[Federal Register Volume 64, Number 91 (Wednesday, May 12, 1999)]
[Proposed Rules]
[Pages 25464-25469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11759]
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DEPARTMENT OF AGRICULTURE
Federal Crop Insurance Corporation
7 CFR Part 400
RIN 0563-AB70
General Administrative Regulations; Premium Reductions; Payment
of Rebates, Dividends, and Patronage Refunds; and Payments to Insured-
Owned and Record-Controlling Entities
AGENCY: Federal Crop Insurance Corporation, USDA.
ACTION: Proposed rule with request for comments.
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SUMMARY: The Federal Crop Insurance Corporation (FCIC) proposes to
amend its General Administrative Regulations, to allow approved
insurance providers to apply to the Federal Crop Insurance Corporation
(FCIC) for authority to reduce the premium charged producers in
accordance with section 508(e)(3) of the Federal Crop Insurance Act
(Act), as amended, and to provide the limitations and requirements
applicable to the payment of rebates, dividends, and patronage refunds
to insureds, and payments to insured-owned and record-controlling
entities.
DATES: Written comments and opinions on this proposed rule will be
accepted until close of business July 12, 1999 and will be considered
when the rule is to be made final. Comments on the information
collection requirements must be received on or before July 12, 1999.
ADDRESSES: Interested persons are invited to submit written comments to
the Director, Reinsurance Services Division, Risk Management Agency,
Stop 0804, United States Department of Agriculture, 1400 Independence
Avenue, SW, Washington, DC. 20250-0804. A copy of each response will be
available for public inspection and copying from 8 a.m. to 4:30 p.m.,
EDT, Monday through Friday, except holidays, at the above address.
FOR FURTHER INFORMATION CONTACT: For further information and a copy of
the Cost-Benefit Analysis to the General Administrative Regulations,
contact E. Heyward Baker, Director, Reinsurance Services Division, Risk
Management Agency, at the Washington, DC, address listed above,
telephone (202) 720-4286.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
The Office of Management and Budget (OMB) has determined this rule
to be significant and, therefore, it has been reviewed by OMB.
Cost-Benefit Analysis
A cost-benefit analysis has been completed and is available to
interested parties at the Washington, DC address listed above. In
summary, the analysis found that: (1) The anti-rebating and record-
controlling provisions will promote actuarial soundness of the crop
insurance program; (2) premium reductions are more likely to be offered
to large premium policy holders than small; (3) the proposed provisions
authorize FCIC/RMA management to deny permission to implement premium
reductions if there would be a reduction in the overall system's
ability to serve all farmers; and (4) the authority and basic
requirements for premium reductions are specified in the Act. In order
to avoid any adverse impact on small farmers or on the crop insurance
program itself, Secs. 400.755(b)(1) to (10) provide grounds for FCIC/
RMA management to reject premium
[[Page 25465]]
reduction applications. Based on the cost benefit analysis and the
requirements of the Act FCIC finds that this regulation is in the best
interest of the overall crop insurance program and should be proposed
in the Federal Register for public review and comment.
Paperwork Reduction Act of 1995
In accordance with section 3507 (j) of the Paperwork Reduction Act
of 1995 (44 U.S.C. 3501), the information collection or recordkeeping
requirements included in the proposed rule have been submitted for
approval to the Office of Management and Budget (OMB). Please send your
written comments to Clearance Officer, OCIO, USDA, room 404-W, 14th
Street and Independence Avenue SW, Washington, DC 20250. A comment to
OMB is best assured of having its full effect if OMB receives it within
30 days of publication of this proposed rule.
We are soliciting comments from the public comment concerning our
proposed information collection and recordkeeping requirements. We need
this outside input to help us:
(1) Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information has practical utility;
(2) Evaluate the accuracy of our estimate of the burden of the
proposed collection of information, including the validity of the
methodology and assumptions used;
(3) Enhance the quality, utility, and clarity of the information to
be collected; and
(4) Minimize the burden of the collection of information on those
who are to respond (such as through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology, e.g. permitting electronic
submission responses).
