[Federal Register Volume 64, Number 137 (Monday, July 19, 1999)]
[Rules and Regulations]
[Pages 38537-38546]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18263]
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Rules and Regulations
Federal Register
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Federal Register / Vol. 64, No. 137 / Monday, July 19, 1999 / Rules
and Regulations
[[Page 38537]]
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DEPARTMENT OF AGRICULTURE
Federal Crop Insurance Corporation
RIN 0563-AB15
7 CFR Part 400
General Administrative Regulations; Submission of Policies and
Provisions of Policies, and Rates of Premium
AGENCY: Federal Crop Insurance Corporation, USDA.
ACTION: Final rule.
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SUMMARY: The Federal Crop Insurance Corporation (FCIC) finalizes
specific General Administrative Regulations. The effect of this action
is to prescribe the guidelines necessary to implement and administer
sections 506 and 508 of the Federal Crop Insurance Act, as amended
(Act), with respect to the submission of policies and provisions of
policies and rates of premium to FCIC's Board of Directors (Board) for
review, approval or disapproval, publication, and implementation.
EFFECTIVE DATE: August 18, 1999.
FOR FURTHER INFORMATION CONTACT: Timothy Hoffmann, Director, Product
Development Division, Federal Crop Insurance Corporation, United States
Department of Agriculture, 9435 Holmes Road, Kansas City, MO 64131,
telephone (816) 926-3707.
SUPPLEMENTARY INFORMATION:
Executive Order 12866
The Office of Management and Budget (OMB) has determined this rule
to be significant for the purposes of Executive Order 12866 and,
therefore, this rule has been reviewed by OMB.
Impact Analysis
An Impact Analysis has been completed and is available to
interested persons at the address listed above. In summary, the
guidelines contained in this regulation are administrative in nature.
They are intended to facilitate the review for approval of policy terms
and conditions, endorsements, actuarial documents, underwriting rules,
administrative procedures, and rates of premium for new insurance
products submitted to FCIC under section 508(h) of the Act for Board
approval/disapproval. They contain very little in the way of program
policy. While some comments on the proposed rule were received that new
products were being held to a ``higher standard'' than FCIC's
traditional products, there is nothing in the regulation that differs
from standard operating procedure for the existing crop insurance
program. In most cases, the provisions of the regulation are dictated
by statutory requirements, for example, the requirement for an
actuarially appropriate premium rate structure.
Paperwork Reduction Act of 1995
It has been determined by OMB that this rule is exempt from the
information collection requirement contained under the Paperwork
Reduction Act of 1995 (44 U.S.C. chapter 35).
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 the 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
the 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,
FCIC, and the Board for the submission, review, and approval of
policies, provisions of policies, or rates of premium which, if
approved by the Board, will be sold to producers through approved
insurance providers and reinsured by FCIC or incorporated into policies
reinsured by FCIC. Any submission is entirely voluntary. This
regulation will not impose more stringent requirements on small
entities than on large entities. Therefore, this action is determined
to be exempt from the provisions of the Regulatory Flexibility Act (5
U.S.C. 601 et. seq.), 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 400.169 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 impact on the
quality of the human environment, health, and safety. Therefore,
neither an Environmental Assessment nor an Environmental Impact
Statement is needed.
National Performance Review
This regulatory action is being taken as part of the National
Performance Review Initiative to eliminate
[[Page 38538]]
unnecessary or duplicative regulations and improve those that remain in
force.
Background
On Thursday, September 11, 1997, FCIC published a notice of
proposed rule making in the Federal Register at 62 FR 47772 to make
available guidelines necessary to carry out the requirements of the Act
with respect to the submission of policies and materials to the Board.
FCIC makes available standard policies and forms for use by insurance
providers in insuring certain crops against various agricultural
production risks and perils. Under section 508(h) of the Act, any
person may submit or propose other crop insurance policies, provisions
of policies, or rates of premium for insuring wheat, soybeans, field
corn, and any other crop determined by the Secretary of Agriculture.
