CFR Part 400
Submission of Policies, Provisions of Policies, Rates of Premium, and
Non-Reinsured Supplemental Policies; Final Rule
Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules
and Regulations
[[Page 53658]]
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DEPARTMENT OF AGRICULTURE
Federal Crop Insurance Corporation
7 CFR Part 400
[Docket No. FCIC-13-0006]
RIN 0563-AC46
Submission of Policies, Provisions of Policies, Rates of Premium,
and Non-Reinsured Supplemental Policies
AGENCY: Federal Crop Insurance Corporation, USDA.
ACTION: Final rule.
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SUMMARY: The Federal Crop Insurance Corporation (FCIC) finalizes the
General Administrative Regulation--Subpart V--Submission of Policies,
Provisions of Policies, Rates of Premium, and Non-Reinsured
Supplemental Policies. The intended effect of this action is to
incorporate legislative changes to the Federal Crop Insurance Act (Act)
stemming from the Agricultural Act of 2014, clarify existing
regulations, lessen the burden on submitters of crop insurance
policies, provisions of policies, or rates of premium under section
508(h) of the Act, provide guidance on the submission and payment for
concept proposals under section 522 of the Act, provide provisions for
submission and approval of index-based weather plans of insurance as
authorized by section 523(i) of the Act, and to incorporate changes
that are consistent with those made in the Common Crop Insurance Policy
Basic Provisions (Basic Provisions).
DATES: This rule is effective September 12, 2016.
FOR FURTHER INFORMATION CONTACT: Tim Hoffmann, Product Administration
and Standards Division, Risk Management Agency, United States
Department of Agriculture, Beacon Facility, Stop 0812, Room 421, P.O.
Box 419205, Kansas City, MO 64141-6205, telephone (816) 926-7730.
SUPPLEMENTARY INFORMATION:
Background
This rule finalizes changes to the General Administrative
Regulation--Subpart V--Submission of Policies, Provisions of Policies,
Rates of Premium, and Non-Reinsured Supplemental Policies (7 CFR part
400, subpart V), that were published by FCIC on February 25, 2015, as a
notice of proposed rulemaking in the Federal Register at 80 FR 10008--
10022. The public was afforded 60 days to submit comments after the
regulation was published in the Federal Register.
A total of 80 comments were received from 10 commenters. The
commenters were insurance providers, insurance organizations, grower
organizations, crop insurance product developers, and a business
council.
The public comments received regarding the proposed rule and FCIC's
responses to the comments are as follows:
General
Comment: A commenter stated they believe the 508(h) process serves
agriculture well. The commenter believes Congress intended the 508(h)
process to protect the best interest of most growers through inclusion
in the farm bill. As the size of government shrinks, the ability to
engage the private sector in creating functional insurance products
will grow. In serving the American farmer, and to be consistent with
the farm bill, RMA should seek a vibrant and functional regulation that
will encourage development of insurance products. A clear regulation
would be a step in the right direction.
Response: FCIC agrees with the commenter that the regulation should
be written as clearly as possible. FCIC has made a number of changes in
the final rule to clarify provisions in the regulation.
Comment: A commenter offered support for the proposed rule. The
commenter stated they believe that under the current rules, smaller
farmers and organizations are placed at a competitive disadvantage
compared to large corporate farms due to the current procedures
favoring these bigger businesses. The commenter stated they believe
that under the current proposal, these procedures would be simplified
to facilitate increased access to FCIC's services by smaller farmers,
commodity groups, and others to make it easier for these producers to
develop brand new programs. In that light, the commenter also favors
the expansion of FCIC's current programs in western Washington to
include many crops which are classed as specialty crops and currently
not covered by FCIC. The commenter stated they value their agricultural
industry in western Washington and the working relationship they have
with many of the local farmers. Moreover, the commenter stated they are
committed to supporting the small agricultural industry and continuing
to work with farmers, especially at the individual and small producer
level, in addressing collective interests. The commenter sees the
proposed simplification of the procedures and expansion of crops
covered as positive and vital steps in a direction that encourages the
smaller agricultural businesses in their region.
Response: FCIC appreciates the commenter's support for the Federal
crop insurance program.
Comment: A commenter offered a general concern with the 508(h)
process, which is that any individual or organization can submit a
proposal following the guidelines in these regulations even if they do
not plan to write or retain any of the risk for the proposed program.
While the submitter must have a commitment in writing from at least one
approved insurance provider (AIP) to sell and support the policy or
plan of insurance, this is often very informal and the supporting AIP
will generally have little or no involvement in the development process
of such product. These developers establish all of the terms,
conditions, and rates for the proposed program, but often have no
exposure to the actual results that may occur from the product that is
developed. The AIPs who choose to participate in these approved 508(h)
submissions retain the risk for such coverages and suffer the
consequences of any flaws or deficiencies that may exist with them. The
commenter proposed that the FCIC should allow the opportunity for AIPs
who choose to participate in writing these approved 508(h) submissions
to reduce their risk exposure for these programs beyond what is
currently allowed during the initial years until a credible number of
years of experience have been developed to determine the adequacy of
the program from both an underwriting and rating standpoint.
Response: FCIC agrees that the current regulations do not contain
enough involvement of the AIP in the development process or
consideration of the impact of the submission on other AIPs and the
delivery system. As a result, FCIC is adding provisions that require a
more formal involvement by an AIP in the development process, requiring
that an AIP be included as a submitter, and having that AIP and one
other independent AIP provide an assessment of marketability, risks,
and anticipated impacts on the delivery system. With respect to the
risks, AIPs can independently assess the potential risk of a privately
developed policy, and based on their own assessment, may choose whether
or not to sell the product. AIPs have the option to reduce their risk
exposure by assigning higher risk policies to the Assigned Risk Fund
under the Standard Reinsurance Agreement (SRA), a fund that
significantly limits risk exposure to the AIP and transfers that risk
to FCIC.
[[Page 53659]]
Comment: A commenter stated that this regulation incorporates
language to address the index-based weather plans of insurance, which
were authorized by the Agricultural Act of 2014 (2014 Farm Bill). One
of the requirements for these products is that they must first be
approved by the applicable regulatory authority for the state in which
the AIP intends to offer the product. The commenter stated their
understanding is that there are currently no states that will approve
these type of products as they are considered to be derivative products
whereby the product may allow a loss payment to be made even though no
physical damage to the crop has occurred. If no states will approve
such products, this effectively makes the additional language
addressing such index-based weather plans of insurance meaningless. The
commenter recommended that the RMA consider not including any reference
to index-based weather plans of insurance until such time that a state
regulatory authority will approve a product of this nature. Otherwise,
the portion of the regulation related to index-based weather products
is not implementable.
Response: The proposed rule required that index-based weather plans
of insurance must first be approved by the state in which they will be
sold prior to FCIC approval. This provision is necessary because these
products are not reinsured by FCIC, so the provisions regarding Federal
preemption do not apply. Each state will be required to regulate the
sale and service of these index-based weather plans of insurance.
Regardless of whether any states have previously approved any index-
based weather plans of insurance, FCIC is obligated to implement the
process for submitting, reviewing, approving, and implementing these
products in accordance with the Federal Crop Insurance Act because
states may elect to approve such plans of insurance in the future. In
such case, for any index-based weather plan of insurance that may be
approved by a state, the process to submit, review, approve, and
implement such plans of insurance will timely be in place.
Sec. 400.701--Definitions
Comment: A commenter stated that the definition of ``advanced
payment'' as proposed, could be read to allow 50 percent of the
development cost after the applicant has begun research and development
activities. The commenter contends the intent of the definition is to
allow an additional 25 percent advance payment after research and
development activities are underway. The phrase ``after the applicant
has begun research and development'' should be moved to the end of the
definition to eliminate any possible confusion.
Response: FCIC agrees with the commenter and moved the phrase to
prevent possible confusion. In addition, FCIC added the 25 percent
advance payment requirements from the Federal Crop Insurance Act. These
requirements are as follows: (1) The concept proposal will provide
coverage for a region or crop that is underserved, including specialty
crops; and (2) the submitter is making satisfactory progress towards
developing a viable and marketable 508(h) submission. FCIC intended to
include these requirements in the Procedures Handbook 17030--Approved
Procedures for Submission of Concept Proposals Seeking Advance Payment
of Research and Development Costs, but determined it more appropriate
to include these in this regulation. However, the evidence necessary to
show satisfactory progress, or to determine if the crop or region is
underserved, may be included in the Procedures Handbook 17030--Approved
Procedures for Submission of Concept Proposals Seeking Advance Payment
of Research and Development Costs.
Comment: A commenter stated that the definition of the term
``complete'' is confusing or subjective. The commenter stated the
definition of complete in Sec. 400.701 attempts to redefine the word
to include unrelated subjects. This can be very confusing, especially
because the word complete is hardly a term of art. A better definition
of complete would be found in any dictionary. The commenter suggested a
508(h) submission be considered either complete or not complete
(although the commenter suggested materiality should be considered) if
it contains the required elements in Sec. 400.705. The term
``sufficient quality'' is included within the definition of complete,
but is a performance standard. Performance standards are better placed
within Sec. 400.705. The inclusion of performance standards within a
definition is suspect. Significant effort will be expended to develop
concept proposals and 508(h) submissions. In fact, it is a very
reasonable assumption that the submitting public will invest tens of
thousands of hours (if not hundreds of thousands of hours) in efforts
to improve the crop insurance system under this rule. FCIC can support
the improvements certain to come out of the private sector by expending
relatively small efforts to clearly codify its notion as to what is
sufficient quality. The term ``meaningful'' is subjective and should
also be removed from the definition. Meaningful should also be
described within Sec. 400.705. The commenter suggested the following
revised definition of complete: ``a submission, concept proposal, or
index-based weather plan of insurance that contains all required
documentation shown at Sec. 400.705.''
Response: FCIC disagrees with the commenter that the definition of
``complete'' is subjective. The definition relies on submitters meeting
the requirements in Sec. 400.705 and the submission must be of
``sufficient quality'' as defined in Sec. 400.701. Sufficient quality
is not a performance standard so much as it is a determination of
whether there is adequate information to consider the submission
comprehensive enough and complete to allow for a meaningful external
reviewer to provide their assessment of the product submitted. The main
purpose of a determination of completeness is to determine whether to
send the submission for external expert review. Therefore, in addition
to providing the required information, it is also necessary that the
information provided is of sufficient quality in order for external
expert reviewers to conduct a meaningful review and be able to
determine if the 508(h) submission meets the standards for approval by
the Board. There is a cost for external reviews so sufficient quality
of a 508(h) submission is an important consideration for quality
external expert reviews that provide the Board with meaningful feedback
and analysis, and make prudent use of public funds. The definition in
the dictionary would be insufficient to evaluate the information
necessary to determine completeness. No change has been made.
Comment: A commenter stated that the definition of ``complexity''
should be eliminated from the final rule. A developer's notion of
complexity has little to do with any of the factors considered in the
proposed rule. Underwriting complexity arises from the identification
and treatment of risk. Tying complexity to the format of existing crop
insurance policy materials is na[iuml]ve. Actuarial complexity resides
with the types, quantity and quality of available price and yield data.
Crops with significant recorded histories are significantly easier to
work with than crops with sparse or scattered data. The proposed
methodology has little to do with a complexity determination. In
addition, the complexity determination seems to be a discriminatory
tool placed against grower organizations needing crop insurance
programs. The complexity determination can and will
[[Page 53660]]
discourage developers from treating specialty crop insurable risks.
Whereas the generally accepted notion of a professional risk manager is
to reduce risk, the complexity determination is certain to increase
risk for developers precisely where an insurance treatment of risk is
often needed. The commenter concludes that the discriminatory
complexity determination should be eliminated from the final rule so
that all grower groups have equal access to the benefits of crop
insurance.
Response: FCIC disagrees with the commenter that the definition of
``complexity'' should be removed. First, the Board is required to
consider complexity when assessing the reimbursement of costs under
section 522(b)(6) of the Act. Therefore, a standard for determining
complexity is required. Second, this provision is neither intended nor
expected to discourage development of products for specialty crops.
However, the use of the term ``processes'' is unclear and the term has
been removed in the final rule and replaced with the phrase ``all other
steps required.'' FCIC recognizes the complexity of a product should be
reflected in the level of effort it takes to complete a particular
submission requirement. The purpose of these provisions is to protect
taxpayer dollars by reimbursing developers appropriate amounts to
reflect the level of effort and work performed. This allows
distinctions to be made between submissions that may simply add a new
coverage to an existing policy without changing the policy terms,
underwriting, or premium rating and submissions that create whole new
plans of insurance that measure risk differently than the yield or
revenue based policies available under the Common Crop Insurance Policy
(7 CFR part 457) and the Area Risk Protection Policy (7 CFR part 407).
Completely new plans of insurance may require new underwriting and loss
adjustment handbooks or premium rating methodology and that will be
reflected in the research and development for the submission.
Presently, regardless of the type of submission, most requests are
generally near the same dollar amount, even though the level of work
required may not be the same. This gives the Board the discretion to
reduce payments to submissions where the costs seem excessive for the
amount of work needed. FCIC is revising the provisions in Sec.
400.712(e) by removing the percentage reductions for complexity and
scope and giving the Board discretion to make adjustments as required
by the Federal Crop Insurance Act based on type of submission and
amount of work required and the size of the area proposed to be
covered.
Comment: A commenter stated that the definition of ``concept
proposal'' stretches into evaluative criteria. The definition
introduces a new concept, ``enough information.'' This section of the
proposed rule should be limited to the section title, ``Definitions.''
A more accurate definition would be: ``A written proposal for the
funding of research and development of a crop insurance plan that will
comply with the provisions of this rule and authorized by section 522
of the Act.'' Whether the concept proposal is complete or of sufficient
quality are evaluative criteria best managed in their proper location
(Sec. 400.705) and not within the definitions section.
Response: FCIC agrees with the commenter that the proposed use of
the phrase ``enough information'' in the definition of ``concept
proposal'' is vague and subjective. A better approach would be to
reference where the required information is contained. FCIC has revised
the definition by removing the phrase ``enough information'' and
replacing it with a reference to this regulation and the Procedures
Handbook 17030--Approved Procedures for Submission of Concept Proposals
Seeking Advance Payment of Research and Development Costs, which can be
found on the RMA Web site at www.rma.usda.gov.
Comment: A few commenters stated that the definition of ``delivery
system'' should be modified. One commenter stated that the phrase ``but
is not limited to'' is not a necessary component of the definition and
recommended that the phrase be removed from the definition of
``delivery system.'' Several commenters stated that this definition
would undermine the private-public partnership that has been the
cornerstone of Federal Crop Insurance for 35 years. One of the
commenters suggested this definition be stricken from the proposed
rule. The commenter stated that when the United States Congress and
American agriculture have placed so much responsibility and confidence
in Federal Crop Insurance and just recently emphasized and renewed
their trust in the context of the 2014 Farm Bill, this provision of the
rule, which could very well be used to undermine the entire system, is
both perplexing and especially ill-timed.
Response: Congress expressly requires the Board to consider the
potential impact on the delivery system. Therefore, a definition of
``delivery system'' is necessary. Consistent with section 508(a)(4)(C)
of the Act, the delivery system includes the AIPs. However, there are
numerous other entities that are necessary to sell and service policies
to producers. Therefore, FCIC agrees with the commenter that the second
sentence containing the phrase ``includes but is not limited to'' is
not necessary. Therefore, the definition has been retained in the final
rule, but the second sentence has been removed.
Comment: A commenter stated that portions of the definition of
``maintenance,'' regarding the addition of a new commodity and concept
proposals that are similar to a previously approved 508(h) submission,
should be removed. The commenter stated that it seems new insured crops
and new concept proposals should be eligible for advance payments and a
full four reinsurance years of maintenance expenses in accordance with
the Act. The portion of the definition that considers expanding a
508(h) program maintenance, restricts the ability of farmers to receive
the benefits of crop insurance. The result is discriminatory because it
prevents developers from expanding a program into a new area if the
program is successful. For example, developers manage their risk by
limiting the scope of the program. USDA rules, rather than encouraging
the expansion of crop insurance, in fact cause developers to cautiously
approach the development problem. For a developer, risk management may
involve limiting the scope of the program to avoid the potential
financial losses from having the current arbitrary standards, and the
increasingly arbitrary standards shown in this proposed rule, reducing
their operating capital. This is particularly a problem given the
Board's resistance to expanding approved 508(h) products into other
territories due to an over-cautious approach on the part of the Board
and a failure to understand the substantive risk the 508(h) process
presents to developers. Unfortunately, with this regulation, including
this definition of maintenance, the FCIC continues to pressure
developers, with the result being fewer growers served by the insurance
program.
Response: FCIC disagrees with the commenter that the language in
the definition of ``maintenance'' regarding the addition of a new
commodity and concept proposals should be removed. FCIC disagrees this
language is discriminatory and arbitrary. The language does not prevent
the expansion or reimbursement for expanding approved products, but
rather it prevents the inappropriate use of limited funds for
activities that require little additional effort, work, or
[[Page 53661]]
development on the part of the submitter to add additional commodities
similar in nature and scope. To the extent that added costs are
incurred during an expansion, the submitter is able to request
reimbursement of such costs in the maintenance reimbursement. No change
made in the final rule.
Comment: A commenter stated the definition of ``marketing plan'' is
unnecessary and only serves to confuse reviewers and submitters. A
marketing plan is a submission requirement listed in Sec. 400.705. The
definition of a marketing plan is redundant and should be struck from
the final rule. All requirements for a marketing plan, including a
standard for sufficient quality, should be shown in the regulatory
language requiring the marketing plan.
Response: FCIC agrees the definition of ``marketing plan'' is
somewhat repetitive because much of the information is contained in
Sec. 400.705(e) and does not really capture the information that is
required to assess the potential marketability of a submission. Since
the enactment of the 2014 Farm Bill, marketability is a standard used
by the Board in determining whether to approve a submission.
Previously, marketability was only considered in the reimbursement of
research and development costs. Therefore, FCIC has changed the term to
``marketability assessment'' to more accurately reflect the information
necessary. FCIC has also removed the definition and moved the
substantive provisions to Sec. 400.705(e).
Comment: Several commenters were concerned the definition of the
term ``sufficient quality'' could be interpreted as subjective,
confusing, and contains performance standards. The commenters stated
that the definition should be transparent, concrete and reasonable. The
commenters proposed FCIC revisit the terminology and publish in the
final rule definitions that provide clear and measurable standards that
can be met by a submitter. One commenter suggested the definition of
``sufficient quality'' should be stricken from the final rule and an
actual standard placed with the requirement in Sec. 400.705. A
commenter stated the requirement that ``The material book must be
presented in Microsoft Office format . . .'' is a submission
requirement that belongs in Sec. 400.703--Timing and Format. A
commenter stated the phrase ``must contain adequate information for
determination to be made whether RMA has the resources to implement,
administer and deliver'' is a performance standard that should be
contained in Sec. 400.705--Contents for New and Changed Submissions.
The commenter stated it seems unlikely that any submitter should be
placed in the position of attempting to determine whether FCIC can
implement any particular product. Although it seems logical that
confusing regulations should be interpreted against the author, when a
regulation is confusing, it is likely to be held against the submitter.
Under this proposed rule, even if a submitter complies with a
reasonable interpretation of the submission requirement and its
evaluative standard, the 508(h) submission could be judged as being of
insufficient quality. To complicate a regulation with confusing,
arbitrary and subjective language is a disservice to the farmers and
ranchers whose financial well-being provides purpose for the crop
insurance program. The expectation of the FCIC should be described
using objective standards so submitters' efforts can match the
standard. The lack of a clear definition for sufficient quality allows
for arbitrary and possibly even discriminatory decisions. Because there
is no clear standard and many of the decisions of the Board are made
``at the sole discretion of the Board or RMA,'' the proposed rule
invites disparate treatment of submitters. The final rule should be
drafted with clear standards to create a level playing field for all
submitters. Because there are only about 12 places where sufficient
quality needs to be defined, the commenter strongly encouraged FCIC to
expend effort to place its concept of sufficient quality into Sec.
400.705.