Title: General Administrative Regulations; Premium reductions;
payment of rebates, dividends, and patronage refunds; and payments to
insured-owned and record-controlling entities.
Abstract: A new program is being proposed that will allow approved
insurance providers to apply to FCIC for authority to reduce the
premium charged to producers in accordance with the Federal Crop
Insurance Act (Act), as amended, and to provide the limitation and
procedures established by FCIC.
Purpose: The purpose of this proposed rule is to provide guidelines
to approved insurance providers and their agents, employees, and
contractors regarding prohibited and permitted practices with respect
to premium reductions; payment of rebates, dividends, and patronage
refunds; and payments to insured-owned and record-controlling entities.
Burden Statement: The information that FCIC collects on the
requested application as defined in Sec. 400.751 of this regulation,
will be used to determine if the premium charged to producers may be
reduced. The burden for this information collection assumes that
approximately 18 reinsured companies will read this regulation. It is
further assumed that all 18 reinsured companies will eventually
complete an application to obtain written approval from RMA of premium
reduction plans.
Estimate of Burden: We estimate it will take 18 reinsured companies
2 hours to read the regulation for a total of 36 hours. In addition, we
also estimate it will take them 48 hours each to apply to the program
twice a year.
Respondents: 18 reinsured companies.
Estimated annual number of respondents: 18.
Estimated annual number of responses per respondent: 2.
Estimated annual number of responses: 36.
Estimated total annual burden on respondents: The total public
burden for this proposed rule is estimated at 900 hours.
Recordkeeping Requirements: FCIC requires records to be kept for
three years, but all records required by FCIC are retained as part of
the normal business practice. Therefore, FCIC is not estimating
additional burden related to recordkeeping.
Copies of this information collection can be obtained from:
Clearance Officer, OCIO, USDA, room 404-W, 14th Street and Independence
Avenue SW, Washington, DC 20250.
Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub.
L. 104-4, establishes requirements for Federal agencies to assess the
effects of their regulatory actions on State, local, and tribal
governments and the private sector. This rule contains no Federal
mandates (under the regulatory provisions of 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 12612
It has been determined under section 6(a) of Executive Order 12612,
Federalism, that this rule does not have sufficient federalism
implications to warrant the preparation of a Federalism Assessment. The
provisions contained in this rule will not have a substantial direct
effect on States or their political subdivisions or on the distribution
of power and responsibilities among the various levels of government.
Regulatory Flexibility Act
This regulation will not have a significant economic impact on a
substantial number of small entities. The rule provides the guidelines
to be used by all approved insurance providers or any other applicant
and FCIC in the application, review, and approval of plans to reduce
the premiums charged producers. Any submission is entirely voluntary
and the guidelines contained in this rule does not impact small
entities to a greater extent than large entities. Therefore, this
action is determined to be exempt from the provisions of the Regulatory
Flexibility Act (5 U.S.C. 605) and no Regulatory Flexibility Analysis
was prepared.
Federal Assistance Program
This program is listed in the Catalog of Federal Domestic
Assistance under No. 10.450.
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. The administrative appeal provisions published
at 7 CFR part 11 or action before the Board of Contract Appeals,
whichever is applicable, must be exhausted before any action for
judicial review of any determination made by FCIC may be brought.
Environmental Evaluation
This action is not expected to have a significant economic impact
on the quality of the human environment, health, and safety. Therefore,
neither an
[[Page 25466]]
Environmental Assessment nor an Environmental Impact Statement is
needed.
Background
The Risk Management Agency (RMA) is charged with the administration
of the crop insurance programs for FCIC. As such, RMA is responsible
for maintaining an effective, orderly, and efficient crop insurance
marketplace, including a delivery system capable of selling and
servicing FCIC's crop insurance policies and other risk management
products reinsured by FCIC to all producers in a manner that does not
unfairly discriminate among producers or insurance companies. The
delivery system must support efforts to operate in an actuarially sound
manner, to assure program integrity, and to avoid and prevent waste,
fraud, and abuse.