The Act states that these policies may be submitted without regard to
limitations contained in the Act. The Act also requires that FCIC issue
regulations to establish guidelines for the submission and FCIC Board
review of policies or other materials submitted to the Board. This
regulation provides such guidelines.
Following publication of the proposed rule, the public was afforded
60 days to submit written comments and opinions. A total of 53 comments
were received from an insurance service organization and from several
reinsured companies. The comments received and FCIC's responses are as
follows:
Comment: An insurance service organization asked if under section
400.700(c)(3) which states that: ``rates of premiums for multiple peril
crop insurance'' may be submitted for consideration, means that
insurance companies may submit rates for ``regular'' multiple peril
crop insurance coverage other than those published in FCIC's actuarial
documents.
Response: Section 508(h)(1)(B) of the Act allows a person to submit
rates of premiums to the Board for the multiple peril crop insurance
program for those wheat, soybeans, field corn, or any other crops
determined by the Secretary, if the provisions for insurance are
materially different from FCIC's provisions of insurance as published
at 7 CFR chapter IV.
Comment: An insurance service organization questioned the
difference between the definition of ``MPCI'' contained in section
400.701 and the term ``multiple peril crop insurance'' as referenced in
section 400.700(c)(3). The commenter suggested adding a definition of
multiple peril crop insurance to distinguish the difference between the
two terms.
Response: There is no distinction between the term ``multiple peril
crop insurance'' in section 400.700(c)(3) and the definition of MPCI in
section 400.701. However, FCIC has amended the definition of MPCI to
mean FCIC multiple peril crop insurance policies codified in 7 CFR
chapter IV.
Comment: An insurance service organization suggested changing the
definition of ``policy'' contained in section 400.701 as new crop
insurance provisions submitted for approval may not always need all of
the provisions and endorsements listed in the definition. They
suggested using ``the appropriate policy provisions and endorsements''
in lieu of listing all the provisions and endorsements.
Response: FCIC has amended the definition of ``policy.''
Comment: An insurance service organization and a reinsured company
recommended clarifying the term ``all information'' contained in
section 400.702(b) by specifying ``all information submitted by the
reinsured company, including statistical modeling and data * * *''
Response: FCIC has amended section 400.702(b) accordingly although
FCIC has substituted the term ``applicant'' in place of ``reinsured
company'' since any person can provide a submission or proposal to the
Board.
Comment: An insurance service organization and three reinsured
companies expressed concern with the provisions of section 400.703(a)
in the proposed rule (redesignated 400.703) which state: ``Since
policies vary in complexity and availability of required data, neither
FCIC nor RMA make any assurance that approval will be given in time for
sales in any crop year.'' One commenter stated the provision is
unnecessary as there is no guarantee a submission will be approved at
all. Three of the commenters indicated the provision conflicts with the
minimum requirement for submissions to be received no later than 240
days prior to the first sales closing date. The commenters stated that
since this provision sets rigorous time requirements for reinsured
companies yet does not set such requirements for FCIC, a deadline for
response from FCIC should be imposed. One reinsured company stated the
deadline precludes the alteration or expansion of an existing program
from one year to the next or from one planting season (e.g., spring
planted crops) to the next (e.g., fall planted crops) and questioned
when the clock starts and restarts. One reinsured company suggested
adding language to allow an accelerated time frame to accommodate
unusual circumstances.
Response: There is no guarantee that a submission will be approved.
However, FCIC has determined that the 240 day period is the minimum
time needed for FCIC to review and evaluate a submission, determine
actuarial appropriateness, obtain an opinion of legal sufficiency,
obtain Board approval, and to make a Board approved submission
available to all insurance providers for the upcoming crop year. The
time period is intended to provide sufficient time for review and
approval of most submissions. However, there may be instances where
program complexities, data availability or dispute between FCIC and the
applicant delay the review and approval process. FCIC has revised the
section to clarify the priority that will be used to review
submissions. Unusual circumstances will be addressed on a case-by-case
basis.