Response: FCIC agrees the performance standards included in the
proposed definition of ``sufficient quality'' should be located in
Sec. 400.705 so that the submitter is aware of the standards by which
the product will be measured. FCIC disagrees that the definition of
``sufficient quality'' should be removed because it is confusing or
subjective. The definition of ``sufficient quality'' is necessarily
subjective because each submission is different, and an objective one-
size-fits-all definition would do a disservice to unique submissions
that may differ substantially from others. Further, the purpose of the
term ``sufficient quality'' is to ensure that there is sufficient data
and analysis to support the provisions in the concept or submission,
and that the submission is clear, so the Board, RMA, and external
expert reviewers can evaluate the submission to determine whether it
meets the qualifications for approval. Therefore, the Board, RMA, and
external expert reviewers must be able to understand what the submitter
has done and why and draw conclusions based on the data, analysis and
information provided by the submitter. The definition has been
simplified to reflect this, and FCIC removed the reference to, and
definition of ``disinterested third party'' because it is really the
external expert reviewers, RMA and the Board who have to evaluate
concept proposals and submissions. FCIC has also revised the definition
of ``sufficient quality'' to clarify the determination is made by RMA
and the Board. FCIC agrees the requirement in the definition of
``sufficient quality'' for the material to be presented in Microsoft
Office format can be removed because this requirement is contained in
Sec. 400.705. FCIC has also added a reference to the Plain Writing Act
of 2010 in order to clarify the ``clearly written'' requirement.
Comment: A few commenters stated that the definition of ``viable
and marketable'' should be clearer and contain the qualities and
standards to be applied. One commenter states the definition of viable
and marketable provides for a determination by the Board. The commenter
suggested that the determination of viable and marketable should be
clear enough so a submitter is able to arrive at the same conclusion as
the Board or external expert reviewers regarding the marketability of
the proposed product. The lack of a standard is certain to provide
divergent views between submitters, the Board, RMA, and the external
expert reviewers. Given the number of entities involved in this process
and the difficulties and costs involved in producing a 508(h)
submission, FCIC should include a clear definition of viable and
marketable in the final rule. A commenter stated that the proposed
definition of viable and marketable addresses neither viable nor
marketable and should be removed in the final rule.
Response: Consideration of whether a submission is ``viable and
marketable'' is required by the Act. The requirements of the Act cannot
be waived by this regulation. However, to be clearer, separate
definitions are provided for ``viable'' and ``marketable'' to reflect
the different concepts embodied in each. With respect to marketability,
the Board is specifically tasked with making the determination of
whether or not a sufficient number of producers will purchase the
product to justify the resources and expenses required to offer the
product for sale and maintain the product for subsequent years. There
is no specific number of producers or dollar amount that could be
included in
[[Page 53662]]
the definition that would be appropriate for all scenarios. Therefore,
it is necessary to give discretion to the Board to make this
determination. With respect to viability, the Board needs to make a
judgment regarding whether a policy or plan of insurance can be
developed into an insurance product meeting actuarial and underwriting
standards, and that the new product can be implemented into the market
by the delivery system. However, because submissions and markets vary,
FCIC is reluctant to create set standards or goals that may not be
appropriate in all situations. In addition, no matter what standards
are created, external expert reviewers, RMA and the Board may still
differ because they may be emphasizing one aspect over the other. For
example, actuaries may believe the rates are not viable because they do
not reflect the risk but underwriters may believe the policy is viable
because it can be developed into a product that can provide meaningful
coverage to producers. It is the Board's responsibility to consider all
comments and use its best judgment. Costs of development and
implementation can be a consideration of the potential to develop the
concept proposal or submission into a policy or plan of insurance that
can be offered for sale to producers. The Board has received numerous
submissions and concept proposals where the original cost estimates are
substantially less than the amount of research and development
reimbursement actually requested. In some cases, actual costs were more
than double the original estimates. Excessive costs may be an
indication that a concept or submission may not be viable or
marketable.
Given the inaccuracy of the estimates received by the Board, FCIC
is revising the provisions to require that submitters provide more
accurate estimates of costs, and since this is a consideration of
viability, reimbursement may be limited to the estimated amount unless
the submitter can justify the additional costs.
Sec. 400.703--Timing and Format
Comment: A commenter stated that the proposed rule in Sec.
400.703(b)(1) requires 508(h) submissions, concept proposals or index-
based weather plans of insurance to be provided in electronic format.
The electronic format is required to be in a single document. The
commenter stated they appreciate the desire for single documents, but
FCIC must recognize that some of the requirements it places on
submitters and materials that may be submitted to FCIC with a concept
paper, 508(h) submission etc., may include PDF files, Excel files,
databases and other forms of documentation that do not fit neatly into
a requirement for a single document. The commenter states that as
written, the requirement for electronic format in Sec. 400.703 will be
difficult to impossible to meet. For example, further within this
regulation the agency asks for letters demonstrating support. Those
letters are likely to be in PDF format and they will not fit neatly
inside a Microsoft word document. Additionally, the commenter asked,
how a submitter would place an Excel workbook inside a word document if
a submitter wishes to include an Excel workbook. While the commenter
stated they appreciate the concern FCIC may have with multiple
documents, the proposed solution falls short of solving the problem for
all parties involved in the submission process. A different solution,
such as a zip file with a control document, seems more appropriate.
Response: FCIC agrees with the commenter that the required
information may not conveniently fit into a single document. The
purpose of this proposed provision is to assure information is in the
correct order and easily locatable by the reviewers. Because PDF files
can be converted to Microsoft Word files and Excel files can be
embedded in a Microsoft word document, FCIC believes it is possible to
provide the required information in a single document. However, FCIC
agrees it may not always be practical to embed such files in a single
document. For example, an Excel file may have more columns than what
will easily fit within the margins of a Word document. Therefore, FCIC
has revised the provision by removing the requirement that all required
information must be included in a single document. FCIC has replaced
this requirement with a requirement to provide a document that contains
a detailed index that, in sequential order, references the location of
the required information that may either be contained within the
document or in a separate file. The detailed index must clearly
identify each required section and include the page number if the
information is contained in the document or file name if the
information is contained in a separate file.
Comment: A commenter stated that the requirement to provide two
hard copies in Sec. 400.703(b)(2) directly conflicts with the FCIC
stated intention of easing the burden on submitters. This requirement
increases the burden on submitters to no benefit for the FCIC.
Electronic communication should be preferred and the requirement for
hard copies should be eliminated from the final rule. By requiring two
hard copies from the submitters, submitters must now keep a store of
the appropriate materials necessary to submit the hard copies that are
required only by FCIC, allow time for the production of hard copies
that provide minor benefit to the FCIC, proceed to the post office or
mail store to put the hard copies in the mail, incur the risk of not
having the hard copies exactly match the electronic copy, etc. Because
FCIC very clearly stated in the preamble to the rule that its intention
was to ease the burden on submitters, FCIC should recognize requirement
for hard copies increases the burden on submitters and the requirement
for hard copies should be eliminated from the final rule. The
background material for the regulation indicates that the rule was
drafted in part to lessen the burden on submitters by reducing the
number of printed copies required. However, what the drafters of the
regulation have done increases the effort of submitters. The
requirement for materials to be submitted in a three ring binder in
subsection (a) with page numbers in section dividers is not at all
helpful and does not lessen the burden. The requirement substantially
increases the paperwork difficulty for submitters and in so doing
contradicts the stated objective of reducing the burden on submitters.
This will increase the burden for submitters at no foreseeable benefit
for the RMA. A single copy of the electronic document is insufficient
for review purposes, therefore the FCIC will need additional copies of
the 508(h) submission, presumably from the electronic version, for
reviewers. So the gain to FCIC appears to be nil, while the burden on
submitters increases. FCIC should drop the requirement for a hard copy
altogether and accept electronic copies only because FCIC has already
proposed a system whereby it agrees to make copies for its review
process.
Response: FCIC proposed to reduce the number of hard copies
required to be submitted from six down to two. Therefore, FCIC
disagrees with the commenter that the proposal to provide two hard
copies increases the burden on submitters. However, FCIC recognizes
that removing the requirement for a hard copy to be submitted would
further reduce the burden. Therefore, FCIC has revised the final rule
to eliminate the requirement for the submitter to provide hard copies.
Submitters will be required to submit an electronic copy either by
email or on a removable storage device (including CD or USB drive) by
mail,
[[Page 53663]]
but not both. FCIC has also provided a single email address and a
single postal address to avoid duplicative work by submitters and to
prevent confusion for FCIC.
Comment: A commenter referenced Sec. 400.703(g), which states that
the Board, or RMA if authorized by the Board, shall determine when
sales can begin for a 508(h) submission approved by the Board. The
commenter recommends that either RMA be given more authority by the
Board or that RMA is always authorized by the Board to make
determinations when sales can begin for an approved 508(h) submission.
A recent example of the problems created by not taking all of the above
into consideration is the Livestock Risk Protection (LRP) program for
lambs. The insurance year for LRP Lamb starts on July 1 and ends on
June 30 of the following year. The LRP program rules require that
agents be trained for three hours annually before they are authorized
to write a livestock policy. The AIPs generally plan their livestock
training for late May and June in order to have their agents properly
trained by the time the insurance period begins on July 1. The LRP lamb
program was previously developed and written for several years, but was
suspended due to some problems with the program. The developers made
significant revisions to the program and RMA recently announced that
sales would resume on May 4, 2015. The AIPs already scheduled livestock
training sessions for their agents for late May and June in preparation
for the beginning of the livestock insurance period, which begins on
July 1. The commenter notes that submitters have to hold additional
training sessions for those agents who wish to write LRP lambs to
assure they are aware of all the revisions made to this program. This
could have easily been included with the normal training cycle if
program sales would have resumed on July 1 instead of May 4. This is a
perfect example of problems that occur with releasing a program and not
considering the time cycle of the program along with the administrative
issues the release causes to the AIPs who will be administering this
program. The ideal release date for the revised LRP lamb program would
be July 1, which coincides with the start of the insurance period and
allows the AIPs to properly train their agents about the LRP lamb
revisions made during the normal scheduled time frame for livestock
training sessions. In summary, the commenter stated the Board needs to
provide RMA with more authority to make the determinations when sales
should begin for an approved 508(h) submission. RMA should take into
consideration the time cycle of the approved product and the
administrative functions AIPs must complete when making the decision of
when sales will begin for the approved 508(h) submission. AIPs who
choose to participate in these approved 508(h) submissions are the ones
responsible for all administrative tasks involved with writing new
programs from agent training, computer programming, form development
etc. The decision to determine when sales begin should include the
administrative tasks completed by the AIPs and the time cycle of the
approved 508(h) submission.
Response: While the comment is relevant to the referenced
provision, FCIC does not believe changing the provision to give RMA
more authority to determine when a 508(h) submission can be implemented
will solve the issues identified by the commenter. The problem is that
RMA and the Board may not be aware of the types of issues raised by the
commenter and submitters are asking for implementation as quickly as
possible. In response to this and other comments, FCIC has revised the
rule to require applicants to include a marketability assessment from
an AIP supporting the submission and that the AIP be more involved in
the submission process. FCIC is also revising the rule to require that
at least one other AIP be consulted and provide analysis of potential
implementation issues. If a marketability assessment by another AIP is
not provided as part of the submission, the applicant must provide
information regarding the names of the persons and AIPs contacted and
the basis for their refusal to provide the marketability assessment. If
the applicant cannot obtain a marketability assessment by another AIP,
the Board will presume that the submission is unmarketable and it will
be a very heavy burden on the submitter to overcome the presumption. By
requiring involvement of at least two AIPs, RMA and the Board can be
made aware of implementation and other issues before the issues become
problems and take appropriate actions.
Sec. 400.704--Covered by This Subpart
Comment: A commenter offered support of the provision in Sec.
400.704 that allows an applicant to submit a concept proposal to the
Board prior to developing a full 508(h) submission. The commenter
believes this will expedite and streamline the process by enabling the
applicant to develop a better initial product with feedback from the
Board.
Response: FCIC appreciates the comment and the support for concept
proposals.
Sec. 400.705--Contents for New and Changed 508(h) Submissions, Concept
Proposals, and Index-Based Weather Plans of Insurance
Comment: A commenter stated that new requirements in Sec.
400.705(a) disallowing appended items or requiring a single software to
be used may also result in important information being excluded.
Response: FCIC agrees the requirement for information to be
included in single document and disallowing appended items could result
in important information being excluded. Therefore, FCIC has removed
the provision in Sec. 400.705(a) restricting items from being appended
to the end of the document. FCIC has also removed the requirement in
Sec. 400.703(b) that requires information to be included in a single
document and replaced it with a requirement to provide a document that
contains a detailed index that, in sequential order, references the
location of the required information that may either be contained
within the document or in a separate file.
Comment: A commenter stated they believe the revisions made in
Sec. 400.705 are problematic due to the fact that the ability of a
concept proposal or complete 508(h) submission to move forward will be
reliant on standards that are not easily measured. It will be very
difficult for a submitter to know whether a proposal meets RMA and the
Board's sole view that the concept proposal or 508(h) submission is
both ``complete'' and of ``sufficient quality.'' The determination
leaves a submitter with no opportunity for appeal of the decision if
rejected. The commenter recommends FCIC incorporate language that
provides submitters clear and measurable standards and a fair appeal
process when the Board deems a 508(h) submission fails to meet those
standards. The commenter continues to offer that Sec. 400.705 is the
heart of the 508(h) submission itself. RMA has been accepting 508(h)
submissions for over 10 years. With over a decade of experience, RMA
should have a clear notion of sufficient quality for the finite number
of requirements contained in this paragraph. The commenter stated they
believe this paragraph requires approximately 12 standards for clear
communication with submitters. In particular, clear and transparent
standards should be provided for Sec. 400.705(d), the policy
provisions,
[[Page 53664]]
Sec. 400.705(e), the marketing plan, Sec. 400.705(g), the prices and
rates of premium. The three paragraphs require the creation of
standards that describe a successful set of Crop Provisions,
approximately six standards for the marketing plan and standards for
the prices and rates of premium that include standards for acceptable
data (although this can be a little dangerous).
Response: FCIC believes the requirements contained in Sec. 400.705
are clear and transparent, but simply providing an item on a list does
not mean that the submission is complete. Unfortunately, over the years
the Board has experienced a number of submissions that contained all
the required items in Sec. 400.705 but the contents were of such poor
quality that it cost the Board, RMA and ultimately taxpayer's
unnecessary funds to review the submission numerous times before the
submission morphed into a level of quality that could be sent to expert
review or be considered for approval. For this reason, and the reasons
stated above, RMA is revising the definition of ``sufficient quality''
to make it clear that the submission must contain the data, analysis,
and conclusions to support the information provided in the submission.
In many instances where the Board concluded the submission or concept
proposal was not complete was because it lacked the data or analysis
needed for external expert reviewers, RMA and the Board to determine
that the information provided was reasonable and would meet the
standards necessary for approval. For example, some submissions
identified a proxy crop without providing any agronomic or risk
information to show that the proxy crop would correlate with the crop
to be insured. In some cases, adjustments are made to rates without
explaining why such adjustments are necessary and the basis for the
amount of the adjustment. In other cases, assumptions are made without
stating the basis for the assumptions. In those cases, external expert
review would be meaningless because there is not enough information to
make any judgments on whether the standards for approval have been met.
Instead of a formal appeals process, section 508(h) of the Federal Crop
Insurance Act provides a process whereby the Board provides notice of
intent to disapprove a 508(h) submission outlining its concerns and
reasons, and the submitter has the opportunity to address the Board's
concerns with additional information or making changes as needed. In
addition, the submitter can request a time delay to address issues
raised by the Board.
Comment: A commenter stated that the request in Sec. 400.705(c)(2)
is redundant. It is the same request found in Sec. 400.705(e)(4)
rephrased. The commenter stated that redundancy is always problematic
because it tends to precipitate questions if there is not precise
agreement in the responses to the redundant requests. The commenter
urges FCIC to list a requirement one time and especially that the RMA
not repeat any requirement in the final rule.
Response: FCIC agrees with the commenter that these sections are
somewhat redundant. Section 400.705(c)(2) requests similar information
to what is required under Sec. 400.705(e). FCIC has revised the final
rule by consolidating the requirement in Sec. 400.705(c)(2) under
Sec. 400.705(e).
Comment: A commenter states that the requirement in Sec.
400.705(c)(3) seems better placed within Sec. 400.705(e).
Response: FCIC agrees with the commenter that Sec. 400.705(c)(3)
would be better placed within Sec. 400.705(e). FCIC has revised the
final rule by moving the requirements in Sec. 400.705(c)(3) to section
Sec. 400.705(e).
Comment: A commenter stated that the requirement in Sec.
400.705(c)(5) seems better placed in Sec. 400.705(d). Section
400.705(d) contains the Crop Provisions. It seems far more logical to
describe the coverage in the section containing the very language
creating the coverage, the Crop Provisions.
Response: FCIC disagrees with the commenter. Section 400.705(c) is
related to clearly understanding the benefits the plan provides to
producers and asks for a summary of such benefits. Section
400.705(c)(5) requests a detailed description of the coverage provided
and its applicability to all producers, including targeted producers.
Section 400.705(d) contains the actual policy. Although the information
requested in Sec. 400.705(c)(5) is relevant to policy referenced in
Sec. 400.705(d), it more appropriately resides in Sec. 400.705(c) to
allow the Board to assess the benefits provided.
Comment: A commenter stated that the language in Sec. 400.705(d)
suggests the 508(h) submission must be clearly written so that the
producers are able to understand the coverage being offered and that
the policy language permits actuaries to form a clear understanding of
payment contingencies. The commenter stated that this is a good and
reasonable standard and suggests that RMA apply the same standard to
this proposed rule. The commenter states that the proposed rule is too
vague for a submitter to form a clear understanding regarding what the
FCIC considers sufficient quality. In approximately 12 locations within
Sec. 400.705 are 508(h) submission requirements lacking a definition
that is either clear or understandable. Worse, the proposed rule
resolves the problem by incorporating a statement regarding sufficient
quality and then allows that determination to be arbitrary and
capricious. And yet, here is a standard imposed on the submitter to be
clear.
Response: FCIC understands the commenter's desire for clear
standards. In Sec. 400.705, FCIC attempted to clearly state the
requirements for 508(h) submissions, as appropriate. Sufficient quality
is a measurement of how well the submitters have supported the
information provided in the 12 categories. FCIC has attempted to do
this by revising the definition of ``sufficient quality'' to make it
clear that all information provided and assertions made in Sec.
400.705 must be supported by data or analysis. Bare assertions without
establishing the basis for the assertions are no longer sufficient.
This provides a more concrete standard and one submitters should be
able to meet. However, because submissions vary so greatly, it is
impossible to show standards for sufficiency in each subsection in
Sec. 400.705.
Comment: A commenter questioned whether the development of the
proposed marketing plan, as required in Sec. 400.705(e), is really in
the best interest of taxpayers since it will significantly increase the
cost of developing a 508(h) submission. The commenter would understand
the need for a marketing plan if there was limited interest in a
proposed insurance program. However, this seems to be largely
unnecessary if there is an obvious and broad-based demand for the crop
insurance program by the potential insureds. If the marketing plan
requirement is ultimately included in the final rule, RMA should
publish standards that a submitter can follow in order to meet the
requirements and for the external expert reviewers to use in evaluating
the marketing plan for the proposed program.
Response: As stated above, a ``marketing plan'' is a misnomer
because the name suggests how a product will be marketed to producers.
However, the purpose of Sec. 400.705(e) is to provide information
regarding the marketability of the policy or other coverage because now
this is one of the criteria for approval of concept proposals and
submissions. Concept proposals and submissions must be deemed
marketable to be approved for reinsurance by the Board. The commenter
claims that the marketing plan is unnecessary when there is an
[[Page 53665]]
obvious and broad-based demand for the product, but history has shown a
substantial percentage of submissions where submitters provided letters
stating there was great interest and demand for the product but only a
very small percentage of producers actually bought the policy or
coverage when it was available for sale. Therefore, Sec. 400.705(e) is
necessary to provide information to the Board to allow it to better
make an assessment of marketability. Further, FCIC has revised the
standards to allow a more meaningful assessment by looking at actual
indicators of producer interest and marketability, such as the amount
of data producers are willing to provide, their participation in the
development process, etc. FCIC has made revisions in the final rule to
Sec. 400.705(e) in an attempt to clarify the marketability
requirements. FCIC believes the standards published in the final rule
are clearly defined and achievable.
Comment: A commenter stated that the requirement in Sec.
400.705(e)(3) has two problems. First, the vague term ``reasonable
estimate'' begs the question reasonable to whom. Rather than using
vague terms, the commenter suggested FCIC describe reasonable in
objective terms. Furthermore, the commenter finds the use of other
similar products for comparison purposes likely to lead reviewers down
the wrong path. Market acceptance increases with grower involvement and
participation in the development process and decreases when growers'
confidence in the product is diminished. For example, the fresh market
bean insurance program began strong. Most acres were insured at the
buy-up level. However, after growers made a request to correct a
program feature they considered disadvantageous and the correction was
not implemented, grower confidence in the program wavered and sales
declined. One would not want to use the fresh market bean product for
comparison purposes given that the wound is self-inflicted.