Premium reductions; payment of rebates, dividends, and patronage
refunds; and payments to insured-owned and record-controlling entities,
if improperly made, may have an adverse effect on FCIC's ability to
devise and establish an effective and efficient crop insurance
marketplace so as to best meet the risk management needs of producers
and its responsibility to protect the program and its participants.
Rebates are illegal in most States for those lines of insurance
regulated by State Departments of Insurance for several reasons, the
most important being the destructive impact that they can have on
delivery systems and on competition. Use of rebates could negatively
impact the smaller insurance companies because they would not be able
to provide the same economic incentives that larger companies could
provide and, as a result, they may unfairly lose market share. FCIC
relies on a healthy and competitive delivery system to assure that all
producers are afforded the best quality service, regardless of the size
of the farm or the amount of premium earned on the policy. The Standard
Reinsurance Agreement in effect for the 1998 reinsurance year prohibits
rebates.
Dividends and patronage refunds are normal business practices for
mutual, cooperative, and certain other insurance companies as well as
to certain kinds of cooperatives such as insurance-buying groups and
certain agricultural lenders. While the use of dividends and patronage
refunds are generally benign, they can also be used to disguise rebates
if they are guaranteed in advance or they are made contingent upon the
continued purchase of crop insurance policies. When they are disguised
rebates, they have the potential to impact negatively on the delivery
system, competition, and the quality of service afforded producers.
This rule in part provides procedures and limitations on providing such
dividends or patronage refunds.
The use of insured-owned entities in marketing also embodies the
potential for disguised rebates. There are instances where associations
or cooperatives have contracted with insurance companies to provide a
list of members and a product endorsement in exchange for a sum of
money. In these cases, the insured may have an interest in the
association or cooperative and the insured-owned entity may have the
capacity to reward those producers who purchase insurance. Such
inducements may be prohibited rebates. This rule is proposed to ensure
that any funds paid to the insured-owned entity are used to the benefit
of all members and not only those who purchase insurance.
The use of record-controlling entities presents different potential
problems. Here the potential impact is not on the delivery system and
competition but on FCIC's ability to achieve actuarial soundness and
protect program integrity. Record-controlling entities are processors,
packers, etc. that maintain the production records for the producer and
also have an interest in the insurance policy as the insured or
assignee of the policy. FCIC uses production records and related crop
production information from storage facilities, packers, processors,
and marketers to design insurance products, set premium rates,
establish yield guarantees for individual producers through the actual
production history program, and to determine the production to count
when there is a claim. There are also cases where the record-
controlling entity is recruited as an agent and paid a commission. This
creates, at the least, a potential conflict of interest and may
jeopardize actuarial soundness and program integrity. This rule
provides the conditions under which record-controlling entities can
participate in the Federal crop insurance program.
Premium reductions for FCIC-reinsured policies are specifically
authorized by section 508(e)(3) of the Act, which specifically
authorizes reinsured companies to reduce the amount of producer paid
premiums if they can demonstrate that they can deliver the crop
insurance program for less than the amount of administrative and
operating expense reimbursement they receive under the Act. This rule
establishes the procedures and limitations required to implement
premium reductions.
List of Subjects in 7 CFR part 400
Administrative practice and procedure, Crop insurance, Disaster
assistance, Fraud, Penalties, Reporting and recordkeeping requirements.
Proposed Rule
Accordingly, as set forth in the preamble, the Federal Crop
Insurance Corporation proposes to amend 7 CFR part 400 by adding
subpart W, effective for the 1999 and succeeding reinsurance years, to
read as follows:
PART 400--GENERAL ADMINISTRATIVE REGULATIONS
Subpart W--Premium Reductions; Payment of Rebates, Dividends, and
Patronage Refunds; and Payments to Insured-Owned and Record-controlling
Entities for the 1999 and Subsequent Crop Years
Sec.