Comment: An insurance service organization states that the
requirement in section 400.703(b) of the proposed rule (redesignated as
section 400.705(d)) for six copies suggests a submission must be
provided in hard copy format. The service organization requested
clarification as to acceptability of submitting electronically, or on
computer diskette as is indicated in section 400.707(d)(6)(ii)
(redesignated as 400.707(d)(5)).
Response: Sections 400.705(d) and 400.707(d)(5) have been revised
to allow for electronic submission or on computer diskettes.
Comment: A reinsured company suggested that the language in the
introductory text of section 400.705 of the proposed rule which states:
``at a minimum, it must include the following identified material * *
*'', could be deleted as that language is also repeated in section
400.705(a).
Response: FCIC has deleted the introductory text of section 400.705
of the proposed rule.
Comment: A reinsured company stated the minimum submission
requirements contained in section 400.705(a) of the proposed rule
constitutes a list of information, statements and product documentation
that will require a thorough development process and review. This will
require that the submitting company invest an enormous amount of
capital but provides no commercial incentive or ownership of the
product if the submission is approved and all supplementary information
becomes available to the public under the provisions of section
400.708(a) and (b) of the proposed rule (redesignated as
[[Page 38539]]
400.708(b) and (c)). The reinsured company suggested that FCIC, which
does not release such complete information for FCIC products and
programs, should follow the same guidelines required of the submitting
company, including public disclosure.
Response: When applicants voluntarily submit proposals, development
and review of such proposals may require a large expenditure of
resources. However, it is Congress that has determined that the
information be released to the public once the proposal has been
approved by the Board. Congress has imposed no such requirement on
FCIC. Further, unless specifically exempted, much of the information
compiled by FCIC in the development of its products is available to the
public under the Freedom of Information Act. Therefore, no change has
been made.
Comment: An insurance service organization requested clarification
in the language contained in section 400.705(a)(10). An insurance
service organization asked what ``circumstances'' might change and how
would the applicant know in order to develop procedures to accommodate
such changes.
Response: FCIC has revised this section to specify that any subsidy
paid will be limited to an amount authorized by law.
Comment: An insurance service organization recommended combining
the provisions contained in section 400.705(a)(11) with those contained
in section 400.705(a)(11)(i) because there is no section
400.705(a)(11)(ii).
Response: FCIC has deleted section 400.705(a)(11) (i)(A) through
(H) of the proposed rule and reformatted section 400.705(a). These
provisions that were duplicative with other provisions were removed.
The remainder were incorporated into other more appropriate areas of
the section.
Comment: A reinsured company expressed concern in the proposed
language contained in section 400.705(a)(11)(i)(J)(1) of the proposed
rule (redesignated as section 400.705(a)(12)(i)) that requires the
submission to identify the parties and responsibilities for addressing
the policy and procedural issues and questions that arise in
administering the approved program. The commenter stated that once the
program is approved, FCIC becomes the responsible party for those
areas. FCIC assumes that responsibility with the approval of the
program, and it becomes an FCIC program the same as MPCI or GRP or any
other FCIC approved or designed crop insurance program.
Response: Section 508(h) of the Act only requires FCIC to provide
reinsurance and risk subsidy, if appropriate, and publish the policy in
the Federal Register once it is approved. None of these activities
results in FCIC, as the reinsurer, assuming liability or ownership for
the approved policy or being solely responsible for addressing policy
and procedural issues and questions that arise in administering the
approved program. This responsibility resides with the party who
assumes the obligation. However, FCIC will assist in resolving such
issues and then provide the information to other insurance providers.
Therefore, no change has been made.