Response: ``Reasonable estimate'' means in the best judgment of the
submitter based on all the information available to the submitter, and
provided with the submission. RMA has revised the rule to require that
submitters provide the information upon which they judge the
reasonableness of the projected participation estimate, including the
level of participation of producers in the development of the product,
their type of participation, and whether they have provided the
available data to assist the submitter in the development of the
product. Although ``reasonable estimate'' is not an objective term,
FCIC believes this is an appropriate standard to describe what is
expected of the submitter. With respect to the requirement to estimate
the market penetration of other similar products, FCIC agrees with the
commenter that simply estimating the market penetration of other
similar products may not adequately convey expected producer interest
and participation. Therefore, FCIC has revised the final rule to
require the submitter compare other similar products with the 508(h)
submission and identify potential differences between the 508(h)
submission and the similar products that might make the participation
and level of coverage of the proposed product different.
Comment: A commenter stated that it seems unlikely the requirement
in Sec. 400.705(e)(5) provides real value within the 508(h) submission
process and Sec. 400.705(e)(5) should not be in the final rule. Given
the requirement shown at Sec. 400.705(e)(6), the commenter questioned
what the vague requirement at Sec. 400.705(e)(5) can add. In fact, the
vagueness of this requirement indicates the drafters of the proposed
rule are not entirely clear regarding what this requirement should
contain.
Response: FCIC disagrees with the commenter that the focus group
results requirement in Sec. 400.705(e)(5) should not be included in
the final rule. However, FCIC determined this requirement can be
combined under Sec. 400.705(e)(6). Therefore, FCIC deleted Sec.
400.705(e)(5), redesignated the succeeding sections, and added the
focus group requirement under the newly redesignated Sec.
400.705(e)(5). FCIC also added provisions that add more detail so the
results of focus groups can provide more useful information to the
Board so it can be considered one of the tools to assist the Board in
determining marketability. Focus group information to be provided will
now include the type of coverage producers want and what they are
willing to pay, which, with all the other available information, will
allow the external expert reviewers, RMA, and the Board to make better
judgments on whether the product is viable and marketable.
Comment: A commenter stated they believe it would be helpful for
FCIC to describe its concept of a market research study at Sec.
400.705(e)(6). The requirement in Sec. 400.705(e)(6) to show demand
and coverage levels for which producers are willing to pay introduces a
complex problem for submitters because the standard itself lacks
definition. According to the regulation, an estimate that shows demand
and the level of coverage for which producers are willing to pay is
sufficient to meet the standard. It is unlikely this is the intent. In
short, it appears the concept of an acceptable market research study
remains fuzzy even to the drafters of the proposed rule.
Response: FCIC has combined the focus group provisions with the
market research study to allow submitters to provide data on its
efforts to judge market interest in the product. Some policies approved
under section 508(h) fail to sell because the coverage provided is not
specifically desired by producers and the coverage they desire may not
be insurable under the Act, or cannot be properly underwritten. Even
when coverage may be available, it may not be available at a price
producers are willing to pay. Collection of this information during the
research and development process can provide more useful information to
judge whether a product is marketable.
Comment: A commenter stated that nothing within the expertise of
most submitters qualifies the submitter to estimate cost for
organizations whose cost structures are unknown to the submitter as
required at Sec. 400.705(e)(8). This requirement appears to be the
addition of a requirement that cannot be practically answered. It is
possible to answer questions related to training requirements, whether
the proposed program is amenable to current data record layouts.
However, estimating the impact on 17 or 18 or 20 AIP computer systems,
estimating administrative and training costs for 17 or 18 or 20 AIP's
and determining whether any efficiency will be gained is not likely to
net insightful answers. The commenter concludes that what does seem
practical at Sec. 400.705(e)(8) is a discussion of whether the
proposed program will place new demands upon the computer system that
go beyond existing database structures.
Response: FCIC agrees that it may be impractical to expect
submitters to assess expected costs for these items. However, the
effect of new products on the delivery system is statutorily mandated
and given the limited resources available to RMA and AIPs, it is a
serious consideration. For this and the other reasons stated herein,
FCIC has revised the rule to require that submitters obtain an
assessment from at least one AIP who is involved in the development of
the product and that at least one other AIP is consulted. FCIC believes
it is useful for the submitting AIP to provide insight not only
marketability, but also on computer system impacts, administrative and
training requirements, potential
[[Page 53666]]
efficiencies or effects on workload for AIPs or others participating in
the program, and whether the policy or plan of insurance is consistent
with the terms of the SRA. Therefore, FCIC added requirements to assess
potential effects on the workload for AIPs or others participating in
the program and whether the policy or plan of insurance is consistent
with the terms of the SRA.
Comment: A commenter stated that the requirement to include
correspondence from producers in Sec. 400.705(e)(9) does not appear to
provide valuable information. For example, at Sec. 400.705(e)(5) of
this proposed rule, the requirement is to provide focus groups results.
In addition, at Sec. 400.705(e)(6)(i) of the proposed rule requests
evidence the proposed 508(h) submission will be positively received. At
the very least, Sec. 400.705(e)(9) requests information that is
required in a different form at several other locations within the
proposed rule. The commenter suggests that the RMA combine its requests
regarding grower interest in the insurance program into a single
unified requirement. Furthermore, if the 508(h) submission is from or
includes a grower organization, then it appears the spirit of Sec.
400.705(e)(9) is met. Asking for additional correspondence creates
redundant effort, Sec. 400.705(e)(9) should be required only in the
absence of other means of demonstrating grower interest in the
proposal.
Response: FCIC agrees with the commenter that the requirement in
Sec. 400.705(e)(9) to include correspondence from producers expressing
the need for a policy or plan of insurance may not be as valuable as
other information requested in the revised rule. There have been a
number of submissions where producers have written letters in support
or appeared in person to present the submission, but when the product
is made available for sale there are few producers actually buying the
product. There are a number of reasons for this, including the final
product approved does not contain the coverage actually wanted by
producers because of statutory or underwriting limitations or the price
for the coverage is too high. Therefore, as stated above, FCIC has
revised the information regarding the marketing research to address
these and other issues so that the external expert reviewers, RMA and
the Board can make more informed decisions on marketability before the
submission is approved and before significant time, money and resources
are invested in implementation of the product.
Comment: A commenter noted that it appears the information required
in Sec. 400.705(f)(1) through (5) should be contained within the
underwriting guide. Rather than another redundant request, the
commenter suggested FCIC require an underwriting guide with definitions
that include and may expand upon items one through five in a manner
similar to the information contained in Sec. 400.705(f)(7).
Response: FCIC agrees the contents of Sec. 400.705(f)(1) through
(3) should be contained in the underwriting guide. However, the
contents of Sec. 400.705(f)(4) and (5) fit more appropriately in the
loss adjustment standards handbook. FCIC agrees it is not necessary to
have duplicate requirements that can be included in these handbooks.
Therefore, FCIC revised the final rule to include the contents of Sec.
400.705(f)(1) through (5) in the requirements for the underwriting
guide and the loss adjustment standards handbook, as appropriate.
Comment: A commenter stated that Sec. 400.705(f)(2) ``Relevant
Dates'' is a nonspecific requirement. The commenter stated FCIC should
list the dates it considers relevant in the final rule.
Response: FCIC agrees that it may be helpful to include example
dates that may be relevant. Therefore, FCIC included in the final rule
an example of dates that may be relevant in Sec. 400.705(f).
Comment: A commenter noted that the proposed rule in Sec.
400.705(g)(1) appears to contain a requirement to propose a specific
premium rating methodology. If that is the intention of FCIC, the
commenter suggests that the word ``specific'' be deleted from the final
rule. As FCIC and expert reviewers have noted, many of the crops
remaining to receive the benefits of a crop insurance program will
require creative efforts to estimate rates.
Response: FCIC agrees the term ``specific'' is superfluous.
Therefore, FCIC removed the term ``specific'' from Sec. 400.705(g)(1)
in the final rule.
Comment: A commenter noted that the requirement in Sec. 400.705(h)
appears to be a redundant requirement. If, for example, the
underwriting guide and loss adjustment manual contain forms, and they
will, those forms must be separated from the document and placed in
Sec. 400.705(h). Completing this section becomes an exercise in cut
and paste with dubious relevance in a review process. A reviewer needs
to review any form within the context of its use and the form has
context within the document that contains the form and its instructions
for use. The requirement at Sec. 400.705(h) should be removed from the
final rule.
Response: FCIC agrees the requirements in Sec. 400.705(h) are
redundant. Therefore, FCIC deleted this section in the final rule and
redesignated the succeeding sections.
Comment: A commenter suggested that the clause in Sec.
400.705(i)(1) proposes to restrict open commerce. It seems unlikely
this requirement is legal. The statement attempts to undo the long
history of using insurance brokers to facilitate the creation of
insurance. Insurance brokers are forbidden in crop insurance. The
requirement is discriminatory. One who is a submitter is prohibited
from marketing that which they developed. The statement attempts to
restrict the AIP and its agents from selling the crop insurance they
have signed up to support. The commenter questioned how a submitter who
is not an AIP will be able to meet the requirement in Sec.
400.705(e)(10) given that this would appear to bar the AIP from sales.
The commenter stated the requirement serves no legitimate business
purpose other than to discourage development of new insurance products.
Response: The proposed Sec. 400.705(i)(1) requires a statement
certifying the submitter and AIP, or its affiliates, will not solicit
or market the 508(h) submission until at least 60 days after all policy
materials are released to the public by RMA, unless otherwise specified
by the Board. The purpose is to create a level playing field so the
submitter does not have an unfair marketing or sales advantage. Section
508(h) of the Act states that any submission approved for reinsurance
can be sold by any AIP wanting to do so. It would not be fair to other
AIPs if the submitter was allowed to start soliciting sooner than the
other AIPs. However, FCIC recognizes, as currently written the 60-day
delay is not necessary and has generally not been enforced. Rather, it
has been FCIC intent and past practice to allow marketing to commence
once all policy materials are released to the public. FCIC strives to
release policy materials at least 60 days prior to the earliest sales
closing date. Therefore, FCIC has revised this provision to state that
the submitter must certify that the submitter and any approved
insurance provider or its affiliates will not solicit or market the
submission until all policy materials are released to the public by
RMA, unless otherwise specified by the Board.
Comment: With respect to the requirement in the proposed Sec.
400.705(i)(3), a commenter questioned
[[Page 53667]]
when agent and loss adjuster training plans are applicable.
Response: Agent and loss adjuster training plans are not applicable
to proposed rates of premium for a policy. Therefore, FCIC has revised
newly redesignated Sec. 400.705(h)(3) by removing the phrase ``if
applicable'' and specifying agent and loss adjuster training plans must
be provided, except for 508(h) submissions only proposing changes to
rates of premium for an existing policy.
Sec. 400.706--Review
Comment: A few commenters expressed concern about the lack of a
suitable appeal or review process for submitters who put together
packages in good faith, but are then subject to a closed review process
dependent on the Board and RMA being given the ability to determine
``at its sole discretion'' [in Sec. 400.706(a)(3) and elsewhere in the
rule] whether or not a proposal is complete or meets the subjective
requirements outlined in the proposed rule. The commenters stated the
proposed rule fails to give submitters a clear standard by which to
judge the quality of a proposal. The commenters are concerned that as
written the proposed rule eliminates due process, increases the
potential for the intent of the Act to be administered inconsistent
with its intent. One commenter stated the clause in Sec. 400.706(a)(3)
is hostile toward submitters. Another commenter requested FCIC provide
clear, measurable standards in regards to the requirements that
submitters must meet, as well as to ensure that the decisions they make
are based on the same sound and transparent standards.
Response: The 2014 Farm Bill revised the criteria in the Act for
review of submissions and expressly gave RMA the authority to determine
whether the policy or plan of insurance will likely result in a viable
and marketable policy that will provide crop insurance coverage in a
significantly improved form and adequately protect the interests of
producers. The provisions contained in the Act cannot be waived by this
regulation. Unfortunately, over the years the Board has experienced
addressing a number of submissions that were of poor quality that cost
the Board, RMA and ultimately taxpayer's unnecessary funds to review
numerous times before the submission morphed into a level of quality
that could be sent to expert review or be considered for approval. FCIC
agrees these standards are necessarily general but given all potential
products have not been conceived, it is impossible to set tighter
standards. However, FCIC will be reviewing the submitter's detailed
description of why the terms have been met. Further, even if RMA were
to use its discretion and reject a submission, it does not end the
process. It simply means that the submitter must make improvements to
the quality or contents of the submission.
Comment: A few commenters raised concerns with Sec.
400.706(b)(2)(i), which indicates that no reviewer can be employed by
an approved insurance provider (AIP) or be a representative of an AIP.
The commenters stated they understand why a competing AIP should not be
a reviewer, but question why an organization like the National Crop
Insurance Services (NCIS) should be excluded from a confidential
review. This is a review that the NCIS would conduct in a confidential
manner without any involvement of their member AIPs. The commenters
would recommend that RMA not exclude organizations like the NCIS from a
possible review as it could add industry perspective that RMA would not
otherwise be able to receive as a part of the expert review process.
Response: FCIC understands the commenter's perspective that an
agency that is representative of AIPs could provide valuable reviews.
However, the provision is intended to prevent bias that may result if
an organization that represents interested stakeholders is involved in
reviewing products that may be sold by those stakeholders. This
provision was not proposed to be changed in the proposed rule. No
change has been made in the final rule. However, in response to other
comments, FCIC has increased the required involvement of the AIP in the
process by requiring that at least one AIP be part of the submitter and
that another AIP provide an assessment of the impacts of the submission
on the delivery system and marketability of the submission.
Comment: A commenter stated that the use of the word
``appropriate'' in Sec. 400.706(b)(2)(ii)(C) leads to subjective
determinations. The commenter questioned who determines what is
appropriate. The commenter suggested that a better wording would be
``follows recognized insurance principles.''
Response: FCIC agrees the provision would be better worded if the
term ``appropriate'' was changed to ``recognized.'' FCIC has made this
change in Sec. 400.706(b)(2)(ii)(C) of the final rule.
Comment: A commenter asked what an ``excessive risk'' is, in
reference to Sec. 400.706(b)(2)(ii)(E).
Response: FCIC has clarified in the final rule that excessive risk
includes, but is not limited to, risk that encourages adverse
selection, moral hazard, or risks that cannot be properly rated.
Examples of excessive risk might be proposing to insure commodities in
an area where the commodity is not generally recognized as a suitable
growing environment or in an area likely to be frequently adversely
affected by a known peril.
Comment: A commenter stated that, including Sec.
400.706(b)(2)(ii)(I), the term ``new kind of coverage'' appears in
several locations throughout the proposed rule. The term is not
entirely clear. For example, in the clause above new kind of coverage
applies to a crop that previously had no available crop insurance, but
it also applies to crops with low participation or that are insured at
a low coverage level. Attempts to remedy low participation or low
coverage levels may not involve ``a new kind of coverage.'' It is
conceivable, and even likely, that efforts to improve participation may
simply involve redesigned coverage, but not necessarily anything
``new.'' Certainly in the case of crops with low participation
concerns, the term ``new kind of coverage'' could easily become
problematic. The commenter suggests the RMA either define the term or
reconsider its use for crops with existing insurance programs where low
participation levels are a concern.
Response: FCIC agrees with the commenter that the provision in
Sec. 400.706(b)(2)(ii)(I) could be problematic if the phrase ``new
kind of coverage'' applies to the second part of the sentence in Sec.
400.706(b)(2)(ii)(I). FCIC has revised the provision by removing the
term ``new kind of coverage'' and replacing it with the phrase ``new or
improved coverage.'' This change clarifies that a policy or plan of
insurance could fall under the context of this provision if it provides
improved coverage that addresses low participation or high levels of
participation at low coverage levels.
Comment: A commenter stated no marketing plan can demonstrate an
insurance product is marketable as required in Sec.
400.706(b)(2)(ii)(K). Marketability comes from the ability of the
insurance instrument to adequately cover risk at a price growers will
be willing to pay. The commenter stated the marketing plan is simply
``the delivery system will sell and service the insurance plan.'' The
commenter asserts that within hours of the announcement of a new
program, agents respond by chasing the new commission money. The
commenter believes the real challenge is to give the agent something to
sell.
[[Page 53668]]
Response: As stated above, FCIC has removed the concept of a
marketing plan and replaced it with a marketability assessment of the
policy or plan of insurance. Further, those provisions now will require
submitters to provide additional indicators of marketability, such as
producer interest as measured by their willingness to assist and
provide the data necessary in the development process, whether the
submission can provide the coverage desired by producers at a price
producers are willing to pay, AIPs assessment of the ability to sell
the product, etc. FCIC believes that looking at these additional
factors will allow the Board to make better judgments in approving
policies and plans of insurance agents can sell.
Comment: A commenter stated that it is not entirely clear from the
regulation if the proposed requirement in Sec. 400.706(b)(2)(ii)(K) to
have a comprehensive ``marketing plan'' submitted is with the concept
proposal or with the complete 508(h) submission. If it is with the
concept proposal, this requirement is premature given that the policy
has not been fully developed nor have the premium rates been
established. The purpose of the concept proposal is to have a proof of
concept approved prior to the majority of the investment of time and
resources into developing a complete 508(h) submission. For the
marketing plan to be complete for the concept proposal, it would
essentially have to have been developed prior to the concept being
approved, which is obviously in contradiction to the purpose of the
concept proposal.
Response: Marketability is a consideration in both the concept
proposal and submission stages. However, FCIC recognizes that more
information will be available at the submission stage and scrutiny by
the Board will be higher. Therefore, while the Board will consider
marketability at both stages, requirements may differ. Those
requirements and standards relating to concept proposals are contained
in Procedures Handbook 17030--Approved Procedures for Submission of
Concept Proposals Seeking Advance Payment of Research and Development
Cost. While the definition of submission excludes concept proposals,
FCIC recognizes that the term ``submission'' is also commonly used when
referring to concept proposals. Therefore, FCIC has changed the
definition and all references of ``submission'' to ``508(h)
submission.'' This change is expected to help eliminate potential
confusion by providing a clearer distinction between 508(h) submissions
and concept proposals in this regulation.
Comment: A commenter stated that the proposed rule in Sec.
400.706(b)(5) establishes the unabashedly arbitrary rule. No standard
applies. What seems most unsettling about this rule is the three items
the rule applies to, lend themselves to an objective decision.
Response: FCIC determined the provision in Sec. 400.706(b)(5) is
out of place and is not needed because subsequent provisions describe
the process for approval and disapproval. Therefore, to prevent
confusion the provision in Sec. 400.706(b)(5) relating to 508(h)
submissions, and similar provisions in Sec. 400.706(c)(9) and (d)(5)
referencing concept proposals and index-based weather plans have been
deleted in the final rule.
Comment: A commenter stated it is important to note that while the
law allows the Board to prioritize the approval of policies or plans of
insurance as described in Sec. 400.706(g), the exercise of this
authority must be performed in an open and transparent manner. Doing so
is vital to the ongoing success of the 508(h) process and is necessary
to avoid the perception that the 508(h) process is not being
implemented in a manner as intended by Congress. Further, it is the
commenter's belief that any products related to cotton should be
included under the second priority of ``existing policies or plans of
insurance for which there is inadequate coverage or there exists low
levels of participation.'' While there are products available to cotton
producers including STAX as well as yield and revenue policies; these
products are the sole risk management tool for cotton producers. In
2014, 30 percent of cotton acres bought coverage at the 60 percent buy-
up level or below--17 percent of acres either had no coverage or
coverage at the lowest levels available. Any enhancements to these
products or the addition of new products or endorsements would be a
benefit for cotton growers.
Response: FCIC understands the concern of the submitter that
provisions of the Act should be implemented in a transparent manner.
However, the Act contains confidentiality standards that prevent FCIC
from disclosing information about products that are under consideration
for approval, which limits the transparency of the process. However,
the Board is considering implementing procedures that will make the
process more transparent. In the meantime, to assist the Board in
determining if certain commodities such as cotton meet the provision in
Sec. 400.706(g)(2), for each policy or plan of insurance submitted for
approval, RMA will research and present to the Board information on
whether there are existing policies for that commodity and the level of
coverage and participation.