400.750 Basis, purpose, and applicability.
400.751 Definitions.
400.752 Payment of Rebates.
400.753 Dividends and Patronage Refunds.
400.754 Payments to Insured-Owned and Record-Controlling Entities.
400.755 Reductions in premiums.
400.756 Records and Review.
400.757 Sanctions.
Authority: 7 U.S.C. 1506(1), 1506(p), 1508(e)(3)
Subpart W--Premium Reductions; Payment of Rebates, Dividends, and
Patronage Refunds; and Payments to Insured-owned and Record-
controlling Entities for the 1999 and Subsequent Crop Years
Sec. 400.750 Basis, purpose, and applicability.
(a) There is a growing trend to use marketing techniques that
compensate or reward insureds who obtain crop insurance in order to
increase the amount of premium written and the potential profitability
of the reinsured companies. This rule is intended to regulate such
conduct to protect the integrity of the crop insurance program.
(b) Section 508(e)(3) of the Act, as amended, authorizes FCIC to
approve applications by approved insurance providers to reduce premiums
payable by insureds when the private insurance provider is able to
demonstrate that it can sell and service the crop insurance program, in
accordance with the Act, the Standard Reinsurance Agreement, and the
applicable regulations, directives, bulletins and procedures, for less
than the amount paid by FCIC to the approved insurance provider for
administrative and operating expenses. This subpart provides the timing
of the application, the material to be included,
[[Page 25467]]
and describes FCIC's approval process for such application.
Sec. 400.751 Definitions.
Act. The Federal Crop Insurance Act (7 U.S.C. 1501 et seq.).
Application. A written request to RMA for authority to reduce
producer paid premiums
Approved insurance provider. A private insurance company that has
been approved by FCIC to sell and service crop insurance policies
reinsured by FCIC under the Act.
Cost-accounting statement. A listing of all of the approved
insurance provider's administrative and operating costs related to the
delivery of the Federal crop insurance program, prepared in a manner
that permits comparison with the Expense Exhibit submitted to RMA with
the Plan of Operation.
Covered person. An approved insurance provider; any employee,
contractor, agent, broker, or solicitor of such approved insurance
provider; any agency representing the approved insurance provider; any
owner, employer or controller of any such agency or contractor; any
spouse or family member residing in the same household as any such,
employee, contractor, agent, broker, solicitor, owner, or controller;
or any affiliate of any such approved insurance provider, agency, or
contractor.
Dividend. Profits or earnings divided among the owners or
shareholders in proportion to their ownership share.
Efficiency. A measurable monetary savings realized by an approved
insurance provider from changes to the compensation paid to its owners,
agents, or employees, or from changes to the administrative and
operating procedures that it employs in selling or servicing FCIC-
reinsured policies in accordance with the Act, the Standard Reinsurance
Agreement, and the applicable regulations, directives, bulletins and
procedures. Efficiency does not include underwriting profits earned on
such policies, or investment returns.
Entity. Any person, whether incorporated or not, including
associations, cooperatives, mutuals, corporations, and similar business
organizations that provide any good or service to insured producers.
FCIC. The Federal Crop Insurance Corporation, a wholly owned
government corporation within the United States Department of
Agriculture.
Insured. The named person shown on the properly completed
application for insurance that has been accepted by an approved
insurance provider and any person with a substantial beneficial
interest in the insured.
Insured-owned entity. Any entity that is at least 25 percent owned
or controlled by insureds.
Insured's premium. The portion of the FCIC-approved insurance
premium for the risk of loss that the insured must pay.
Patronage refund. A payment to an entity's clients in proportion to
the volume of business that each did with the entity or the amount of
profit generated from that business.
Person. Any individual or legal entity.
Premium reduction. Payment of a portion of the insured's premium by
the approved insurance provider in accordance with section 508(e)(3) of
the Act and these regulations.
Rebate. The giving or paying, either directly or indirectly, by a
covered person of anything of value to an insured or applicant, or a
person affiliated with an insured or applicant, such that the gift or
payment may reasonably be construed by RMA as intended to induce the
insured or applicant to obtain or maintain insurance coverage with or
through the covered person.
Record-controlling entity. Any entity, or its employee, agent,
contractor, or affiliate, that produces or controls the crop production
records used to establish the amount of the insurance coverage or the
amount of production to count in case of loss on an FCIC-reinsured crop
insurance policy, who also has an interest in the insurance policy as
the insured or assignee of the policy.