Comment: An insurance service organization and two reinsured
companies recommended deleting the provisions contained in section
400.705(a)(11)(i)(J)(2) of the proposed rule (redesignated as section
400.705(a)(12)(ii)). Two of the commenters stated the reason for an
approval process is for FCIC to assess the liability of a new product
and that if FCIC intends to avoid any product or legal liability, there
seems to be no reason for such an approval process. One commenter
stated the party responsible for product liability including flaws in
product design must be FCIC; otherwise the FCIC approval process is
meaningless. Upon the approval of the program, the program becomes an
FCIC program.
Response: Before FCIC can approve a private submission under
section 508(h) of the Act, it must determine that the interests of
producers are adequately protected and that premiums charged to the
producers are actuarially appropriate. However, this submission usually
involves new and innovative products for which FCIC has no experience
and, therefore, FCIC must rely on the information provided by the
applicant. FCIC uses its best judgment in evaluating and approving
these products but the ultimate responsibility for product design,
rating, and development of procedures remains with the submitter.
FCIC's role is only as a reinsurer of these submissions. Therefore,
since designed by the applicant, the liability for flaws in the design
remain with the applicant. Approval for reinsurance does not convert a
submission to an FCIC program. Therefore, no change has been made.
Comment: A reinsured company suggested that the annual reviews
required by section 400.705(a)(11)(i)(K) of the proposed rule
(redesignated as section 400.705(a)(13)) should be conducted by FCIC
since after approval of the submission, it is an FCIC program.
Response: As stated in the previous response, FCIC, as a reinsurer,
does not assume responsibility or ownership for private crop insurance
policies submitted and approved for FCIC reinsurance under section
508(h) of the Act. The applicant submitting the policy is responsible
for establishing performance goals for the policy and to conduct annual
reviews to determine if such goals are being met. Based on these
reviews, the applicant is responsible for making changes to the policy
to meet the established goals. As a reinsurer for these types of crop
insurance policies, FCIC will monitor their performance to revise
reinsurance terms or to withdraw approval if necessary. In addition, if
assistance is requested, FCIC will assist the applicant in correcting
identified problems. Therefore, no change has been made.
Comment: An insurance service organization and a reinsured company
recommended that dates be established in section
400.705(a)(11)(i)(K)(3) of the proposed rule (redesignated as section
400.705(a)(13)(iii)). Both commenters suggested that the dates and
language established in the Memorandum of Understanding be utilized.
The commenters indicated the Memorandum of Understanding states that
the insurance provider shall submit annual rate evaluations and any
suggested program improvements for the following crop year to FCIC by
July 1 of each year for spring-planted crops and by March 1 for fall-
planted crops. In the event of unforeseen circumstances, the commenters
recommended that changes may be submitted to FCIC after the July 1 and
March 1 deadlines, so long as they are submitted not later than 30 days
prior to the contract change date.
Response: The Memorandum of Understanding provides the
responsibilities of FCIC and the submitter and does establish the dates
by which certain materials must be provided to FCIC. However, not every
submission will require a Memorandum of Understanding and not all will
require the same dates so flexibility must be maintained.
Notwithstanding the dates in the Memorandum of Understanding or
provided by the submitter under this rule, if there is a flaw in the
policy that requires a change, such change may be submitted to FCIC at
any time prior to the contract change date. Therefore, no change has
been made.
Comment: An insurance service organization and a reinsured company
recommended that the provisions in
[[Page 38540]]
section 400.705(a)(12)(i) of the proposed rule (redesignated as section
400.705(a)(14)(i)) be deleted. Both commenters expressed concern that
if RMA enforces the requirement of ``sample survey results from
producers, producer groups, agents, lending institutions, and other
interested parties,'' approval will be impossible. One commenter
questioned who will define ``sample survey'' and if the definition
would be changed ``from day to day.'' In addition, both commenters
recommended deleting the provision because an unofficial survey may not
be credible and a professional survey would be cost-prohibitive.