Comment: With regard to Sec. 400.706(k)(1), a commenter stated
that because protecting the interests of agricultural producers is a
review criterion, the Board, RMA, developers and external expert
reviewers must share a common understanding of the standard for judging
whether a 508(h) submission protects the interests of agricultural
producers and taxpayers. This proposed rule does not provide such a
standard. The commenter requested that FCIC clarify the meaning of
protecting the interests of agricultural producers and taxpayers so
that developers can provide America's farmers with 508(h) submissions
of sufficient quality.
Response: FCIC disagrees with the commenter that provisions in
Sec. 400.706(k)(1) do not provide clear standards for what it means to
protect the interests of producers and taxpayers. Because it is not
possible to list every scenario that may not protect the interests of
producers and taxpayers, the provision includes a list of activities
that meet this criteria that is not all-inclusive. This list includes:
The 508(h) submission does not provide adequate coverage or treats
producers disparately; the applicant has not presented sufficient
documentation that the 508(h) submission will provide a new kind of
coverage likely to be viable and marketable; coverage would be similar
to another policy or plan of insurance that has not demonstrated a low
level of participation or does not contain a clear and identifiable
flaw and the producer would not significantly benefit from the 508(h)
submission; the 508(h) submission may create adverse market distortions
or adversely impact other crops or agricultural commodities if
marketed; the 508(h) submission will have a significant adverse impact
on the private delivery system; or the 508(h) submission cannot be
implemented, administered, and delivered effectively and efficiently
using RMA's information technology and delivery systems. To address the
commenters concern, FCIC included two additional items to describe what
protecting producer and taxpayer interests mean. These include ensuring
the 508(h) submission does not contain flaws that may encourage adverse
selection, moral hazard, or vulnerabilities that allow indemnities to
exceed the value of the crop.
[[Page 53669]]
Sec. 400.708--Post Approval
Comment: A commenter stated that Sec. 400.708(a)(1)(ii) indicates
that after the 508(h) submission has been approved, a reinsurance
agreement must be executed if the terms and conditions differ from the
available existing reinsurance agreements. If a separate reinsurance
agreement needs to be developed this now creates a situation in which
the person or organization who has submitted the product, is more than
likely not an existing AIP, but will now be charged with establishing
the reinsurance terms for all other AIPs who choose to participate in
writing the approved 508(h) submission. This is a major flaw in this
regulation as all AIPs who choose to participate in writing this
approved 508(h) submission should be involved in the discussions
establishing the reinsurance terms for such product or program. This
would result in a reinsurance agreement that is more equitable to all
parties involved and likely enhance the chances of the new product
being successful in the marketplace. The AIPs who must administer and
bear the risk of the new product or program need to be involved in the
development of the new reinsurance agreement and this regulation should
be revised to take this into consideration. An example of this is the
flawed Livestock Price Reinsurance Agreement (LPRA) which was developed
in accordance with this regulation. The structure of the LPRA provides
the AIPs with very little incentive to actively pursue and write
livestock policies as it is currently structured. This subsequently
results in limited sales and reduces the potential success of the
livestock program.
Response: FCIC agrees the terms of the reinsurance agreement
developed in accordance with this provision should be established in an
equitable manner that takes into consideration the interests of all
participating AIPs. However, it is not possible to involve all AIPs
that will sell the product, because it is not known which AIPs will
choose to sell the product and confidentiality rights of the submitter
must be respected. However, if a new or different reinsurance agreement
is needed for a newly developed product, FCIC will endure to establish
the standard terms of such reinsurance agreement so that they apply
equitably to all AIPs, and that no one AIP (including any AIP who is
part of the product submission) has a marketing or financial advantage
over another AIP. FCIC has revised the final rule to clarify that
participating AIPs interests will be considered when the terms of the
reinsurance agreement are established.
Sec. 400.712--Research and Development Reimbursement, Maintenance
Reimbursement, Advance Payments for Concept Proposals, and User Fees
Comment: A commenter expressed support of the provision in Sec.
400.712(c) that allows an advance payment of up to 50 percent of the
projected total research and develop costs and the new provision which
would allow the Board to provide up to an additional 25 percent advance
payment. The commenter stated research and development costs of a major
plan of insurance can be substantial, with many organizations unable to
cover these up-front costs. The additional 25 percent advance payment
could be instrumental in these situations, and the commenter encouraged
FCIC to proactively use this authority to advance the ability of the
RMA to provide growers with sound risk management options.
Response: FCIC appreciates the commenter's support of this
provision.
Comment: A commenter stated that Sec. 400.712(c)(1)(ii) is
government sanctioned usury. The proposed rule attempts to collect
interest at 18 percent per annum for submitters attempting to help
American farmers achieve risk management goals. The commenter concludes
that this is a shameful proposal.
Response: FCIC disagrees that Sec. 400.712(c)(1)(ii) attempts to
collect interest at 18 percent per annum. The provision requires
interest to be charged at a rate of 1.25 percent simple interest per
calendar month, which results in an annual rate of 15 percent.
Furthermore, the referenced provisions are intended to protect taxpayer
dollars if developers accept funding from FCIC, but then fail to
deliver an acceptable product. Failure to collect interest on the funds
provided for development would be fiscally irresponsible. This interest
rate was previously included in 17030--Approved Procedures for
Submission of Concept Proposals Seeking Advance Payment of Research and
Development Expenses. This interest rate is also consistent with the
rate charged in section 24(a) of the Common Crop Insurance Policy Basic
Provisions for amounts owed to FCIC and in the Standard Reinsurance
Agreement. No change has been made in the final rule.
Comment: A few commenters expressed concerns with the reduction in
research and development costs contained in Sec. 400.712(e) based on
the plan of insurance, complexity of the policy and rates of premium. A
common concern was that the proposed reductions in reimbursement for
research and development will make it difficult for farm organizations
to obtain the services of qualified individuals who can meet the
complicated requirements of Sec. 400.705. Another concern that was
raised was that if agricultural organizations obtain the services of a
developer who does not understand the requirements of this section, the
agricultural organization may be required to make up the difference due
to reimbursement reductions. Commenters were concerned the criteria
used to gauge the level of program complexity may not always be
representative of the actual challenges in developing a crop insurance
program. Commenters were also concerned that the reductions will come
as a surprise to submitters after they have already completed the work.
Another concern was that the reductions are based on arbitrary
standards. Several commenters recommended the provision be excluded
from the final rule.
Response: FCIC understands the concerns of grower groups that may
contract with other companies to develop insurance products under the
508(h) process. However, FCIC is statutorily required to consider
complexity when making payments, and FCIC is striving to do that in a
fair and equitable manner. This means that all submitters must be
treated the same regardless of their experience. This rule requires
that certain tasks be performed and those tasks are the same for all
submitters. However, some of the tasks are simplified because the
submitter uses existing policy materials, handbooks, procedures, or
rating methodologies so that the hours required to perform the tasks
are reduced. The Board takes this reduction into consideration.
Therefore, FCIC has revised Sec. 400.712(e) by eliminating the
reduction percentages and giving the Board discretion to reduce
reimbursement for research and development costs and maintenance costs,
as necessary, when requested reimbursement is not commensurate with the
complexity or the size of the area proposed to be covered.
Comment: A commenter stated that the proposed rule in Sec.
400.712(i) speaks to the problem submitters will have with this
proposed rule. A 508(h) submission may be determined to be of
insufficient quality to refer to expert reviewers and the costs
associated with perfecting the 508(h) submission may not be considered
reimbursable. This may not be a disagreeable rule provided submitters
have a clear target. If a submitter knows what the standard is
[[Page 53670]]
for sufficient quality, fails to meet the standard for sufficient
quality then it may be reasonable for the Board to avoid payment for
perfecting the 508(h) submission. However, with the standard that is
almost completely arbitrary, this rule holds out the possibility of
treating submitters disparately. Since the 508(h) process can be
considered an invitation to perform work on behalf of the American
farmer, FCIC should produce a clear and helpful rule. A substantial
number of farmers rely upon the actions of the Board and RMA. Should
they choose to become submitters, they deserve clear targets.
Response: The provision in 712(i) is intended to prevent FCIC from
paying for the same activities numerous times before a submission is
ready for review or consideration of approval due to insufficient
quality to conduct a meaningful review, or for errors, omissions and
incomplete materials preventing an independent third party from being
able to fully read, comprehend and understand the components of a
submission. FCIC has clarified provisions regarding sufficient quality
to require that the submission include all data, analysis and
justification for assumptions made and in support of the information
provided in the submission. This is crucial for the conduct of a
meaningful external expert review. Therefore, the standard is not
arbitrary and can be met by submitters. For example, if the submitter
uses a proxy crop, the submitter must include the data and analysis
that shows why the proxy was selected, why a proxy is needed, why the
proxy selected best correlates with the crop to be insured under the
submission, etc. The same applies with premium rating. The submitter
must explain all assumptions made and all adjustments. Simply stating
math formulas or a complete listing of all types of methodologies is no
longer sufficient.
Sec. 400.713--Non-Reinsured Supplemental (NRS) Policy
Comment: A commenter stated that language was added to Sec.
400.713(a) requiring submission of any non-reinsured supplemental (NRS)
policy that covers the same agricultural commodity as any policy
reinsured by FCIC under the Federal Crop Insurance Act. The commenter
questioned whether the changes now require Crop-Hail policies to be
approved by RMA. The commenter stated the regulation should
specifically state that Crop-Hail policies are excluded from these
rules.
Response: The definition of ``non-reinsured supplemental''
contained in Sec. 400.701 specifically excludes Crop Hail policies.
Therefore, it is not necessary to state in Sec. 400.713 that Crop-Hail
policies are excluded. No change has been made in the final rule.
Comment: A commenter stated that the proposed rule in Sec.
400.713(a) and (c) says that failure to provide such NRS policy or
endorsement to RMA prior to its issuance shall result in the denial of
reinsurance, A&O subsidy and risk subsidy on the underlying FCIC
reinsured policy for which such NRS policy was sold. Because FCIC
prohibits the tying of FCIC reinsured policies and private policies,
the AIP that sold the FCIC reinsured policy may not be the AIP that
sold the NRS policy. The commenter asked how this language will apply
in these cases. The commenter adds that the regulation should exclude
penalties from applying to the AIP that sold the underlying FCIC
reinsured policy if the NRS is sold by a different AIP.
Response: FCIC agrees with the commenter that the regulation should
exclude penalties from applying to AIPs that sold the FCIC reinsured
policy if the NRS is sold by a different AIP. However, FCIC does not
believe AIPs that sell an NRS policy that is not submitted in
accordance with Sec. 400.713 of this regulation or that is found to
meet the conditions of Sec. 400.713(c)(1) through (5), should be
excluded from penalty. FCIC has revised Sec. 400.713(a) and (c) by
removing the penalty for denying reinsurance, A&O subsidy, and risk
subsidy on the underlying FCIC reinsured policy if the AIP selling such
underlying FCIC reinsured policy is not the company that sold the NRS.
FCIC has added in its place a provision that makes the AIP that sold
the NRS liable for an amount equal to the reinsurance, A&O subsidy, and
risk subsidy on any underlying FCIC policies sold by other AIPs to
which the NRS is attached.
Comment: A commenter stated Sec. 400.713(a) states that any NRS
policy that is issued before it is approved by RMA will result in a
denial or reinsurance on the underlying FCIC reinsurance policy. The
denial of reinsurance set-forth in paragraph (a) makes sense. However,
in paragraph (c), which sets forth the approval process that RMA will
go through 150 days prior to the sales closing date for any NRS policy,
RMA states that reinsurance will also be denied on any FCIC reinsured
policy not a meeting the prior approval criteria set forth in
paragraphs (c)(1) through (5). Since it appears that RMA must approve
NRS policies before they are sold, the commenter stated they do not
understand the purpose of including a denial of reinsurance penalty in
paragraph (c). The commenter suggested that the denial of reinsurance
language in paragraph (c) be deleted and that the denial of reinsurance
language in paragraph (a) be revised to read as follows: Reinsurance,
A&O subsidy and risk subsidy on the underlying FCIC policy will be
denied for any NRS policy issued without the prior approval of FCIC
under this section.
Response: RMA does not approve NRS policies, rather RMA reviews the
policy to determine if the conditions in Sec. 400.713(c)(1) through
(5) exist. Therefore, FCIC does not intend to add the suggested
``approval'' language. The provision in Sec. 400.713(a) requires the
NRS to be submitted, and if not submitted, provides consequences for
not being submitted. The provision in Sec. 400.713(c) requires FCIC to
notify the submitter of the consequences if the NRS meets the
conditions contained in Sec. 400.713(c)(1) through (5). Therefore,
both paragraphs are necessary because they contain different
requirements. However, in response to a previous comment, FCIC has
revised Sec. 400.713(c)(1) to state that FCIC will notify the AIP that
submitted the NRS policy that if they sell the NRS policy, it will
result in denial of reinsurance, A&O subsidy, and risk subsidy on all
underlying FCIC reinsured policies, unless the underlying FCIC policy
was sold by another AIP. If the underlying FCIC reinsured policy is
sold by another AIP, the AIP that sold the NRS may be required to pay
FCIC an amount equal to the reinsurance, A&O subsidy, and risk subsidy
on the underlying FCIC policy.
Comment: A commenter stated that the proposed rule indicates in
Sec. 400.713(b) that the NRS policy and related materials must be
submitted at least 150 days prior to the first sales closing date
applicable to the NRS policy, which is 30 days more lead time than what
is currently required. Since the AIPs are being required to submit the
NRS policy 30 days earlier, it would also be beneficial for the AIPs if
the RMA also responded back to the AIP 90 days before the first sales
closing date rather than 60 days as currently required. This would
allow additional time to train the agents and to market the NRS product
prior to the applicable sales closing date. The commenter recommended
that Sec. 400.713(d) of this regulation be changed to require that the
RMA will respond back to the AIP not less than 90 days before the first
sales closing date rather than 60 days as currently indicated.
Response: FCIC understands the commenter's desire for additional
time to train agents and market the product. To give both the AIP and
RMA
[[Page 53671]]
additional time, FCIC has revised Sec. 400.713(d) in the final rule to
require RMA to respond 75 days before the first sales closing date, or
provide notice why RMA is unable to respond within the time frame
allotted. This change gives both FCIC and the AIP an additional 15 days
from what was allotted under the previous rule.
Comment: A commenter stated that Sec. 400.713(b)(1) and (2)
indicate that three hard copies and an electronic copy of the NRS
policy must be sent to the Deputy Administrator for Product Management.
If an electronic copy is sent, the commenter does not see the need or
value in also sending three hard copies of the same material via
regular postal mail. The commenter recommends that the regulation be
clarified to indicate that either three hard copies or an electronic
copy of the NRS policy be sent, but that both methods of submitting the
NRS are not required.
Response: FCIC agrees with the commenter that both an electronic
and a hard copy are not necessary. FCIC removed the hard copy
requirement from the final rule.
Comment: A few commenters questioned the use of the term ``moral
hazard'' in Sec. 400.713(c)(1)(i). One commenter stated the term moral
hazard was added with an example, but it is not a defined term. The
commenter asked what constitutes a moral hazard and if moral hazard is
applied on a product basis or on an individual insured behavior basis.
The commenter asks for clarification on whether FCIC will determine a
policy creates a moral hazard based on its performance over a period of
time or based on a single instance of abuse. Another commenter
suggested defining moral hazard as ``the tendency for an insured party
to take less care to avoid an insured loss than the party would have
taken if the loss had not been insured, or even to act intentionally to
bring about that loss.''
Response: FCIC disagrees that the term ``moral hazard'' should be
defined in the context of this provision. The term is commonly used in
the insurance industry and because the term is not defined it takes on
the common meaning. A moral hazard could be on an individual or product
basis. FCIC may consider a policy to create a moral hazard if
provisions lend themselves to abuse or if data collected shows the
performance of the product over time creates an incentive for abuse. No
change has been made in the final rule.
Comment: A commenter stated the phrase ``aggregate indemnities''
was added to Sec. 400.713(c)(1)(i), but does not include a definition.
The commenter asks, what is included in determining aggregate
indemnities. The commenter adds that the regulation needs to
specifically exclude hail insurance indemnities from the aggregate
indemnities definition and to define what is included. A commenter also
stated that the phrase ``expected value'' of the insured commodity was
added to Sec. 400.713(c)(1)(i). The commenter asks what the definition
is of expected value and when the expected value is determined. The
commenter stated the regulation needs to define expected value,
including what information can be used to determine the expected value
and what the time frame is around when the expected value is
determined.
Response: FCIC agrees the provision should be revised to clarify
what is included in the determination of aggregate indemnities. Hail
policies and other policies not reinsured by FCIC would not be
included. FCIC also agrees that the concept of expected value needs to
be expanded upon in the final rule. FCIC intentionally did not include
parameters for determining expected value because this can be defined
differently by the submitter. However, the expected value must be based
on parameters that represent the value a producer could reasonably
expect to receive for the insured commodity. Therefore, FCIC has
revised the provision in the final rule by removing the term
``aggregate'' and adding language stating that a policy will be
considered to shift or increase risk if it: (1) Results in the
underlying FCIC policy either triggering a loss sooner, or paying a
larger indemnity than would otherwise be allowed by the terms and
conditions of the underlying reinsured policy; or (2) allows for
combined indemnities between the underlying FCIC reinsured policy and
the NRS that are in excess of the value a producer would reasonably
expect to receive for the insured commodity if a normal crop was
produced and sold at a reasonable market price.
Comment: A commenter stated Sec. 400.713(c)(2) can be better and
more equitably phrased as follows: ``The NRS reduces or limits the
rights of the insured with respect to the underlying policy or plan of
insurance reinsured by FCIC. An NRS policy will be considered to reduce
or limit the rights of the insured with respect to the underlying
policy or plan of insurance if it materially affects the terms or
conditions of the underlying policy or otherwise materially undermines
procedures issued by FCIC.''
Response: FCIC agrees with the commenter that including the terms
``affects'' and ``undermines'' help to describe when an NRS reduces or
limits the rights of the insured. However, FCIC disagrees the phrasing
proposed by the commenter to include the term ``materially'' is
appropriate because this would allow for a determination of a degree of
significance. FCIC maintains that if an NRS affects, alters, preempts,
or undermines the terms or conditions of the underlying policy to any
degree, such NRS policy is reducing or limiting the rights of the
insured with respect to the underlying policy or plan of insurance.
Therefore, FCIC revised the final rule by: Including the terms
``affects'' and ``undermines''; the terms ``alters'' and ``preempts''
has been retained; and the term ``materially'' has not been included.
Comment: A commenter stated that Sec. 400.713(c)(3) may be
improved and more equitably phrased by adding the term ``materially''
prior to the phrase ``in excess of normal market demand.''
Response: FCIC disagrees that including the term ``materially''
prior to the phrase ``in excess of market demand'' is appropriate. FCIC
considers an NRS that encourages planting more acres of the insured
commodity in excess of normal market demand to disrupt the marketplace,
regardless of extent or degree. No change has been made in the final
rule.
Comment: A commenter stated that an example of disruption in the
marketplace was added in Sec. 400.713(c)(3). The commenter asked what
the basis will be for the evaluation. The commenter also asked if this
will this be applied on an individual insured basis or a program basis
and how much more than normal will be deemed to be excessive. The
commenter questioned if the evaluation of excessive will be based on a
single year or a certain number of years. A spike in planting may be
attributable to factors other than the NRS policy.
Response: The determination will be based on the evaluation of the
policy language and any available evidence that substantiates or
verifies the NRS will or has disrupted the marketplace. This
determination may be applied on an individual or collective basis. If
the NRS encourages planting of more acres of the insured commodity in
excess of market demand it will be considered to disrupt the
marketplace and may be assessed based on a single year or multiple
years. FCIC agrees that an increase in planting could be due to factors
other than the NRS policy, so RMA will consider all other potential
factors before concluding the NRS is the cause of the disruption in the
marketplace. FCIC has added the phrase ``RMA determines'' in Sec.
400.713(c)(1)
[[Page 53672]]
through (4) to indicate the decision is based on RMA's determination.
Comment: A commenter stated that language was added to the proposed
rule in Sec. 400.713(e) requiring a review if the NRS policy exceeds a
2.0 loss ratio. The commenter questions what are the parameters of the
2.0 (e.g., a one year loss ratio, a rolling 3-5 year loss ratio, etc.).
The commenter stated the current year loss ratio will be unknown when
the required 150 days prior to sales closing date is applied. A gap
year must be included in evaluation of loss ratio. The commenter asked
if RMA will approve private product rating methodology and/or rates.