RMA. The Risk Management Agency, an agency of the United States
Department of Agriculture that administers the crop insurance program
for FCIC.
Sales closing date. The final date by which an FCIC-reinsured
policy may be purchased.
Small Producer. The producer of an insurable crop, which if insured
at 65 percent of the recorded or appraised average yield indemnified at
100 percent of the market price, or an equivalent coverage, would have
earned a premium, including premium subsidy but excluding
administrative and operating subsidy, of no more than $500.
Sec. 400.752 Prohibited practices.
(a) Rebating in any form is a prohibited practice. Any covered
person who provides a rebate to any insured or applicant will be
subject to the sanction provisions in Sec. 400.757.
(b) No crop insurance policy will be eligible for FCIC reinsurance,
premium subsidy, or administrative and operating subsidy if any covered
person makes any of the following payments to the insured producer:
(1) Rebate;
(2) Premium reduction, except with the prior approval of RMA; and
(3) Dividend or patronage refund, if such dividend or refund is
promised to the applicant or insured, or is contingent upon the insured
maintaining coverage with or through the entity;
(c) No crop insurance policy will be eligible for FCIC reinsurance,
premium subsidy, or administrative and operating subsidy if a covered
person makes any payment to:
(1) A record-controlling entity or to any employee, agent, or
contractor of such an entity, or any entity controlled by such an
entity, except as specified in paragraph (d) of this section; or
(2) An insured-owned entity, except an insurance company, or to any
employee, agent, or contractor of such an entity, or any entity
controlled by such an entity, when the entity participates in or
effects any control over the sale of policies and the establishment or
verification of the yields upon which insurance guarantees are based or
claims for indemnities are made, except as specified in paragraph (d)
of this section.
(d) Crop insurance policies specified in paragraph (b)(1) and (2)
of this section will be eligible for FCIC reinsurance, premium subsidy,
and administrative and operating subsidy when the specified payments:
(1) Are approved in writing by RMA;
(2) Are not based on the amount of FCIC-reinsured crop insurance
business sold through the entity; and
(3) The approved insurance provider presents a plan, accepted by
RMA, that demonstrates how, in cases involving record-controlling
entities, the integrity of the crop production records used to
establish the amount of the insurance coverage or the amount of
production to count in case of loss on an FCIC-reinsured crop insurance
policy, will be protected.
Sec. 400.753 Dividends and patronage refunds.
(a) Dividends and patronage refunds are permitted unless:
(1) A dividend or patronage refund is promised or guaranteed to be
paid to the insured or applicant;
(2) The payment of the dividend or patronage refund is contingent
upon the insured or applicant obtaining or maintaining coverage with or
through a specific covered person; or
[[Page 25468]]
(3) The payment of the dividend, crop insurance, or patronage
refund is made only to insureds.
(b) Prior to paying any dividends or patronage refunds to insureds
or applicants, the covered person must certify that such payments do
not violate paragraph (a) of this section. The covered person making
such payments will make those financial records applicable to such
payments available for inspection at the request of RMA.
(c) Payment of any dividend or patronage refund in violation of
this section will result in the imposition of sanctions in accordance
with Sec. 400.757.
Sec. 400.754 Payments to insured-owned and record-controlling
entities.
(a) Covered persons may not enter into agreements with insured-
owned entities to purchase a list of producers affiliated with the
insured-owned entity or an endorsement of the covered person by the
insured-owned entity except as specified in this section.
(1) The covered person must request approval from FCIC in writing
in accordance with paragraph (d) of this section.
(2) Covered persons may not execute agreements or make any payments
to insured-owned entities until receiving written approval from FCIC.
(3) The insured-owned entity must agree in writing not to make any
payments or provide any benefits to any insured or applicant affiliated
with the insured-owned entity that is contingent upon the insured or
applicant obtaining or maintaining insurance coverage with or through a
covered person.