Response: Before FCIC can dedicate resources to a submitted
product, FCIC must be assured there is adequate need and interest for
the product submitted. FCIC has changed ``sample survey'' to ``market
research'' for clarification. This does not require a professional
market research but one that provides a summary of the groups or
persons contacted, the number of persons or groups responding, and the
results of the research so that the demand for the submitted product
can be verified.
Comment: An insurance service organization and a reinsured company
stated the language contained in section 400.705(a)(14) of the proposed
rule (redesignated as section 400.705(a)(16)) that requires an
``explanation of those provisions not authorized under the Act and the
premium apportioned to those provisions'' substantiates the concern
that the same submission standards should apply to public and private
products. The commenters stated the private sector should not be held
to higher standards than the government and that sales of the MPCI
program would not have been approved if FCIC had to meet those same
requirements.
Response: This is not an issue of the private sector being held to
a higher standard than those imposed on the MPCI program. Programs
offered by FCIC must be in compliance with all provisions of the Act.
Congress has relaxed the requirement for section 508(h) submissions,
and allows the private sector to offer products not otherwise
authorized under the Act. FCIC is only requiring the applicant to
explain any provision contained in the submission that are not
authorized under the Act. Further, since Congress has limited the
amount of risk subsidy to an amount authorized under the MPCI program,
FCIC needs an explanation of the premium apportioned to any aspect of
the submission not authorized under the Act. An example could be a
provision that provides a daily rate for rental of equipment in the
event the producers equipment is inoperable. Therefore, no change has
been made.
Comment: An insurance service organization questioned if the word
``stochastic'' contained in section 400.705(b)(3)(ii) meets the
readability guidelines. The commenter suggested that it may be helpful
to add a parenthetical definition or replace the term with
``statistical'' or ``probability.''
Response: FCIC has added a definition of stochastic.
Comment: An insurance service organization and two reinsured
companies stated the language contained in section 400.705(b)(5)
created standards that are too high to attain. Two commenters indicated
certification need only meet current industry standards and suggested
the language should read: ``A certification that the submission is
consistent with sound insurance principles, practices, and requirements
of the Act.'' Both reinsured companies stated it is difficult, if not
impossible, to find uninterested third parties who are qualified to
review crop insurance. One reinsured company stated that FCIC does not
require its employees who develop rates and policies to hold an
associate or fellow of the Casualty Actuarial Society (CAS) designation
and should not require it of a private submission. This commenter also
indicated that paid certifications by CAS designees or a graduate
degree economist does not demonstrate much more than an extra
expenditure of time and money. All commenters expressed concerns that
RMA should not require submissions to provide more certification or
review than RMA does on its current product inventory.
Response: FCIC does not believe more stringent requirements are
being placed on private submissions. FCIC's premium rating methodology
has been evaluated by a private actuarial firm. This firm has
determined that FCIC's rating methodologies are consistent with sound
insurance principles, practices, and requirements of the Act. Given the
problems that have arisen between FCIC and applicants with respect to
the submission of rates, FCIC determined that it is prudent to have the
methodology review by trained, disinterested parties. Especially since
the terms of reinsurance must be based, in part, on the quality of the
evidence submitted. Therefore, no change has been made.
Comment: An insurance service organization and two reinsured
companies recommended deleting section 400.705(c)(4) of the proposed
rule (redesignated as section 400.705(c)(2)) that requires statements
from at least three commercial reinsurers or reinsurance brokers
regarding the availability of commercial reinsurance. Each of the
commenters stated there is no purpose in going through the formalities
of acquiring statements from reinsurance brokers regarding the
availability of commercial reinsurance because if a proposed product
was insurable in the commercial sector, a company would not submit it
to FCIC. One reinsured company suggested that if FCIC is concerned
whether the submitting company has the capacity to write the proposed
amount of policies, a reinsurance plan utilizing the company's own
capacity and reinsurance would be reasonable.