The commenter also questioned if state department of insurance approval
of the rate methodology and/or rates will be superseded by RMA's
rejection of the same. The commenter stated that states regulate and
approve private product rates. If a state approves the rates associated
with a private product, the commenter questioned whether FCIC has the
authority under the McCarran-Ferguson Act to reject or dispute those
rates.
Response: RMA will not review the premium rates of an NRS policy.
Rather, FCIC was proposing to use the loss ratio as a possible
indication there could be an underlying issue that may result in risk
being shifted to the underlying FCIC reinsured policy. However, FCIC
agrees with the commenter that a one year loss ratio would not be
sufficient to determine if there was an underlying issue and FCIC
already requires a NRS policy to be submitted for review in accordance
with Sec. 400.713(c)(1) through (5). FCIC also agrees the AIP may not
know the loss ratio 150 days prior to the sales closing date. Because
these issues were not addressed in the proposed rule, FCIC has not
included this provision in the final rule.
Executive Orders 12866 and 13563
Executive Order 12866, ``Regulatory Planning and Review,'' and
Executive Order 13563, ``Improving Regulation and Regulatory Review,''
direct agencies to assess all costs and benefits of available
regulatory alternatives and, if regulation is necessary, to select
regulatory approaches that maximize net benefits (including potential
economic, environmental, public health and safety effects, distributive
impacts, and equity). Executive Order 13563 emphasized the importance
of quantifying both costs and benefits, of reducing costs, of
harmonizing rules, and of promoting flexibility.
The Office of Management and Budget (OMB) designated this rule as
not significant under Executive Order 12866, ``Regulatory Planning and
Review,'' and therefore, OMB has not reviewed this rule.
Paperwork Reduction Act of 1995
Pursuant to the provisions of the Paperwork Reduction Act of 1995
(44 U.S.C. chapter 35), the collections of information in this rule
have been approved by the Office of Management and Budget (OMB) under
control number 0563-0064.
E-Government Act Compliance
FCIC is committed to complying with the E-Government Act of 2002,
to promote the use of the Internet and other information technologies
to provide increased opportunities for citizen access to Government
information and services, and for other purposes.
Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L.
104-4) requires Federal agencies to assess the effects of their
regulatory actions on State, local, and Tribal governments, or the
private sector. Agencies generally need to prepare a written statement,
including a cost-benefit analysis, for proposed and final rules with
Federal mandates that may result in expenditures of $100 million or
more in any year for State, local, or Tribal governments, in the
aggregate, or to the private sector. UMRA generally requires agencies
to consider alternatives and adopt the more cost effective or least
burdensome alternative that achieves the objectives of the rule. This
rule contains no Federal mandates, as defined in Title II of UMRA, for
State, local, and Tribal governments or the private sector. Therefore,
this rule is not subject to the requirements of sections 202 and 205 of
UMRA.
Executive Order 13132
It has been determined under section 1(a) of Executive Order 13132,
Federalism, that this rule does not have sufficient implications to
warrant consultation with the States. The provisions contained in this
rule will not have a substantial direct effect on States, or on the
relationship between the national government and the States, or on the
distribution of power and responsibilities among the various levels of
government, except as required by law.
Executive Order 13175
This rule has been reviewed in accordance with the requirements of
Executive Order 13175, ``Consultation and Coordination with Indian
Tribal Governments.'' Executive Order 13175 requires Federal agencies
to consult and coordinate with tribes on a government-to-government
basis on policies that have tribal implications, including regulations,
legislative comments or proposed legislation, and other policy
statements or actions that have substantial direct effects on one or
more Indian tribes, on the relationship between the Federal Government
and Indian tribes or on the distribution of power and responsibilities
between the Federal Government and Indian tribes. FCIC has assessed the
impact of this rule on Indian tribes and determined that this rule does
not, to our knowledge, have tribal implications that require tribal
consultation under Executive Order 13175. If a Tribe requests
consultation, FCIC will work with the USDA Office of Tribal Relations
to ensure meaningful consultation is provided where changes, additions,
and modifications identified in this rule are not expressly mandated by
law.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by
the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA,
Pub. L. 104-121), generally requires an agency to prepare a regulatory
flexibility analysis of any rule subject to the notice and comment
rulemaking requirements under the Administrative Procedure Act or any
other law, unless the agency certifies that the rule will not have a
significant economic impact on a substantial number of small entities.
FCIC certifies that this regulation will not have a significant
economic impact on a substantial number of small entities. The
regulation does not require any more action on the part of the small
entities than is required on the part of large entities. No matter the
size of the submitter, all submitters are required to perform the same
tasks and those tasks are necessary to ensure that the concept proposal
can be made into a viable and marketable 508(h) submission and any
508(h) submission can be made into viable and marketable, actuarially
sound insurance product. A Regulatory Flexibility Analysis has not been
prepared since this regulation does not have an impact on small
entities, and, therefore, this regulation is exempt from the provisions
of the Regulatory Flexibility Act.
Federal Assistance Program
This program is listed in the Catalog of Federal Domestic
Assistance under No. 10.450.
[[Page 53673]]
Executive Order 12372
This program is not subject to the provisions of Executive Order
12372, which require intergovernmental consultation with State and
local officials. See the Notice related to 7 CFR part 3015, subpart V,
published at 48 FR 29115, June 24, 1983.
Executive Order 12988
This rule has been reviewed in accordance with Executive Order
12988 on civil justice reform. The provisions of this rule will not
have a retroactive effect. The provisions of this rule will preempt
State and local laws to the extent such State and local laws are
inconsistent herewith. With respect to any direct action taken by FCIC
or to require the insurance provider to take specific action under the
terms of the crop insurance policy, the administrative appeal
provisions published at 7 CFR part 11 must be exhausted before any
action against FCIC for judicial review may be brought.
Environmental Evaluation
This action is not expected to have a significant economic impact
on the quality of the human environment, health, or safety. Therefore,
neither an Environmental Assessment nor an Environmental Impact
Statement is needed.
List of Subjects in 7 CFR Part 400
Administrative practice and procedure, Crop insurance.
Final Rule
Accordingly, as set forth in the preamble, FCIC amends 7 CFR part
400 as follows:
PART 400--GENERAL ADMINISTRATIVE REGULATIONS
0
1. Revise subpart V to read as follows:
Subpart V--Submission of Policies, Provisions of Policies, Rates of
Premium, and Non-Reinsured Supplemental Policies
Sec.
400.700 Basis, purpose, and applicability.
400.701 Definitions.
400.702 Confidentiality and duration of confidentiality.
400.703 Timing and format.
400.704 Covered by this subpart.
400.705 Contents for new and changed 508(h) submissions, concept
proposals, and index-based weather plans of insurance.
400.706 Review.
400.707 Presentation to the Board for approval or disapproval.
400.708 Post approval.
400.709 Roles and responsibilities.
400.710 Preemption and premium taxation.
400.711 Right of review, modification, and the withdrawal of
approval.
400.712 Research and development reimbursement, maintenance
reimbursement, advance payments for concept proposals, and user
fees.
400.713 Non-reinsured supplemental (NRS) policy.
Authority: 7 U.S.C. 1506(l), 1506(o), 1508(h), 1522(b),
1523(i).
Subpart V--Submission of Policies, Provisions of Policies, Rates of
Premium, and Non-Reinsured Supplemental Policies
Sec. 400.700 Basis, purpose, and applicability.
This subpart establishes guidelines, the approval process, and
responsibilities of FCIC and the applicant for policies, provisions of
policies, and rates of premium submitted to the Board as authorized
under section 508(h) of the Act. It also provides procedures for
reimbursement of research and development costs and maintenance costs
for concept proposals and approved 508(h) submissions. Guidelines for
submitting concept proposals and the standards for approval and advance
payments are provided in this subpart. This subpart also provides
guidelines and reference to procedures for submitting index-based
weather plans of insurance as authorized under section 523(i) of the
Act. The procedures for submitting non-reinsured supplemental policies
in accordance with the Standard Reinsurance Agreement (SRA) are also
contained within.
Sec. 400.701 Definitions.
508(h) submission. A policy, plan of insurance, provision of a
policy or plan of insurance, or rates of premium provided by an
applicant to FCIC in accordance with the requirements of Sec.
400.705.508(h) submissions as referenced in this subpart do not include
concept proposals, index-based weather plans of insurance, or non-
reinsured supplemental policies.
Act. Subtitle A of the Federal Crop Insurance Act, as amended (7
U.S.C. 1501-1524).
Actuarial documents. The information for the crop or insurance year
that is available for public inspection in an agent's office and
published on RMA's Web site, and that shows available insurance
policies, coverage levels, information needed to determine amounts of
insurance and guarantees, prices, premium rates, premium adjustment
percentages, practices, particular types or varieties of the insurable
crop or agricultural commodity, insurable acreage, and other related
information regarding insurance in the county or state.
Actuarially appropriate. A term used to describe premium rates when
such rates are expected to cover anticipated losses and establish a
reasonable reserve based on valid reasoning, an examination of
available risk data, or knowledge or experience of the expected value
of future costs associated with the risk to be covered. This will be
expressed by a combination of data including, but not limited to
liability, premium, indemnity, and loss ratios based on actual data or
simulations reflecting the risks covered by the policy.
Administrative and operating (A&O) subsidy. The subsidy for the
administrative and operating expenses authorized by the Act and paid by
FCIC on behalf of the producer to the approved insurance provider. Loss
adjustment expense reimbursement paid by FCIC for catastrophic risk
protection (CAT) eligible crop insurance contracts is not considered as
A&O subsidy.
Advance payment. A portion, up to 50 percent, of the estimated
research and development costs, that may be approved by the Board under
section 522(b) of the Act for an approved concept proposal. Upon
request of the submitter the Board may at its sole discretion provide
up to an additional 25 percent advance payment of the estimated
research and development costs after the applicant begins research and
development activities if:
(1) The concept proposal will provide coverage for a region or crop
that is underserved, including specialty crops; and
(2) The submitter is making satisfactory progress towards
developing a viable and marketable 508(h) submission.
Agent. An individual licensed by the State in which an eligible
crop insurance contract is sold and serviced for the reinsurance year,
and who is employed by, or under contract with, the approved insurance
provider, or its designee, to sell and service such eligible crop
insurance contracts.
Applicant. Any person or entity that submits to the Board for
approval a 508(h) submission under section 508(h) of the Act, a concept
proposal under section 522 of the Act, or an index-based weather plan
of insurance under section 523(i) of the Act, who must include the AIP
that has committed to be involved in the development and submission
process and to market, sell and service the policy or plan of
insurance.
Approved insurance provider (AIP). A legal entity, including the
Company, which has entered into a reinsurance
[[Page 53674]]
agreement with FCIC for the applicable reinsurance year.
Approved procedures. The applicable handbooks, manuals, memoranda,
bulletins or other directives issued by RMA or the Board.
Board. The Board of Directors of FCIC.
Commodity. Has the same meaning as section 518 of the Act.
Complete. A 508(h) submission, concept proposal, or index-based
weather plan of insurance determined by RMA and the Board to contain
all required documentation in accordance with Sec. 400.705 and is of
sufficient quality.
Complexity. Consideration of factors such as originality of policy
materials, underwriting methods, actuarial rating methodology, and the
pricing methodology used in design, construction and all other steps
required for the full development of a policy or plan of insurance.
Concept proposal. A written proposal for a prospective 508(h)
submission, submitted under section 522(b) of the Act for advance
payment of research and development costs, and containing all the
information required in this regulation and the Procedures Handbook
17030--Approved Procedures for Submission of Concept Proposals Seeking
Advance Payment of Research and Development Costs, which can be found
on the RMA Web site at www.rma.usda.gov, such that the Board is able to
determine that, if approved, will be developed into a viable and
marketable policy consistent with Board approved procedures, these
regulations, and section 508(h) of the Act.
Delivery system. The components or parties that make the policy or
plan of insurance available to the public for sale.
Development. The process of composing documentation and procedures,
pricing and rating methodologies, administrative and operating
procedures, systems and software, supporting materials, and
documentation necessary to create and implement a 508(h) submission.
Endorsement. A document that amends or revises an insurance policy
reinsured under the Act in a manner that changes existing, or provides
additional, coverage provided by such policy.
Expert reviewer. Independent persons contracted by the Board who
meet the criteria for underwriters or actuaries that are selected by
the Board to review a concept proposal, 508(h) submission, or index-
based weather plan of insurance and provide advice to the Board
regarding the results of their review.
FCIC. The Federal Crop Insurance Corporation, a wholly owned
government corporation within USDA, whose programs are administered by
RMA.
Index-based weather plan of insurance. A risk management product in
which indemnities are based on a defined weather parameter exceeding or
failing to meet a given threshold during a specified time period. The
weather index is a proxy to measure expected loss of production when
the defined weather parameter does not meet the threshold.
Limited resource producer. Has the same meaning as the term defined
by USDA at: www.lrftool.sc.egov.usda.gov/LRP_Definition.aspx or a
successor Web site.
Livestock commodity. Has the same meaning as the term in section
523(i) of the Act.
Maintenance. For the purposes of this subpart only, the process of
continual support, revision or improvement, as needed, for an approved
508(h) submission, including the periodic review of premium rates and
prices, updating or modifying the rating or pricing methodologies,
updating or modifying policy terms and conditions, adding a new
commodity under similar policy terms and conditions with similar rating
and pricing methodology, or expanding a plan or policy to additional
states and counties, and any other actions necessary to provide
adequate, reasonable and meaningful protection for producers, ensure
actuarial soundness, or to respond to statutory or regulatory changes.
A concept proposal that is similar to a previously approved 508(h)
submission will be considered maintenance for the similar approved
508(h) submission if submitted by the same person.
Maintenance costs. Specific expenses associated with the
maintenance of an approved 508(h) submission as authorized by Sec.
400.712.
Maintenance period. A period of time that begins on the date the
Board approves the 508(h) submission and ends on the date that is not
more than four reinsurance years after such approval.
Manager. The Manager of FCIC.
Marketable. A determination by the Board, based on a detailed,
written marketability assessment provided in accordance with Sec.
400.705(e), that demonstrates a sufficient number of producers will
purchase the product to justify the resources and expenses required to
offer the product for sale and maintain the product for subsequent
years.
Multiple peril crop insurance (MPCI). Policies reinsured by FCIC
that provide protection against multiple causes of loss that adversely
affect production or revenue, such as to natural disasters, such as
hail, drought, and floods.
National Agricultural Statistics Service (NASS). An agency within
USDA, or its successor agency that collects and analyzes data collected
from producers and other sources.
Non-reinsured supplemental policy (NRS). A policy, endorsement, or
other risk management tool not reinsured by FCIC under the Act, that
offers additional coverage, other than for loss related to hail.
Non-significant changes. Minor changes to the policy or plan of
insurance, such as technical corrections, that do not affect the rating
or pricing methodologies, the amount of subsidy owed, the amount or
type of coverage, FCIC's reinsurance risk, or any other condition that
does not affect liability or the amount of loss to be paid under the
policy. Revisions to approved plans required by statutory or regulatory
changes are included in this category. Changes to the policy that
involve concepts that have been previously sent for expert review are
also included in this category.
Plan of insurance. A class of policies, such as yield, revenue, or
area based that offers a specific type of coverage to one or more
agricultural commodities.
Policy. Has the same meaning as the term in section 1 of the Basic
Provisions (7 CFR 457.8).
Rate of premium. The dollar amount per insured unit, or percentage
rate per dollar of liability, that is needed to pay anticipated losses
and provide a reasonable reserve.
Reinsurance year. The term beginning July 1 and ending on June 30
of the following year and, for reference purposes, identified by
reference to the year containing June.
Related material. The actuarial documents for the insured commodity
and any underwriting or loss adjustment manuals, handbooks, forms,
instructions or other information needed to administer the policy.
Research. For the purposes of development, the gathering of
information related to: Producer needs and interests for risk
management; the marketability of the policy or plan of insurance;
appropriate policy terms, premium rates, price elections,
administrative and operating procedures, supporting materials,
documentation, and the systems and software necessary to implement a
[[Page 53675]]
policy or plan of insurance. The gathering of information to determine
whether it is feasible to expand a policy or plan of insurance to a new
area or to cover a new commodity under the same policy terms and
conditions, price, and premium rates is not considered research.
Research and development costs. Specific expenses incurred and
directly related to the research and development activities of a 508(h)
submission as authorized in Sec. 400.712.
Risk Management Agency (RMA). An agency within USDA that is
authorized to administer the crop insurance program on behalf of FCIC.
Risk subsidy. The portion of the premium paid by FCIC on behalf of
the insured.
Sales closing date. A date contained in the Special Provisions by
which an application must be filed and the last date by which the
insured may change the crop insurance coverage for a crop year.
Secretary. The Secretary of the United States Department of
Agriculture.
Significant change. Any change to the policy or plan of insurance
that may affect the rating and pricing methodologies, the amount of
subsidy owed, the amount of coverage, the interests of producers,
FCIC's reinsurance risk, or any condition that may affect liability or
the amount of loss to be paid under the policy.
Special Provisions. Has the same meaning as the term in section 1
of the Basic Provisions (7 CFR 457.8).
Specialty crops. Fruits and vegetables, tree nuts, dried fruits,
and horticulture and nursery crops (including floriculture).
Socially disadvantaged producer. Has the same meaning as section
2501(E) of the Food, Agriculture, Conservation, and Trade Act of 1990
(7 U.S.C. 2279(e)).
Standard Reinsurance Agreement (SRA). The reinsurance agreement
between FCIC and the approved insurance provider, under which the
approved insurance provider is authorized to sell and service eligible
crop insurance contracts. For the purposes of this subpart, all
references to the SRA will also include any other reinsurance
agreements entered into with FCIC, including the Livestock Price
Reinsurance Agreement.
Submitter. Same meaning as applicant.
Sufficient quality. A determination made by RMA and the Board that
the material presented is clearly written in plain language in
accordance with the Plain Writing Act of 2010 (5 U.S.C. 301),
unambiguous, and is supported by detailed analysis and data so that
expert reviewers, RMA and the Board can understand, comprehend and make
calculations, draw substantiated conclusions or results to determine
whether the 508(h) submission, concept proposal, or index-based weather
plan of insurance meets the standards required for approval.
Targeted producer. Producers who are considered small, socially
disadvantaged, beginning and limited resource or other specific aspects
designated by FCIC for review.
USDA. The United States Department of Agriculture.
User fees. Fees, approved by the Board, that can be charged to
approved insurance provider for use of a policy or plan of insurance
once the period for maintenance has expired that only covers the
expected maintenance costs to be incurred by the submitter.
Viable. A determination by the Board that the concept proposal,
index-based weather plan of insurance, or 508(h) submission is or can
be developed into a policy or plan of insurance that can be implemented
by the delivery system with actuarially appropriate rates in accordance
with Board procedures.
Sec. 400.702 Confidentiality and duration of confidentiality.
(a) Pursuant to section 508(h)(4)(A) of the Act, prior to approval
by the Board, any 508(h) submission submitted to the Board under
section 508(h) of the Act, concept proposal submitted under section 522
of the Act, or index-based weather plan of insurance submitted under
section 523(i) of the Act, including any information generated from the
508(h) submission, concept proposal, or index-based weather plan of
insurance, will be considered confidential commercial or financial
information for purposes of 5 U.S.C. 552(b)(4) and will not be released
by FCIC to the public, unless the applicant authorizes such release in
writing.
(b) Once the Board approves a 508(h) submission or an index-based
weather plan of insurance, information provided with the 508(h)
submission (including information from the concept proposal) or the
index-based weather plan of insurance, or generated in the approval
process, may be released to the public, as applicable, including any
mathematical modeling and data, unless it remains confidential business
information under 5 U.S.C. 552(b)(4). While the expert reviews are
releasable once the 508(h) submission or an index-based weather plan of
insurance has been approved, the names of the expert reviewers may be
redacted to prevent any undue pressure on the expert reviewers.
(c) Any 508(h) submission, concept proposal, or index-based weather
plan of insurance disapproved by the Board will remain confidential
commercial or financial information in accordance with 5 U.S.C.
552(b)(4) (no information related to such 508(h) submission, concept
proposal, or index-based weather plan of insurance will be released by
FCIC unless authorized in writing by the applicant).
(d) All 508(h) submissions, concept proposals, and index-based
weather plans of insurance, will be kept confidential until approved by
the Board and will be given an identification number for tracking
purposes, unless the applicant advises otherwise.
Sec. 400.703 Timing and format.
(a) A 508(h) submission, concept proposal, or index-based weather
plan of insurance may only be provided to FCIC during the first five
business days in January, April, July, and October.