(4) The insured-owned entity must agree in writing that all
payments made by the covered person will be deposited in the general
fund to be used for the benefit of all producers affiliated with the
insured-owned entity equally or in proportion to the persons interest
in the insured-owned entity, as applicable.
(5) The amount of the covered persons' payment to the insured-owned
entity must be a fixed amount and must not be based on the number of
crop insurance policies sold to producers affiliated with the insured-
owned entity or the volume of premium written.
(b) For any other type of agreement between covered persons and
insured-owned entities, the covered person must comply with all the
requirements of this section.
(c) A covered person is prohibited from providing any crop
insurance or making any payment to a record-controlling entity unless:
(1) The covered person or the record-controlling entity provides a
written request for approval for the record-controlling entity to
obtain insurance or receive a payment from FCIC;
(2) The covered person or the record-controlling entity obtains the
written approval from FCIC; and
(3) The covered person agrees in writing to appraise any crop under
the control of the record-controlling entity and insured with or
through the covered person not less than 5 days prior to harvest.
(d) All requests for approval under this section must comply with
the following:
(1) All requests for approval must be received not later than 60
days prior to the date an agreement between covered persons and
insured-owned entities is to be effective or, for insurance or payments
for record-controlling entities, the sales closing date or payment date
(requests received after the deadline will be considered for the next
crop year unless the request is withdrawn by the approved insurance
provider or unless FCIC otherwise agrees in writing);
(2) Each request must include the following material and address
each of the following items:
(i) The name of the covered person and the person who may be
contacted for further information regarding the request for approval;
(ii) A detailed description of the amounts to be paid by the
covered persons and the goods or services to be provided by the
insured-owned entity or record-controlling entity; and
(iii) Any other information required by FCIC.
(e) Entering into any agreement, providing insurance or making any
payment under this section without the prior written consent of FCIC
will result in the imposition of sanctions in accordance with
Sec. 400.757.
(f) Approval under this section will only be valid for the period
specified by FCIC in its written approval.
Sec. 400.755 Reductions in premiums.
(a) Approved insurance providers may obtain written approval of
premium reduction plans by submitting an application to RMA as follows:
(1) Applications must be received not later than 120 days before
the first sales closing date on any crop for which a premium reduction
is requested. Applications filed less than 120 days before the sales
closing date will be considered for the next crop year unless the
application is withdrawn by the approved insurance provider or unless
FCIC otherwise agrees in writing.
(2) The application under this section must be sent to the
Director, Reinsurance Services Division, USDA/RMA/Stop 0804, 1400
Independence Avenue, SW, Washington, DC 20250-0804.
(3) Each application must include the following:
(i) The name of the approved insurance provider, the person who may
be contacted for further information regarding the application, and the
person who will be responsible for administration of the premium
reduction;
(ii) The crops, insurance plans, the states or counties, and all
other eligibility criteria used to determine which insureds will be
offered the premium reduction;
(iii) An estimate of the number of producers who will be affected,
the crops, counties, and states affected, and the projected total
dollar amount of the reduction;
(iv) The first crop year for which the premium reduction is
proposed to be offered;
(v) A detailed description of the changes in administrative and
operating procedures that produce the efficiency and a detailed cost-
accounting statement verifying the existence and the amount of the
efficiency (Both statements must be certified by the person authorized
to sign the Standard Reinsurance Agreement for the approved insurance
provider. The cost-accounting statement must include historical data
that permits a comparison of administrative and operating costs before
and after the introduction of the new procedures. Estimates may be
supplied whenever the procedures have not yet been implemented or have
not been implemented long enough to permit the proper collection of
cost accounting data);
(vi) A description and an example as to how the approved insurance
provider will calculate the premium reduction and present it to
eligible insureds;
(vii) A description of those features of the proposed premium
reduction plan that will assure that it will not discriminate against
small producers, limited resources farmers as defined in section 1 of
the Basic Provisions, 7 CFR 457.8, or minority producers.
(viii) A narrative statement explaining how the application
satisfies all applicable approval criteria specified in Sec. 400.755;
and
(ix) Any other information that the approved insurance provider
wishes to submit or that is required by FCIC.