Response: There may be cases where a commercial reinsurance market
may exist but the applicant merely is attempting to obtain better terms
from the Government. FCIC has revised section 400.705(c) so that this
requirement is not mandatory but FCIC may require such information if
it suspects that a commercial market exists. The clause ``* * * and, if
applicable, any past insurance experience of the submission or similar
crop program'' has been deleted because it is contained in section
400.705(a)(15).
Comment: A reinsured company recommended that the rules proposed in
section 400.706 contain provisions that RMA will provide the submitting
applicant an acknowledgment within 30 days of receipt, an inventory of
minimum requirements, a time line of its review process, a list of the
responsible parties, and a contact person who is knowledgeable of the
submission.
Response: Since this rule contains the minimum requirements for a
submission and the documents are submitted by the applicant, an
inventory is not necessary. Acknowledgment is not needed since the
submitter retains a proof of submission. The contact person is the
submission addressee until FCIC notifies the submitter of other
responsible parties. Since the information contained in the documents
may need corrections or clarifications before FCIC can complete its
review, a time line cannot be included at this date.
Comment: A reinsured company and an insurance service organization
suggested that the provisions of section 400.707(b) include language to
ensure that the Manager convenes the Board in time to meet all
deadlines contained in the proposed regulation. Both commenters
suggested Board meetings
[[Page 38541]]
be scheduled one year in advance to assure that a submission would not
fail to gain approval because the Board did not meet in time to meet
FCIC's deadlines.
Response: Since FCIC cannot predict when a submission will be
received and the time required to prepare the submission for the Board,
it cannot set a Board meeting date. If the submission is submitted
timely and contains all information required by this rule, there should
be no problem in scheduling a Board meeting to approve or disapprove
the submission. Therefore, no change has been made.
Comment: An insurance service organization and a reinsured company
stated the language contained in section 400.707(d)(3) of the proposed
rule (redesignated as 400.708(a)(1)) that requires a Memorandum of
Understanding to be in place at least 60 days before the earliest crop
sales closing date was in reverse order. Each of the commenters
indicated that FCIC will not sign a Memorandum of Understanding before
the Board has approved the product, thus the Memorandum of
Understanding will follow the approval, not precede it.
Response: The Memorandum of Understanding should follow Board
approval and the provisions have been revised accordingly. Within 30
days of Board approval, the Memorandum of Understanding should be
completed, which will provide approximately 60 days for marketing the
product. These provisions have been modified and moved to section
400.708(a)(1) for clarification.
Comment: Two reinsured companies and an insurance service
organization expressed concerns about the provisions of section
400.707(d)(4) of the proposed rule (redesignated as 400.707(d)(3)). The
commenters stated the provision gives FCIC the authority to make
changes at the last minute, despite the requirements for timeliness
imposed on the company. The commenters indicated that when FCIC
requires an adjustment, it should follow the deadlines set out
elsewhere in the proposed rule. The insurance service organization
questioned if FCIC's Board will only approve the submission if the
applicant ``agrees to make any adjustment FCIC may suggest,'' and
whether these suggestions will be separated into ``substantive'' and
``non-substantive'' categories, with the applicant not having to accept
the non-substantive suggestions in order to get approval. One reinsured
company suggested this statement would be more accurate if it stated
the Board will not approve any submission unless the policy, procedures
or other related material meet FCIC's approval. The reinsured company
stated this would reinforce that FCIC's approval is conditioned on its
approval of all aspects of the program, further defining that any
approved program is an FCIC program.
Response: Section 400.707(d)(3) does not give FCIC the right to
make last minute or untimely changes or adjustments to the submission
and is not intended to force the applicant to make all changes FCIC may
suggest. Before the Board can approve a submission for reinsurance
under section 508(h) of the Act, the Board is required to determine
that the rights of producers are adequately protected and that any
premiums charged to the producers are actuarially appropriate. Any
recommended changes to make the submission conform with these
requirements will be considered as substantive changes and must be
incorporated into the submission before it can be approved. FCIC will
inform the applicant of any such change as soon as possible during
FCIC's review of the submission. Suggested changes to the submission
should be separated into ``substantive'' and ``non-substantive''
categories and FCIC has revised section 400.707(d)(3). Failure of the
applicant to incorporate non-substantive changes will not serve as a
basis for the Board to disapprove the submission. However, FCIC will
work with the applicant to resolve all issues during FCIC's review of
the submission. As stated in a previous response, although the Board
may approve a submission, FCIC as a reinsurer, does not assume sole
responsibility or ownership for private crop insurance policies
submitted.