(b) A 508(h) submission, concept proposal, or index-based weather
plan of insurance must be provided as an electronic file to FCIC in
Microsoft Office compatible format, sent to either the address in
paragraph (d)(1) or (d)(2) of this section by the due date in paragraph
(a) of this section. The electronic file must contain a document with a
detailed index that, in sequential order, references the location of
the required information that may either be contained within the
document or in a separate file. The detailed index must clearly
identify each required section and include the page number if the
information is contained in the document or file name if the
information is contained in a separate file; and
(c) Any 508(h) submission, concept proposal, or index-based weather
plan of insurance not provided within the first 5 business days of a
month stated in paragraph (a) of this section will be considered to
have been provided in the next month stated in paragraph (a). For
example, if an applicant provides a 508(h) submission on January 10, it
will be considered to have been received on April 1.
(d) Any 508(h) submission, concept proposal, or index-based weather
plan of insurance must be provided to one of the following addresses,
but not both:
(1) By email to the Deputy Administrator for Product Management (or
successor) at [email protected]; or
(2) By mail on a removable storage device such as a compact disk or
[[Page 53676]]
Universal Serial Bus (USB) drive, sent to the Deputy Administrator for
Product Management (or any successor position), USDA/Risk Management
Agency, 2312 East Bannister Road, Kansas City, MO 64131-3011.
(e) In addition to the requirements in paragraph (a) of this
section, a 508(h) submission must be received not later than 240 days
prior to the earliest proposed sales closing date to be considered for
sale in the requested crop year.
(f) To be offered for sale in a crop year, there must be at least
sixty days between the date the policy is ready to be made available
for sale and the earliest sales closing date, unless this requirement
is expressly waived by the Board.
(g) Notwithstanding, paragraph (f) of this section, the Board, or
RMA if authorized by the Board, shall determine when sales can begin
for a 508(h) submission approved by the Board after consideration of
the analysis provided by the applicant AIP of the impact of the
proposed implementation date on the delivery system.
Sec. 400.704 Covered by this subpart.
(a) An applicant may submit to the Board, in accordance with Sec.
400.705, a 508(h) submission that is:
(1) A policy or plan of insurance not currently reinsured by FCIC;
(2) One or more proposed revisions to a policy or plan of insurance
authorized under the Act; or
(3) Rates of premium for any policy or plan of insurance authorized
under the Act.
(b) An applicant must submit to the Board, any significant change
to a previously approved 508(h) submission, including requests for
expansion, prior to making the change in accordance with Sec. 400.705.
(c) An applicant may submit a concept proposal to the Board prior
to developing a full 508(h) submission, in accordance with this subpart
and the Procedures Handbook 17030--Approved Procedures for Submission
of Concept Proposals Seeking Advance Payment of Research and
Development Costs, which can be found on the RMA Web site at
www.rma.usda.gov.
(d) An applicant who is an approved insurance provider may submit
an index-based weather plan of insurance for consideration as a pilot
program in accordance with this subpart and the Procedures Handbook
17050--Approved Procedures for Submission of Index-based Weather Plans
of Insurance, which can be found on the RMA Web site at
www.rma.usda.gov.
(e) An applicant must submit a non-reinsured supplemental policy or
endorsement to RMA in accordance with Sec. 400.713.
Sec. 400.705 Contents for new and changed 508(h) submissions, concept
proposals, and index-based weather plans of insurance.
(a) A complete 508(h) submission must contain the following
material, as applicable, submitted in accordance with Sec. 400.703(b).
A complete 508(h) submission must be a viable and marketable insurance
product that protects the interests of producers, is actuarially
appropriate and ensures program integrity. The material must contain
adequate information as required in this section, that is presented
clearly to ensure the Board and RMA can determine whether RMA and the
delivery system have the resources to implement, administer, and
deliver the 508(h) submission effectively and efficiently.
Calculations, procedures and methodologies must be consistent
throughout the submission and appropriate for the commodity and the
risks covered.
(b) The first section will contain general information numbered as
follows (1, 2, 3, etc.), including, as applicable:
(1) The applicant's name(s), address or primary business location,
phone number, and email address;
(2) The type of 508(h) submission (see Sec. 400.704) and a
notation of whether or not the 508(h) submission was approved by the
Board as a concept proposal;
(3) A statement of whether the applicant is requesting:
(i) Reinsurance;
(ii) Risk subsidy;
(iii) A&O subsidy;
(iv) Reimbursement for research and development costs, as
applicable and, if the 508(h) submission was previously submitted as a
concept proposal, the amount of the advance payment for expected
research and development costs; or
(v) Reimbursement for expected maintenance costs, if applicable;
(4) The proposed agricultural commodities to be covered, including
types, varieties, and practices covered by the 508(h) submission;
(5) The crop or insurance year and reinsurance year in which the
508(h) submission is proposed to be available for purchase by
producers;
(6) The proposed sales closing date, if applicable, or the sales
window or the earliest date the applicant expects to release the
product to the public;
(7) The proposed states and counties where the plan of insurance is
proposed to be offered;
(8) Any known or anticipated future expansion plans;
(9) Identification, including names, addresses, telephone numbers,
and email addresses, of the person(s) responsible for:
(i) Addressing questions regarding the policy, underwriting rules,
loss adjustment procedures, rate and price methodologies, data
processing and record-keeping requirements, and any other questions
that may arise in implementing or administering the program if it is
approved; and
(ii) Annual reviews to ensure compliance with all requirements of
the Act, this subpart, and any agreements executed between the
applicant and FCIC;
(10) A statement of whether the 508(h) submission will be filed
with the applicable office responsible for regulating insurance in each
state proposed for insurance coverage, and if not, reasons why the
508(h) submission will not be filed for review; and
(11) A statement of whether the submitter wants the 508(h)
submission to remain confidential.
(c) The second section must contain the benefits of the plan,
including, as applicable, a summary that includes:
(1) How the 508(h) submission offers coverage or other benefits not
currently available from existing public or private programs;
(2) How the 508(h) submission meets public policy goals and
objectives consistent with the Act and other laws, as well as policy
goals supported by USDA and the Federal Government; and
(3) A detailed description of the coverage provided by the 508(h)
submission and its applicability to all producers, including targeted
producers.
(d) Except as provided in this section, the third section must
contain the policy, that is clearly written in plain language in
accordance with the Plain Writing Act of 2010 (5 U.S.C. 301) such that
producers will be able to understand the coverage being offered. The
policy language permits actuaries to form a clear understanding of the
payment contingencies for which they will set rates. The policy
language does not encourage an excessive number of disputes or legal
actions because of misinterpretations.
(1) If the 508(h) submission involves a new insurance policy or
plan of insurance:
(i) All applicable policy provisions; and
(ii) A list of any additional coverage that may be elected by the
insured in conjunction with the 508(h) submission such as applicable
endorsements
[[Page 53677]]
(include a description of the coverage and how such coverage may be
obtained).
(2) If the 508(h) submission involves a change to a previously
approved policy, plan of insurance, or rates of premium, the proposed
revisions, rationale for each change, data and analysis supporting each
change, the impact of each change, and the impact of all changes in
aggregate.
(e) The fourth section must contain the following:
(1) Potential impacts the 508(h) submission may have on producers
both where the new plan will and will not be available (include both
positive and negative impacts) and if applicable, the reasons why the
508(h) submission is not being proposed for other areas producing the
commodity;
(2) The amount of commodity (acres, head, board feet, etc.), the
amount of production, and the value of each agricultural commodity
proposed to be covered in each proposed county and state;
(3) A reasonable estimate of the expected number of potential
buyers, liability and premium for each proposed county and state, total
expected liability and premium by crop year based on the detailed
assessment of producer interest, including a description of the number
of producers involved in the development of the product, their level of
participation, their type of participation, how many producers have
provided data to assist the submitter in the development of the
product, and a comparison with other similar products, including
differences between the 508(h) submission and the similar products that
may make participation different;
(4) If available, any insurance experience for each year and in
each proposed county and state in which the policy has been previously
offered for sale including an evaluation of the policy's performance
and, if data are available, a comparison with other similar insurance
policies reinsured under the Act;
(5) Market research studies; ``market research'' is the systematic
gathering and interpretation of information about individuals or
organizations using statistical and analytical methods and techniques
of the applied social sciences to gain insight or support decision
making, and that must include:
(i) Focus group results (both positive and negative reactions)
where a discussion is facilitated amongst a group of stakeholders in
order to gain insight into their perceptions, opinions, beliefs, and
attitudes towards a product, which must include the number of focus
group sessions held, where they were held, when they were held, the
number of attendees at each session, the attendees affiliation
(producer, agent or other), and specific feedback from the attendees
regarding levels of coverage the product should include to cover
anticipated risks or perils encountered, the range of costs the
producer is willing to pay, what coverages the producers are
specifically looking for and an assessment of whether that coverage can
be provided at the price the producers are willing to pay, what
shortfall or gap in risk protection the product may address, tolerance
of risk, perceptions of other similar products, policy features
producers may desire, and quality issues;
(ii) Other evidence the proposed 508(h) submission will be
positively received by producers, agents, lending institutions, and
other interested parties, including correspondence from producers,
agents, grower organizations, or other stakeholders expressing the need
for a certain risk management strategy, desired coverage for perils
faced, and willingness to provide critical information for developing a
product;
(iii) An assessment of factors that could negatively or adversely
affect the market and responses from a reasonable representative cross-
section of producers or significant market segment to be affected by
the policy or plan of insurance; and
(iv) For 508(h) submissions proposing products for specialty crops
a consultation report must be provided that includes a summary and
analysis of discussions with groups representing producers of those
agricultural commodities in all major producing areas for commodities
to be served or potentially impacted, either directly or indirectly,
and the expected impact of the proposed 508(h) submission on the
general marketing and production of the crop from both a regional and
national perspective including evidence that the 508(h) submission will
not create adverse market distortions; and
(6) A marketability assessment from the applicant AIP who is part
of the applicant and from at least one other AIP. If a marketability
assessment is not provided by a separate AIP who is not part of the
applicant, the applicant must provide information regarding the names
of the persons and AIPs contacted and the basis for their refusal to
provide the marketability assessment. The marketability assessment will
include:
(i) An assessment of whether producers will buy the proposed 508(h)
submission;
(ii) An assessment of whether AIPs and their agents will want to
sell and service the proposed 508(h) submission;
(iii) An assessment of the risks associated with the proposed
508(h) submission and its likely effect under the SRA;
(iv) Estimated computer system impacts and costs;
(v) Estimated administrative and training requirement and costs;
(vi) An analysis of the complexity of the product; and
(vii) What, if any, efficiency will be gained or potential effects
on the workload of AIPs or others participating in the program.
(f) The fifth section must contain the information related to the
underwriting and loss adjustment of the 508(h) submission, prepared in
accordance with the RMA-14050 Risk Management Agency External Standards
Handbook located at http://www.rma.usda.gov/handbooks/14000/index.html,
including as applicable:
(1) An underwriting guide that includes:
(i) A table of contents and introduction;
(ii) A section containing abbreviations, acronyms, and definitions;
(iii) Relevant dates, including as applicable, sales closing,
cancellation, termination, earliest planting, final planting, acreage
reporting, premium billing, and end of insurance;
(iv) A section containing insurance contract information
(insurability requirements; producer elections, Crop Provisions not
applicable to Catastrophic Risk Protection, specific unit division
guidelines, etc.);
(v) Detailed rules for determining insurance eligibility, including
all producer reporting requirements;
(vi) All form standards needed for inspections and producer
certifications, plus detailed instructions for their use and
completion;
(vii) Step-by-step examples of the data and calculations needed to
establish the insurance guarantee (liability) and premium per acre or
other unit of measure, including worksheets that provide the
calculations in sufficient detail and in the same order as presented in
the policy to allow verification that the premiums charged for the
coverage are consistent with policy provisions;
(viii) A section containing any special coverage information (i.e.,
replanting, tree replacement or rehabilitation, prevented planting,
etc.), as applicable; and
(ix) A section containing all applicable reference material (i.e.,
[[Page 53678]]
minimum sample requirements, row width factors, etc.).
(2) Any statements to be included in the actuarial documents
including any intended Special Provisions statements that may change
any underlying policy terms or conditions; and
(3) The loss adjustment standards handbook for the policy or plan
of insurance that includes:
(i) A table of contents and introduction;
(ii) A section containing abbreviations, acronyms, and definitions;
(iii) A section containing insurance contract information
(insurability requirements; Crop Provisions not applicable to
catastrophic risk protection; specific unit division guidelines, if
applicable; notice of damage or loss provisions; quality adjustment
provisions; etc.);
(iv) A detailed description of the causes of loss covered by the
policy or plan of insurance and any causes of loss excluded;
(v) A section that thoroughly explains appraisal methods, if
applicable;
(vi) Illustrative samples of all the applicable forms needed for
insuring and adjusting losses in regards to the 508(h) submission in a
format compatible with the Document and Supplemental Standards Handbook
(FCIC 24040) located at http://www.rma.usda.gov/handbooks/24000/index.html, plus detailed instructions for their use and completion;
(vii) Instructions, step-by-step examples of calculations used to
determine indemnity payments for all probable situations where a
partial or total loss may occur, and loss adjustment procedures that
are necessary to establish the amounts of coverage and loss;
(viii) A section containing any special coverage information (i.e.,
replanting, tree replacement or rehabilitation, prevented planting,
etc.), as applicable; and
(ix) A section containing all applicable reference material (i.e.,
minimum sample requirements, row width factors, etc.).
(g) The sixth section must contain information related to prices
and rates of premium, including, as applicable:
(1) A detailed description of the premium rating methodology
proposed to be used and the basis for selection of the rating
methodology;
(2) A list of all assumptions made in the premium rating and
commodity pricing methodologies, and the basis for these assumptions;
(3) A detailed description of the pricing and rating methodologies,
including:
(i) Supporting documentation needed for the rate methodology;
(ii) All mathematical formulas and equations;
(iii) Data and data sources used in determining rates and prices
and a detailed assessment of the data (including availability, access,
long term reliability, and the percentage of the total commercial
production that the available data represents) and how it supports the
proposed rates and prices;
(iv) A detailed explanation of how the rates account for each of
the risks covered by the policy; and
(v) A detailed explanation of how the prices are applicable to the
policy;
(4) An example of both a rate calculation and a price calculation;
(5) A discussion of the applicant's objective evaluation of the
accuracy of the data, the short and long term availability of the data,
and how the data will be obtained (if the data source is confidential
or proprietary explain the cost of obtaining the data); and
(6) An analysis of the results of simulations or modeling showing
the performance of proposed rates and commodity prices, as applicable,
based on one or more of the following (Such simulations must use all
years of experience available to the applicant and must reflect both
partial losses and total losses):
(i) A recalculation of total premium and losses compared to a
similar or comparable insurance plan offered under the authority of the
Act with modifications, as needed, to represent the components of the
508(h) submission;
(ii) A simulation that shows liability, premium, indemnity, and
loss ratios for the proposed insurance product based on the probability
distributions used to develop the rates and commodity prices, as
applicable, including sensitivity tests that demonstrate price or yield
extremes, and the impact of inappropriate assumptions; or
(iii) Any other comparable simulation that provides results
indicating both aggregate and individual performance of the 508(h)
submission including expected liability, premium, indemnity, and loss
ratios for the proposed insurance product, under various scenarios
depicting good and poor actuarial experience.
(h) The seventh section must contain the following:
(1) A statement certifying that the submitter and any approved
insurance provider or its affiliates will not solicit or market the
508(h) submission until after all policy materials are released to the
public by RMA, unless otherwise specified by the Board;
(2) An explanation of any provision of the policy not authorized
under the Act and identification of the portion of the rate of premium
due to these provisions; and
(3) Agent and loss adjuster training plans, except for 508(h)
submissions proposing only changes to rates of premium to an existing
policy.
(i) The eighth section must contain a statement from the submitter
that, if the 508(h) submission is approved, the submitter will work
with RMA and its computer programmers as needed to assure an effective
and efficient implementation process. This section must also contain a
description of any expected implementation or administration issues.
The applicant must consult with RMA prior to providing the 508(h)
submission to determine whether or not the 508(h) submission can be
effectively and efficiently implemented and administered through the
current information technology systems and that all reporting
requirements, terminology, and dates conform to USDA standards and
initiatives.
(1) If FCIC approves the 508(h) submission and determines that its
information technology systems have the capacity to implement and
administer the 508(h) submission, the applicant must provide a document
detailing acceptable computer processing requirements consistent with
those used by RMA as shown on the RMA Web site in the Appendix III/M-13
Handbook. This information details the acceptable computer processing
requirements in a manner consistent with that used by RMA to facilitate
the acceptance of producer applications and related data.
(2) Any computer systems, requirements, code and software must be
consistent with that used by RMA and comply with the standards
established in Appendix III/M-13 Handbook, or any successor document,
of the SRA or other reinsurance agreement as specified by FCIC.
(3) These requirements are available from the USDA/Risk Management
Agency, 2312 East Bannister Road, Kansas City, MO 64131-3011, or on
RMA's Web site at http://www.rma.usda.gov/data/m13, or a successor Web
site.
(j) The ninth section submitted on separate pages and in accordance
with Sec. 400.712 and any applicable Board procedures must specify:
(1) The following amounts, which may be limited to the amount
originally
[[Page 53679]]
estimated in the submission, unless the applicant can justify the
additional costs:
(i) For new products, the amount received for an advance payment,
and a detailed estimate of the total amount of reimbursement for
research and development costs; or
(ii) For products that are within the maintenance period, an
estimate for maintenance costs for the year that the 508(h) submission
will be effective; and
(2) A detailed estimate of maintenance costs for future years of
the maintenance period and the basis that such maintenance costs will
be incurred, including, but not limited to:
(i) Any anticipated expansion;
(ii) Anticipated changes or updates to policy materials;
(iii) The generation of premium rates;
(iv) The determination of prices; and
(v) Any other costs that the applicant anticipates will be
requested for reimbursement of maintenance costs or expenses;
(k) The tenth section must contain executed (signed) certification
statements in accordance with the following:
(1) ``{Applicant's Name{time} hereby claim that the basis and
amounts set forth in this section and Sec. 400.712 are correct and due
and owing to {Applicant's Name{time} by FCIC under the Federal Crop
Insurance Act''; and
(2) ``{Applicant Name{time} understands that, in addition to
criminal fines and imprisonment, the 508(h) submission of false or
fraudulent statements or claims may result in civil and administrative
sanctions.''
(l) The contents required for concept proposals are found in the
Procedures Handbook 17030--Approved Procedures for Submission of
Concept Proposals Seeking Advance Payment of Research and Development
Costs. In addition, the proposal must provide a detailed description of
why the concept provides insurance:
(1) In a significantly improved form;
(2) To a crop or region not traditionally served by the Federal
crop insurance program; or
(3) In a form that addresses a recognized flaw or problem in the
program;
(m) The contents required for index-based weather plans of
insurance are found in the Procedures Handbook 17050--Approved
Procedures for Submission of Index-based Weather Plans of Insurance. In
accordance with the Board approved procedures, the approved insurance
provider that submits the index-based weather plan of insurance must
provide evidence they have:
(1) Adequate experience in underwriting and administering policies
or plans of insurance that are comparable to the proposed policy of
plan of insurance;
(2) Sufficient assets or reinsurance to satisfy the underwriting
obligations of the approved insurance provider, and a sufficient
insurance credit rating from an appropriate credit rating bureau; and
(3) Applicable authority and approval from each State in which the
approved insurance provider intends to sell the insurance product.
Sec. 400.706 Review.
(a) Prior to providing a 508(h) submission, concept proposal, or
index-based weather plan of insurance to the Board, RMA will:
(1) Review the 508(h) submission, concept proposal, or index-based
weather plan of insurance to determine if all required documentation is
included in accordance with Sec. 400.705;
(2) Review the 508(h) submission, concept proposal, or index-based
weather plan of insurance to determine whether it is of sufficient
quality to conduct a meaningful review such that the Board will be able
to make an informed decision regarding approval or disapproval;
(3) In accordance with section 508(h)(1)(B) of the Act, at its sole
discretion, determine if the policy or plan of insurance:
(i) Will likely result in a viable and marketable policy;
(ii) Will provide crop insurance coverage in a significantly
improved form; and
(iii) Adequately protect the interests of producers.
(4) RMA may reject and return any 508(h) submission, concept
proposal, or index based weather plan of insurance that:
(i) Is not complete;
(ii) Is unlikely to result in a viable and marketable policy;
(iii) Will not provide crop insurance coverage in a significantly
improved form; and
(iv) Will not adequately protect the interests of producers.