(b) Compliance with all the following criteria is required for
FCIC's approval:
(1) All required information must be timely submitted;
(2) There must not be a reduction in service to policyholders;
[[Page 25469]]
(3) There must not be a reduction in training and supervising of
agents, loss adjusters, or underwriting and quality assurance
personnel;
(4) There must not be a reduction in program integrity or an
adverse affect on actuarial soundness;
(5) There must not be a reduction in the total delivery system's
ability to serve all producers, including small producers, limited
resource farmers as defined in the Basic Provisions, 7 CFR 457.8,
minority producers, and producers located in areas with small volumes
of crop insurance business;
(6) There must not be a reduction in the total delivery system's
ability to provide risk management education to all producers;
(7) The efficiency must be measurable in dollar terms;
(8) RMA must be able to verify the existence and amount of the
efficiency and that it is derived from the administrative and operating
subsidy and not any expected underwriting gain;
(9) The efficiency must not derive from marketing or underwriting
practices that are unfairly discriminatory; such as discriminating
among producers on the basis of farm size or premium amount; and
(10) The premium reduction must not jeopardize or diminish the
financial condition of the approved insurance provider.
(c) Each application will be reviewed to determine if all necessary
documentation is included. FCIC may require changes or adjustments to
the application consistent with the Act and FCIC's regulations.
(d) An application to reduce premium will not be approved if FCIC
determines that it will discriminate against small producers, limited
resources farmers as defined in section 1 of the Basic Provisions, 7
CFR 457.8, or minority producers.
(1) If the insurance provider proposes to offer the premium
reduction to an identifiable group of producers or in a specific
geographical area, then the premium reduction must be made available to
all producers in that group or area, regardless of the amount of
premium to be earned on the producer's policy.
(2) No group or geographical area may be defined in such a manner
as to exclude small producers, limited resource farmers, or minority
producers.
(e) The Director of the Reinsurance Services Division will notify
the approved insurance provider of the action taken.
(1) If the application is disapproved, the approved insurance
provider:
(i) Will be notified of the reason for disapproval and will be
allowed to amend the application in an effort to obtain FCIC's
approval. If the approved insurance provider amends the application,
the review process starts again and it may not be possible to approve
the application in time to have it applicable for the crop year for
which such application was submitted; and
(ii) May request reconsideration of the decision with the Deputy
Administrator of Insurance Services within 30 days of disapproval. Such
request must provide a detailed narrative of the basis for
reconsideration.
(2) Approval is solely within the discretion of FCIC.
(3) An approved application may be implemented by the approved
insurance provider by the next sales closing date for the affected crop
after approval by RMA.
(4) Approved applications for premium reduction will only be valid
for the period specified by RMA.
(5) FCIC may rescind any approval at any time that it determines
that the requirements imposed by this rule are no longer satisfied or
if a change in the Act necessitates rescission. In such case,
rescission will not take effect earlier than the date of FCIC's written
notice to the approved insurance provider.
(6) The approved insurance provider must report all changes causing
a material impact upon a previously-approved application to the
Director of the Reinsurance Services Division.
Sec. 400.756. Records and Review.
At any time after approval, RMA may conduct a review or audit of
any action approved under this subpart and require additional
information or access to records pertaining to such actions. Failure to
comply with this section will result in the impositions of sanctions in
accordance with Sec. 400.757.
Sec. 400.757 Sanctions.
(a) No crop insurance policy in violation of this subpart will be
eligible for reinsurance, premium subsidy, or administrative and
operating expenses. If reinsurance, premium subsidy, or administrative
and operating expenses have been paid for such policy, they must be
repaid to FCIC.
(b) Approved insurance providers are responsible for the conduct of
all of their covered persons. If such covered person violates any
provision in this subpart, the approved insurance provider will be held
strictly liable.
Signed in Washington, DC, on May 4, 1999.
Kenneth D. Ackerman,
Manager, Federal Crop Insurance Corporation.
[FR Doc. 99-11759 Filed 5-11-99; 8:45 am]
BILLING CODE 3410-08-P