(5) Except as provided in paragraph (a)(4) of this section, forward
the 508(h) submission, concept proposal, or index-based weather plan of
insurance, and the results of RMA's initial review, to the Board for
its determination of completeness and quality.
(b) Upon the Board's receipt of a 508(h) submission, the Board
will:
(1) Determine if the 508(h) submission is complete (the date the
Board votes to contract with expert reviewers is the date the 508(h)
submission is deemed to be complete for the start of the 120 day time-
period for approval);
(2) Unless the 508(h) submission makes non-significant changes to a
policy or plan of insurance, or involves policy provisions that have
already undergone expert review, forward the complete 508(h) submission
to at least five expert reviewers to review the 508(h) submission:
(i) Of the five expert reviewers, no more than one will be employed
by the Federal Government, and none may be employed by any approved
insurance provider or their representative; and
(ii) The expert reviewers will each provide their individual
assessment of whether the 508(h) submission:
(A) Protects the interests of agricultural producers and taxpayers;
(B) Is actuarially appropriate;
(C) Follows recognized insurance principles;
(D) Meets the requirements of the Act;
(E) Does not contain excessive risks (risks may be considered
excessive if they encourage adverse selection, moral hazard, or if
premium rates cannot be adequately or appropriately determined);
(F) Follows sound, reasonable, and appropriate underwriting
principles;
(G) Will provide a new kind of coverage that is likely to be viable
and marketable;
(H) Will provide crop insurance coverage in a manner that addresses
a clear and identifiable flaw or problem in an existing policy;
(I) Will provide a new or improved coverage for a commodity that
previously had no available crop insurance, or has demonstrated a low
level of participation or coverage level under existing coverage;
(J) May have a significant adverse impact on the crop insurance
delivery system;
(K) The marketability assessment reasonably demonstrates the
product would be viable and marketable (if the applicant cannot obtain
a marketability assessment by another AIP, the Board shall presume that
the submission is unmarketable);
(L) If applicable, contains a consultation report that provides
evidence the 508(h) submission will not create adverse market
distortions; and
(M) Meets any other criteria the Board may deem necessary;
(3) Return to the applicant any 508(h) submission the Board
determines is not complete, along with an explanation of the reason for
the determination and:
(i) With respect to 508(h) submissions developed from approved
concept proposals, the provisions in Sec. 400.712(c)(1) shall apply;
and
[[Page 53680]]
(ii) Except for 508(h) submissions developed from concept
proposals, if the 508(h) submission is resubmitted at a later date, it
will be considered a new 508(h) submission solely for the purpose of
determining the amount of time that the Board must take action; and
(4) For complete 508(h) submissions:
(i) Request review by RMA to provide its assessment of whether the
508(h) submission:
(A) Meets the criteria listed in subsections (b)(2)(ii)(A) through
(M);
(B) Is consistent with USDA's public policy goals;
(C) Does not increase or shift risk to any other FCIC reinsured
policy;
(D) Can be implemented, administered, and delivered effectively and
efficiently using RMA's information technology and delivery systems;
and
(E) Contains requested amounts of government reinsurance, risk
subsidy, and administrative and operating subsidies that are reasonable
and appropriate for the type of coverage provided by the policy; and
(ii) Seek review from the Office of the General Counsel (OGC) to
determine if the 508(h) submission conforms to the requirements of the
Act and all applicable Federal statutes and regulations.
(c) Upon the Board's receipt of a concept proposal, the Board will:
(1) Determine whether the concept proposal is complete (the date
the Board votes to contract with expert reviewers is the date the
concept proposal is deemed to be a complete concept proposal for the
start of the 120 day time-period for approval);
(2) If complete, forward the concept proposal to at least two
expert reviewers with underwriting or actuarial experience to review
the concept in accordance with section 522(b)(2) of the Act, this
subpart, and Procedures Handbook 17030--Approved Procedures for
Submission of Concept Proposals Seeking Advance Payment of Research and
Development Costs;
(3) Return to the applicant any concept proposal the Board
determines is not complete, along with an explanation of the reason for
the determination (If the concept proposal is resubmitted at a later
date, it will be considered a new concept proposal solely for the
purposes of determining the amount of time that the Board must take
action);
(4) Determine whether the concept proposal, if developed into a
policy or plan of insurance would, in good faith, would meet the
requirement of being likely to result in a viable and marketable policy
consistent with section 508(h) (if the applicant cannot obtain a
marketability assessment by another AIP, the Board shall presume that
the submission is unmarketable);
(5) At its sole discretion, determine whether the concept proposal,
if developed into a policy or plan of insurance would meet the
requirement of providing coverage:
(i) In a significantly improved form;
(ii) To a crop or region not traditionally served by the Federal
crop insurance program; or
(iii) In a form that addresses a recognized flaw or problem in the
program;
(6) Determine whether the proposed budget and timetable are
reasonable;
(7) Determine whether the concept proposal meets all other
requirements imposed by the Board or as otherwise specified in
Procedures Handbook 17030--Approved Procedures for Submission of
Concept Proposals Seeking Advance Payment of Research and Development
Costs; and
(8) Provide a date by which the 508(h) submission must be provided
in consultation with the applicant.
(d) Upon the Board's receipt of an index-based weather plan of
insurance, the Board will:
(1) Determine whether the index-based weather plan of insurance is
complete (the date the Board votes to contract with expert reviewers is
the date the index-based weather plan of insurance is deemed to be
complete for the start of the 120-day time-period for approval);
(2) If determined to be complete, contract with five expert
reviewers and review the index-based weather plan of insurance in
accordance with section 523(i) of the Act, this subpart, and Procedures
Handbook 17050--Approved Procedures for Submission of Index-based
Weather Plans of Insurance;
(3) Return to the applicant any index-based weather plan of
insurance the Board determines is not complete, along with an
explanation of the reason for the determination (if the index-based
weather plan of insurance is resubmitted at a later date, it will be
considered a new index-based weather plan of insurance solely for the
purposes of determining the amount of time that the Board must take
action); and
(4) Give the highest priority for approval of index-based weather
plans of insurance that provide a new kind of coverage for specialty
crops and livestock commodities that previously had no available crop
insurance, or have demonstrated a low level of participation under
existing coverage.
(e) All comments and evaluations will be provided to the Board by a
date determined by the Board to allow the Board adequate time for
review.
(f) The Board will consider all comments, evaluations, and
recommendations in its review process. Prior to making a decision, the
Board may request additional information from RMA, OGC, the expert
reviewers, or the applicant.
(g) In considering whether to approve policies or plans of
insurance and when such policies or plans of insurance will be offered
for sale, the Board will:
(1) First, consider policies or plans of insurance that address
underserved commodities, including commodities for which there is no
insurance;
(2) Second, consider existing policies or plans of insurance for
which there is inadequate coverage or there exists low levels of
participation; and
(3) Last, consider all policies or plans of insurance submitted to
the Board that do not meet the criteria described in paragraph (g)(1)
or (2) of this section.
(h) At any time an applicant may request a time delay after the
508(h) submission, concept proposal, or index-based weather plan of
insurance has been placed on the Board meeting agenda. The Board is not
required to agree to such an extension.
(1) With respect to 508(h) submissions from concept proposals
approved by the Board for advanced payment, the applicant must provide
good cause why consideration should be delayed.
(2) Any requested time delay is not limited in the length of time
unless a date is set by the Board by which all revisions to the 508(h)
submission, concept proposal or index-based weather plan of insurance
must be made. However, delays may make implementation of the 508(h)
submission for the targeted crop year impractical or impossible as
determined by the Board.
(3) The time period during which the Board will make a decision to
approve or disapprove the 508(h) submission, concept proposal or index-
based weather plan of insurance shall be extended commensurately with
any time delay requested by the applicant.
(i) The applicant may withdraw a 508(h) submission, concept
proposal, index-based weather plan of insurance, or a portion of a
508(h) submission or concept proposal, at any time by presenting a
request to the Board. A withdrawn 508(h) submission, concept proposal
or index-based weather plan of insurance that is resubmitted will be
deemed a new 508(h) submission, concept proposal, or index-based
weather plan of insurance solely for the
[[Page 53681]]
purposes of determining the amount of time that the Board must take
action.
(j) The Board will render a decision on a 508(h) submission or
index-based weather plan of insurance, with or without revision or give
notice of intent to disapprove within 90 days after the date the 508(h)
submission or index-based weather plan of insurance is considered
complete by the Board, unless the Board agrees to a time delay in
accordance with paragraph (h) of this section.
(k) The Board may provide a notice of intent to disapprove a 508(h)
submission if it determines:
(1) The interests of producers and taxpayers are not protected,
including but not limited to:
(i) The 508(h) submission does not provide adequate coverage or
treats producers disparately;
(ii) The applicant has not presented sufficient documentation that
the 508(h) submission will provide a new kind of coverage that is
likely to be viable and marketable (if the applicant cannot obtain a
marketability assessment by another AIP, the Board shall presume that
the submission is unmarketable);
(iii) Coverage would be similar to another policy or plan of
insurance that has not demonstrated a low level of participation or
does not contain a clear and identifiable flaw, and the producer would
not significantly benefit from the 508(h) submission;
(iv) The 508(h) submission may create adverse market distortions or
adversely impact other crops or agricultural commodities if marketed;
(v) The 508(h) submission will have a significant adverse impact on
the private delivery system;
(vi) The 508(h) submission cannot be implemented, administered, and
delivered effectively and efficiently using RMA's information
technology and delivery systems;
(vii) The 508(h) submission contains flaws that may encourage
adverse selection or moral hazard; or
(viii) The 508(h) submission contains vulnerabilities that allow
indemnities to exceed the value of the crop;
(2) The premium rates are not actuarially appropriate;
(3) The 508(h) submission does not conform to sound insurance and
underwriting principles;
(4) The risks associated with the 508(h) submission are excessive
or it increases or shifts risk to another reinsured policy;
(5) The 508(h) submission does not meet the requirements of the
Act; or
(6) The 90-day deadline under subsection (j) will expire before the
Board has time to make an informed decision to approve or disapprove
the 508(h) submission.
(l) The Board may disapprove a concept proposal if it determines:
(1) The concept, in good faith, will not likely result in a viable
and marketable policy consistent with section 508(h);
(2) At the sole discretion of the Board, the concept, if developed
into a policy and approved by the Board, would not provide crop
insurance coverage:
(i) In a significantly improved form;
(ii) To a crop or region not traditionally served by the Federal
crop insurance program; or
(iii) In a form that addresses a recognized flaw or problem in the
program;
(3) The proposed budget and timetable are not reasonable, as
determined by the Board; or
(4) The concept proposal fails to meet one or more requirements
established by the Board.
(m) The Board shall provide a notice of intent to disapprove an
index-based weather plan of insurance if it determines there is not:
(1) Adequate experience in underwriting and administering policies
or plans of insurance that are comparable to the proposed policy or
plan of insurance;
(2) Sufficient assets or reinsurance to satisfy the underwriting
obligations of the approved insurance provider, and possess a
sufficient insurance credit rating from an appropriate credit rating
bureau, in accordance with Board procedures; and
(3) Applicable authority and approval from each State in which the
approved insurance provider intends to sell the insurance product.
(n) Unless otherwise provided for in this section:
(1) If the Board intends to disapprove a 508(h) submission or
index-based weather plan of insurance, the Board will provide the
applicant with a written explanation outlining the basis for the intent
to disapprove; and
(2) Any approval or disapproval of a 508(h) submission, concept
proposal, or index-based weather plan of insurance must be made by the
Board in writing not later than 120 days after the Board has determined
it to be complete.
(o) If a notice of intent to disapprove all or part of a 508(h)
submission or index-based weather plan of insurance has been provided
by the Board, the applicant must provide written notice to the Board
not later than 30 days after the Board provides such notice if the
508(h) submission or index-based weather plan of insurance will be
modified. If the applicant does not respond within the 30-day period,
the Board will send the applicant a letter stating the 508(h)
submission or index-based weather plan of insurance is disapproved.
(p) If the applicant elects to modify the 508(h) submission or
index-based weather plan of insurance:
(1) The applicant must advise the Board of a date by which the
modified 508(h) submission or index-based weather plan of insurance
will be presented to the Board; and
(2) The remainder of the time left between the Board's notice of
intent to disapprove and the expiration of the 120-day deadline is
paused until the modified 508(h) submission or index-based weather plan
of insurance is received by the Board.
(3) The Board will disapprove a modified 508(h) submission or
index-based weather plan of insurance if the:
(i) Causes for disapproval stated by the Board in its notification
of intent to disapprove the 508(h) submission or index-based weather
plan of insurance are not satisfactorily addressed;
(ii) Board determines there is insufficient time for the Board to
finish its review before the expiration of the 120-day deadline for
disapproval of a 508(h) submission or index-based weather plan of
insurance, unless the applicant grants the Board an extension of time
to adequately consider the modified 508(h) submission or index-based
weather plan of insurance (If an extension of time is agreed upon, the
time period during which the Board must act on the modified 508(h)
submission or index-based weather plan of insurance will paused during
the extension); or
(iii) Applicant does not present a modification of the 508(h)
submission or index-based weather plan of insurance to the Board on the
date the applicant specified and the applicant does not request an
additional time delay.
(q) If the Board fails to render a decision on a new 508(h)
submission or index-based weather plan of insurance within the time
periods specified in paragraph (j) or (n) of this section, such 508(h)
submission or index-based weather plan of insurance will be deemed
approved by the Board for the initial reinsurance year designated for
the 508(h) submission or index-based weather plan of insurance. The
Board must approve the 508(h) submission or index-based weather plan of
insurance for it to be available for any subsequent reinsurance year.
[[Page 53682]]
Sec. 400.707 Presentation to the Board for approval or disapproval.
(a) The Board will inform the applicant of the date, time, and
place of the Board meeting.
(b) The applicant will be given the opportunity and is encouraged
to present the 508(h) submission, concept proposal, or index-based
weather plan of insurance to the Board in person. The applicant must
confirm in writing, email or fax whether the applicant will present in
person to the Board.
(c) If the applicant elects not to present the 508(h) submission,
concept proposal, or index-based weather plan of insurance to the
Board, the Board will make its decision based on the information
provided in accordance with Sec. 400.705 and Sec. 400.706.
Sec. 400.708 Post approval.
(a) After a 508(h) submission is approved by the Board, and prior
to it being made available for sale to producers:
(1) The following must be executed, as applicable:
(i) If required by FCIC, an agreement between the applicant and
FCIC that specifies:
(A) In addition to the requirements in Sec. 400.709,
responsibilities of each with respect to the implementation, delivery
and maintenance of the 508(h) submission; and
(B) The required timeframes for submitting any information and
documentation needed to administer the approved 508(h) submission;
(ii) A reinsurance agreement if the approved submission does not
meet, or is not expected to perform in a financial manner consistent
with the terms and conditions of the Standard Reinsurance Agreement or
any other existing reinsurance agreement offered by FCIC in effect for
the crop year, and that considers the interests of all participating
AIPs; and
(iii) A training package to facilitate implementation of the
approved 508(h) submission;
(2) The Board may limit the availability of coverage, for any
policy or plan of insurance developed under the authority of the Act
and this regulation, on any farm or in any county or area;
(3) A 508(h) submission approved by the Board under this subpart
will be made available to all approved insurance providers under the
same reinsurance, subsidy, and terms and conditions as received by the
applicant;
(4) Any solicitation, sales, marketing, or advertising of the
approved 508(h) submission by the applicant before FCIC has made the
policy materials available to all interested parties through its
official issuance system will result in the denial of reinsurance, risk
subsidy, and A&O subsidy for those policies affected; and
(5) The property rights to the 508(h) submission will automatically
transfer to FCIC if the applicant elects not to maintain the 508(h)
submission under Sec. 400.712(a)(3) or fails to notify FCIC of its
decision to elect or not elect maintenance of the program under Sec.
400.712(l).
(b) Requirements and procedures for approved index-based weather
plans of insurance are contained in Procedures Handbook 17050--Approved
Procedures for Submission of Index-based Weather Plans of Insurance. In
accordance with the Board approved procedures, index-based weather
plans of insurance are not eligible for federal reinsurance, but may be
approved for risk subsidy and A&O subsidy.
Sec. 400.709 Roles and responsibilities.
(a) With respect to the applicant:
(1) The applicant is responsible for:
(i) Preparing and ensuring that all policy documents, rates of
premium, prices, and supporting materials, including actuarial
documents, are submitted by the deadline specified by FCIC, in the form
approved by the Board, and are in compliance with section 508 of the
Rehabilitation Act;
(ii) Annually updating and providing maintenance changes no later
than 180 days prior to the earliest contract change date for the
commodity in all counties or states in which the policy or plan of
insurance is sold;
(iii) Timely addressing questions, problems or clarifications in
regard to a policy or plan of insurance (all such resolutions for
approved 508(h) submissions will be communicated to all approved
insurance providers through FCIC's official issuance system); and
(iv) If requested by the Board, providing an annual review of the
policy's performance, in writing to the Board, 180 days prior to the
contract change date for the plan of insurance (The first annual report
will be submitted one full year after implementation of an approved
policy or plan of insurance, as agreed to by the submitter and RMA);
(2) Only the applicant may make changes to the policy, plan of
insurance, or rates of premium approved by the Board:
(i) Any changes to approved 508(h) submissions, both non-
significant and significant, must be submitted to FCIC in the form of a
508(h) submission for review in accordance with this subpart no later
than 180 days prior to the earliest contract change date for the
commodity in all counties or states in which the policy or plan of
insurance is sold; and
(ii) Significant changes will be considered a new 508(h)
submission;
(3) Except as provided in paragraph (a)(4) of this section, the
applicant is solely liable for any mistakes, errors, or flaws in the
submitted policy, plan of insurance, their related materials, or the
rates of premium that have been approved by the Board unless, or until,
the policy or plan of insurance is transferred to FCIC in accordance
with Sec. 400.712(l) (the applicant remains liable for any mistakes,
errors, or flaws that occurred prior to transfer of the policy or plan
of insurance to FCIC);
(4) If the mistake, error, or flaw in the policy, plan of
insurance, their related materials, or the rates of premium is
discovered more than 45 days prior to the cancellation or termination
date for the policy or plan of insurance, the applicant may request in
writing that FCIC withdraw the approved policy, plan of insurance, or
rates of premium:
(i) Such request must state the discovered mistake, error, or flaw
in the policy, plan of insurance, or rates of premium, and the expected
impact on the program; and
(ii) For all timely received requests for withdrawal, no liability
will attach to such policies, plans of insurance, or rates of premium
that have been withdrawn and no producer, approved insurance provider,
or any other person will have a right of action against the applicant;
(5) Notwithstanding the policy provisions regarding cancellation,
any policy, plan of insurance, or rates of premium that have been
withdrawn by the applicant, in accordance with paragraph (a)(4) of this
section is deemed canceled and applications are deemed not accepted as
of the date that FCIC publishes the notice of withdrawal on its Web
site at www.rma.usda.gov.
(i) Approved insurance providers will be notified in writing by
FCIC that the policy, plan of insurance, or premium rates have been
withdrawn; and
(ii) Producers will have the option of selecting any other policy
or plan of insurance authorized under the Act that is available in the
area by the sales closing date for such policy or plan of insurance;
and
(6) Failure of the applicant to perform all of the applicant's
responsibilities may result in the withdrawal of approval for the
policy or plan of insurance.
(b) With respect to FCIC:
(1) FCIC is responsible for:
[[Page 53683]]
(i) Conducting a review in accordance with Sec. 400.706 and
providing its recommendations to the Board;
(ii) With respect to 508(h) submissions:
(A) Ensuring that all approved insurance providers receive the
approved policy or plan of insurance, and related material, for sale to
producers in a timely manner (All such information shall be
communicated to all approved insurance providers through FCIC's
official issuance system);
(B) As applicable, ensuring that approved insurance providers
receive reinsurance under the same terms and conditions as the
applicant (Approved insurance providers should contact FCIC to obtain
and execute a copy of the reinsurance agreement) if required; and
(C) Reviewing the activities of approved insurance providers,
agents, loss adjusters, and producers to ensure that they are in
accordance with the terms of the policy or plan of insurance, the
reinsurance agreement, and all applicable procedures;
(2) FCIC will not be liable for any mistakes, errors, or flaws in
the policy, plan of insurance, their related materials, or the rates of
premium and no cause of action may be taken against FCIC as a result of
such mistake, error, or flaw in a 508(h) submission or index-based
weather plan of insurance submitted under this subpart;
(3) If at any time prior to the cancellation date, FCIC discovers
there is a mistake, error, or flaw in the policy, plan of insurance,
their related materials, or the rates of premium, or any other reason
for withdrawal of approval contained in Sec. 400.706(k) exists, FCIC
will withdraw reinsurance for such policy or plan of insurance to all
AIPs for the subsequent crop year (If reinsurance is denied, a written
notice will be provided on RMA's Web site at www.rma.usda.gov);
(4) If maintenance of the policy or plan of insurance is
transferred to FCIC in accordance with Sec. 400.712(l), FCIC will
assume liability for the policy or plan of insurance for any mistake,
error, or flaw that occur after the date the policy is transferred.
(c) If approval by the Board is withdrawn or reinsurance is denied
for any 508(h) submission, RMA will provide such notice on its Web site
and the approved insurance provider must cancel the policy or plan of
insurance in accordance with its terms.
Sec. 400.710 Preemption and premium taxation.
A policy or plan of insurance that is approved by the Board for
FCIC reinsurance is preempted from state and local taxation. This
preemption does not apply to index-based weather plans of insurance
approved for premium subsidy or A&O subsidy under this part.
Sec. 400.711 Right of review, modification, and the withdrawal of
approval.
(a) At any time after approval, the Board may review any policy,
plan of insurance, related material, or rates of premium approved under
this subpart, including index-based weather plans of insurance and
request additional information to determine whether the policy, plan of
insurance, related material, or rates of premium comply with the
requirements of this subpart.
(b) The Board will notify the applicant of any problem or issue
that may arise and allow the applicant an opportunity to make any
needed change. If the contract change date has passed, the applicant
will be liable for such problems or issues for the crop year in
accordance with Sec. 400.709 until the policy may be changed.
(c) The Board may withdraw approval for the applicable policy, plan
of insurance or rate of premium, including index-based weather plans of
insurance, as applicable, if:
(1) The applicant fails to perform the responsibilities stated
under Sec. 400.709(a);
(2) The applicant does not timely and satisfactorily provide
materials or resolve any issue to the Board's satisfaction so that
necessary changes can be made prior to the earliest contract change
date;
(3) The Board determines the applicable policy, plan of insurance
or rate of premium, including index-based weather plans of insurance is
not in conformance with the Act, these regulations or the applicable
procedures;
(4) The policy, plan of insurance, or rates of premium are not
sufficiently marketable according to the applicant's estimate or fails
to perform sufficiently as determined by the Board; or
(5) The interest of producers or tax payers is not protected or the
continuation of the program raises questions or issues of program
integrity.
Sec. 400.712 Research and development reimbursement, maintenance
reimbursement, advance payments for concept proposals, and user fees.
(a) For 508(h) submissions approved by the Board for reinsurance
under section 508(h) of the Act:
(1) The 508(h) submission may be eligible for a one-time payment of
research and development costs and reimbursement of maintenance costs
for up to four reinsurance years, as determined by the Board;
(2) Reimbursement of research and development costs or maintenance
costs will be considered as payment in full by FCIC for the 508(h)
submission, and no additional amounts will be owed to the applicant if
the 508(h) submission is transferred to FCIC in accordance with
paragraph (l) of this section; and
(3) If the applicant elects at any time not to continue to maintain
the 508(h) submission, it will automatically become the property of
FCIC and the applicant will no longer have any property rights to the
508(h) submission and will not receive any user fees for the plan of
insurance;
(b) The Board approved procedures and time-frames must be followed,
or research and development costs and maintenance costs may not be
reimbursed.
(1) After a 508(h) submission has been approved by the Board for
reinsurance, to be considered for reimbursement of:
(i) Research and development costs, the applicant must submit the
total amount requested and all supporting documentation to FCIC by
electronic method or by hard copy and such information must be received
by FCIC on or before August 1 immediately following the date the 508(h)
submission was released to approved insurance providers through FCIC's
issuance system; or
(ii) Maintenance costs, the applicant must submit the total amount
requested and all supporting documentation to FCIC by electronic method
or by hard copy and such information must be received by FCIC on or
before August 1 of each year of the maintenance period.
(2) Given the limitation on funds, regardless of when the request
is received, no payment will be made prior to September 15 of the
applicable fiscal year.
(c) Applicants submitting a concept proposal may request an advance
payment of up to 50 percent of the projected total research and
development costs, and after the applicant has begun research and
development activities, the Board may, at its sole discretion, provide
up to an additional 25 percent advance payment of the estimated
research and development costs, if the requirements in the definition
of advance payment are met and the additional advance payment is
requested in accordance with Procedures Handbook 17030--Approved
Procedures for Submission of Concept Proposals Seeking Advance Payment
of Research and Development Costs.
(1) If a concept proposal is approved by the Board for advance
payment, the applicant is responsible for
[[Page 53684]]
independently developing a 508(h) submission that is complete as
specified in this subpart by the deadline set by the Board.
(i) If an applicant fails to fulfill the obligation to provide a
508(h) submission that is complete by the deadline set by the Board,
the Board shall provide a notice of non-compliance to the applicant and
allow not less than 30 days for the applicant to respond;
(ii) If the applicant fails to respond, to the satisfaction of the
Board, with just cause as to why a 508(h) submission that is complete
was not provided by the deadline set by the Board, the applicant shall
return the amount of the advance payment plus interest at the rate of
1.25 percent simple interest per calendar month;
(iii) If the applicant responds, to the satisfaction of the Board,
with just cause as to why a 508(h) submission that is complete was not
provided by the deadline set by the Board, the applicant will be given
a new deadline by which to provide a 508(h) submission that is
complete; and
(iv) If the applicant fails to provide a 508(h) submission that is
complete by the deadline, no additional extensions will be approved by
the Board and the applicant shall return the amount of the advance
payment plus interest at the rate of 1.25 percent simple interest per
calendar month.
(2) If an applicant receives an advance payment for a portion of
the expected research and development costs for a concept proposal that
is developed into a 508(h) submission and determined by the Board to be
complete, but the 508(h) submission is not approved by the Board
following expert review, the Board will not:
(i) Seek a refund of any advance payments for research and
development costs; and
(ii) Make any further research and development cost reimbursements
associated with the 508(h) submission.
(d) Under section 522 of the Act, there are limited funds available
on an annual fiscal year basis to pay for reimbursements of research
and development costs (including advance payments for concept
proposals) and maintenance costs. Consistent with paragraphs (e)
through (j) of this section if all applicants' requests for
reimbursement of research and development costs (including advance
payments for concept proposals) and maintenance costs in any fiscal
year:
(1) Do not exceed the maximum amount authorized by law, the
applicants may receive the full amount of reimbursement determined
reasonable by the Board; or
(2) Exceed the amount authorized by law, each applicant's
reimbursement determined reasonable by the Board will be determined by
dividing the total amount of each individual applicant's reimbursable
costs authorized in paragraphs (e) through (j) of this section by the
total amount of the aggregate of all applicants' reimbursable costs
authorized in paragraphs (e) through (j) for the year and multiplying
the result by the amount of reimbursement authorized under the Act.
(e) The amount of reimbursement for research and development costs
and maintenance costs requested by the applicant may be reduced as
necessary when the requested amount is not commensurate with the
complexity or the size of the area proposed to be covered.
(f) Research and development costs and maintenance costs must be
supported by itemized statements and supporting documentation (copies
of contracts, billing statements, time sheets, travel vouchers,
accounting ledgers, etc.).
(1) Actual costs submitted will be examined for reasonableness and
may be adjusted at the sole discretion of the Board.
(2) Allowable research and development costs and maintenance costs
(directly related to research and development or maintenance of the
508(h) submission only) may include the following:
(i) Wages and benefits, exclusive of bonuses, overtime pay, or
shift differentials;
(A) One line per employee or contractor, include job title, total
hours, and total dollars;
(B) The rates charged must be commensurate with the tasks performed
(For example, a person performing the task of data entry should not be
paid at the rate for performing data analysis);
(C) The wage rate and benefits shall not exceed two times the
hourly wage rate plus benefits provided by the Bureau of Labor
Statistics; and
(D) The applicant must report any familial or business relationship
that exists between the applicant and the contractor or employee
(Reimbursement may be limited or denied if the contractor or employee
is associated to the applicant and they may be considered as one and
the same. This includes a separate entity being created by the
applicant to conduct research and development. Reimbursement may be
limited or denied if the contractor is paid a salary or other
compensation);
(ii) Travel and transportation (One line per event, include the job
title, destination, purpose of travel, lodging cost, mileage, air or
other identified transportation costs, food and miscellaneous expenses,
other costs, and the total cost);
(iii) Software and computer programming developed specifically to
determine appropriate rates, prices, or coverage amounts (Identify the
item, include the purpose, and provide receipts or contract or
straight-time hourly wage, hours, and total cost. Software developed to
send or receive data between the producer, agent, approved insurance
provider or RMA or such other similar software may not be included as
an allowable cost);
(iv) Miscellaneous expenses such as postage, telephone, express
mail, and printing (Identify the item, cost per unit, number of items,
and total dollars); and
(v) Training costs expended to facilitate implementation of a new
approved 508(h) submission (Include instructor(s) hourly rate, hours,
and cost of materials and travel) conducted at a national level,
directed to all approved insurance providers interested in selling the
508(h) submission, and approved prior to the training by RMA).
(3) The following expenses are specifically not eligible for
research and development and maintenance cost reimbursement:
(i) Copyright fees, patent fees, or any other charges, costs or
expenses related to the use of intellectual property;
(ii) Training costs, excluding training costs to facilitate
implementation of the approved 508(h) submission in accordance with
subsection (f)(2)(v);
(iii) State filing fees and expenses;
(iv) Normal ongoing administrative expenses or indirect overhead
costs (for example, costs associated with the management or general
functions of an organization, such as costs for internet service,
telephone, utilities, and office supplies);
(v) Paid or incurred losses;
(vi) Loss adjustment expenses;
(vii) Sales commission;
(viii) Marketing costs;
(ix) Lobbying costs;
(x) Product or applicant liability resulting from the research,
development, preparation or marketing of the policy;
(xi) Copyright infringement claims resulting from the research,
development, preparation or marketing of the policy;
(xii) Costs of making program changes as a result of any mistakes,
errors or flaws in the policy or plan of insurance;
(xiii) Costs associated with building rents or space allocation;
[[Page 53685]]
(xiv) Costs in paragraphs (i) and (j) of this section determined by
the Board to be ineligible for reimbursement; and
(xv) Local, State, or Federal taxes.
(g) Requests for reimbursement of maintenance costs must be
supported by itemized statements and supporting documentary evidence
for each reinsurance year in the maintenance period.
(1) Actual costs submitted will be examined for reasonableness and
may be adjusted at the sole discretion of the Board.
(2) Maintenance costs for the following activities may be
reimbursed:
(i) Expansion of the original 508(h) submission into additional
crops, counties or states;
(ii) Non-significant changes to the policy and any related
material;
(iii) Non-significant or significant changes to the policy as
necessary to protect program integrity or as required by Congress; and
(iv) Any other activity that qualifies as maintenance.
(h) Projected costs for research and development for concept
proposals shall be based on a detailed estimate of the costs allowed in
paragraph (f) of this section. Since costs are one measurement of the
viability to develop an efficient policy, the Board may limit
reimbursements for research and development to the estimated costs
contained in the concept proposal, unless the submitter can justify a
higher reimbursement in accordance with Board procedures.
(i) If a 508(h) submission is determined to be incomplete and is
subsequently resubmitted and approved, the costs to perfect the 508(h)
submission may not be considered reimbursable costs depending on the
level of insufficiency or incompleteness of the 508(h) submission, as
determined at the sole discretion of the Board.
(j) Reimbursement of costs associated with addressing issues raised
by the Board, expert reviewers and RMA will be evaluated based on the
substance of the issue and the amount of time reasonably necessary to
address the specific issue. Delays and additional costs caused by the
inability or refusal to adequately address issues may not be considered
reimbursable, as determined at the sole discretion of the Board.
(k) If the Board withdraws its approval for reinsurance at any time
during the period that reimbursement for maintenance is being made or
user fees are being collected, no maintenance reimbursement shall be
made nor any user fee be owed after the date of such withdrawal.
(l) Not later than 180 days prior to the end of the last
reinsurance year in which a maintenance reimbursement will be paid for
the approved 508(h) submission, the applicant must notify FCIC in
writing regarding its decision on future ownership and maintenance of
the policy or plan of insurance.
(1) The applicant must notify FCIC in writing whether it intends
to:
(i) Continue to maintain the policy or plan of insurance and charge
approved insurance providers a user fee to cover maintenance expenses
for all policies earning premium; or
(ii) Transfer responsibility for maintenance to FCIC.
(2) If the applicant fails to notify FCIC in writing by the
deadline, the policy or plan of insurance will automatically transfer
to FCIC beginning with the next reinsurance year.
(3) If the applicant elects to:
(i) Continue to maintain the policy or plan of insurance, the
applicant must submit a request for approval of the user fee by the
Board at the time of the election; or
(ii) Transfer the policy or plan of insurance to FCIC, FCIC may at
its sole discretion, continue to maintain the policy or plan of
insurance or elect to withdraw the availability of the policy or plan
of insurance.
(4) Requests for approval of the user fee must be accompanied by
written documentation to support the amount requested will only cover
direct costs to maintain the plan of insurance. Costs that are not
eligible for research and development and maintenance reimbursements
under this section are not eligible to be considered for determining
the user fee.
(5) The Board will approve the amount of user fee, including the
maximum amount of total maintenance that may be collected per year,
that is payable to the applicant by approved insurance providers unless
the Board determines that the user fee charged:
(i) Is unreasonable in relation to the maintenance costs associated
with the policy or plan of insurance; or
(ii) Unnecessarily inhibits the use of the policy or plan of
insurance by approved insurance providers.
(6) If the total user fee exceeds the maximum amount determined by
the Board, the maximum amount determined by the Board will be divided
by the number of policies earning premium to determine the amount to be
paid by each approved insurance provider.
(7) Reasonableness of the initial request to charge a user fee will
be determined by the Board based on a comparison of the amount of
reimbursement for maintenance previously received, the number of
policies, the number of approved insurance providers, and the expected
total amount of user fees to be received in any reinsurance year.
(8) A user fee unnecessarily inhibits the use of a policy or plan
of insurance if it is so high that approved insurance providers will
not sell the policy, or the user fee represents an unreasonable portion
of the A&O subsidy paid to the AIP such that it prevents the AIP from
meeting its other obligations under the SRA.
(9) The user fee charged to each approved insurance provider will
be considered payment in full for the use of such policy, plan of
insurance or rate of premium for the reinsurance year in which payment
is made.
(10) It is the sole responsibility of the applicant to collect such
fees from an approved insurance provider and any indebtedness for such
fees must be resolved by the applicant and approved insurance provider.
(i) Applicants may request that FCIC provide the number of policies
sold by each approved insurance provider.
(ii) Such information will be provided not later than 90 days after
such request is made or not later than 90 days after the requisite
information has been provided to FCIC by the approved insurance
provider, whichever is later.
(11) Every two years after approval of a user fee, or if the
applicant has made a significant change to the approved 508(h)
submission, applicants must submit documentation to the Board for
review in determining if the user fee should be revised.
(12) The Board may review the amount of the user fee at any time at
its sole discretion.
(m) The Board may consider information from the Equal Access to
Justice Act, 5 U.S.C. 504, the Bureau of Labor Statistic's Occupational
Employment Statistics Survey, the Bureau of Labor Statistic's
Employment Cost Index, and any other information determined applicable
by the Board, in making a determination whether to approve a 508(h)
submission for reimbursement of research and development costs,
maintenance costs, or user fees.
(n) For purposes of this section, rights to, or obligations of,
research and development cost reimbursement, maintenance cost
reimbursement, or user fees cannot be transferred from any individual
or entity unless specifically approved in writing by the Board.
(o) Applicants requesting reimbursement for research and
development costs, maintenance costs,
[[Page 53686]]
or user fees, may present their request in person to the Board prior to
consideration for approval.
(p) Index-based weather plans of insurance are not eligible for
reimbursement from FCIC for maintenance costs or research and
development costs. Submitters of approved index-based weather plans of
insurance may collect user fees from other approved insurance providers
in accordance with Procedures Handbook 17050--Approved Procedures for
Submission of Index-based Weather Plans of Insurance.
Sec. 400.713 Non-reinsured supplemental (NRS) policy.
(a) Unless otherwise specified by FCIC, any NRS policy that covers
the same agricultural commodity as any policy reinsured by FCIC under
the Act must be provided to RMA to ensure it does not shift any loss or
risk that does not exist under the FCIC reinsured policy. Failure to
provide such NRS policy or endorsement to RMA prior to its issuance
shall result in the denial of reinsurance, A&O subsidy, and risk
subsidy on all underlying FCIC reinsured policies unless the underlying
FCIC policy was sold by another AIP. If the underlying FCIC reinsured
policy is sold by another AIP, the AIP that sold the NRS may be
required to pay FCIC an amount equal to the reinsurance, A&O subsidy,
and risk subsidy on the underlying FCIC policy.
(b) An electronic copy in Microsoft Office compatible format, of
the new or revised NRS policy and related materials must be submitted
at least 150 days prior to the first sales closing date applicable to
the NRS policy. At a minimum, examples that demonstrate how liability
and indemnities are calculated under differing scenarios must be
included. Electronic copies of the NRS must be sent to the Deputy
Administrator for Product Management (or successor) at
[email protected].
(c) RMA will review the NRS policy. If any of the conditions found
in paragraphs (c)(1) through (5) of this section are found to occur,
FCIC will notify the AIP that submitted the NRS policy that if they
sell the NRS policy, it will result in denial of reinsurance, A&O
subsidy, and risk subsidy on all underlying FCIC reinsured policies,
unless the underlying FCIC policy was sold by another AIP. If the
underlying FCIC reinsured policy is sold by another AIP, the AIP that
sold the NRS may be required to pay FCIC an amount equal to the
reinsurance, A&O subsidy, and risk subsidy on the underlying FCIC
policy.
(1) If the NRS policy materially increases or shifts risk to the
underlying policy or plan of insurance reinsured by FCIC.
(i) An NRS policy will be considered to materially increase or
shift risk to the underlying policy or plan of insurance reinsured by
FCIC if RMA determines it:
(A) Creates a moral hazard, such as a financial incentive for the
policyholder to behave in a way that increases the number or size of
losses;
(B) Results in the underlying FCIC policy either triggering a loss
sooner, or paying a larger indemnity than would otherwise be allowed by
the terms and conditions of the underlying reinsured policy; or
(C) Allows for combined indemnities between the underlying FCIC
reinsured policy and the NRS that are in excess of the value a producer
would reasonably expect to receive for the insured commodity if a
normal crop was produced and sold at a reasonable market price.
(ii) The NRS must include language that clearly states no indemnity
will be paid in excess of the initial value of the insured commodity.
(2) The NRS reduces or limits the rights of the insured with
respect to the underlying policy or plan of insurance reinsured by
FCIC. An NRS policy will be considered to reduce or limit the rights of
the insured with respect to the underlying policy or plan of insurance
if RMA determines it affects, alters, preempts, or undermines the terms
or conditions of the underlying policy or procedures issued by FCIC.
(3) The NRS disrupts the marketplace. An NRS policy will be
considered to disrupt the marketplace if RMA determines it encourages
planting more acres of the insured commodity in excess of normal market
demand, adversely affects the sales or administration of reinsured
policies, undermines producers' confidence in the Federal crop
insurance program, or harms public perception of the Federal crop
insurance program.
(4) The NRS is an impermissible rebate. An NRS may be considered to
be an impermissible rebate if RMA determines that the premium rates
charged are insufficient to cover the expected losses and a reasonable
reserve or it offers other benefits that are generally provided at a
cost.
(5) The NRS policy is conditioned upon or provides incentive for
the purchase of the underlying policy or plan of insurance reinsured by
FCIC with a specific agent or approved insurance provider.
(d) RMA will respond not less than 75 days before the first sales
closing date or provide notice why RMA is unable to respond within the
time frame allotted.
(e) NRS policies reviewed by RMA will need to be submitted once
every five years unless a change is made to the NRS or the underlying
policy. Once any changes are made to either policy, or the five year
period has concluded, the NRS must be resubmitted for review.
Signed in Washington, DC, on August 2, 2016.
Timothy J. Gannon,
Acting Manager, Federal Crop Insurance Corporation.
[FR Doc. 2016-18743 Filed 8-11-16; 8:45 am]
BILLING CODE 3410-08-P