Comment: An insurance service organization questioned if the time
frame provided in section 400.707(d)(6)(i) of the proposed rule is
sufficient for the applicant to market the new program, since policies
and related forms must be available to producers at least 30 days
before the earliest sales closing date.
Response: The 30 days before the sales closing date cited by the
commenter refers to carry-over insureds, of which there are none for a
new product. FCIC realizes the importance of having sufficient sales
time for the product. If the review is completed, FCIC will forward the
recommendation to the Board at least 90 days before the first crop
sales closing date. Within 30 days of Board approval, the reinsurance
agreement should be completed which will provide approximately 60 days
for marketing the product. These provisions have been modified and
moved to section 400.708(a)(2) for clarification.
Comment: An insurance service organization and a reinsured company
suggested the references to rates and rating procedures contained in
section 400.707(d)(6)(ii) of the proposed rule (redesignated as
400.707(d)(5)) need clarification and suggested adding language to
require definitions for the determination of each variable used in
rating.
Response: FCIC has added the phrase ``defining each variable used
in any rating formulae'' after rates.
Comment: A reinsured company commented that the provisions of
section 400.707(e) indicates the Board may disapprove submissions if
all specified requirements are not met. The commenter questioned the
purpose of a submission being provided to Research and Development
staff if the Board will be presented and charged with determining if a
submission does or does not meet all requirements. The commenter stated
the Board should not be tasked with review of all minute details, it
should only receive for consideration submissions that fulfill all
requirements.
Response: FCIC staff do not have the authority to approve or
disapprove a submission. Staff will make a recommendation to the Board,
but the Board ultimately decides whether producers are adequately
protected and rates are actuarially appropriate. Therefore, no change
has been made.
Comment: An insurance service organization and a reinsured company
suggested that the language in section 400.707(e)(1) be changed to
state: ``Such notice will contain the basis for approval, and will
include recommended changes necessary for Board approval.'' The
insurance service organization also questioned how provisions that
state the Board will notify the applicant of disapproval ``not later
than 30 days prior to taking such action will fit into the overall time
frame when section 400.703(a) (redesignated as 400.703) states a
minimum of 240 days before the first sales closing date is to be used
for marketing as well as for review and approval. The commenter ask if
the language ``not later than 30 days prior'' means more than 30 days
before official disapproval, or within that 30 day period and suggested
the language be revised to ``at least 30 days prior.''
Response: FCIC may not know what changes may be required to obtain
Board approval. Therefore, the provision must provide FCIC with the
discretion to provide recommendations when known. FCIC has revised the
[[Page 38542]]
provision to state ``at least 30 days prior.''
Comment: A reinsured company suggested that the provisions of
section 400.708(b) be clarified to indicate that any solicitation,
sales, marketing or advertising before FCIC has made the material
available to all interested parties through its official issuance
system will result in denial of reinsurance, risk subsidy, and
administrative and operating (A&O) subsidy for the first approved crop
year for the party which solicited, sold, marketed or advertised early.
Response: FCIC has clarified that any solicitation, sales,
marketing, or advertising of the program before FCIC has made the
submission and related 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 such policies.
Comment: A reinsured company and an insurance service organization
recommended changing the wording ``full subsidy'' contained in section
400.710 to ``subsidy.''
Response: The term full subsidy meant the maximum risk subsidy and
A&O subsidy allowed under the Act. An applicant may request less than
the maximum allowable subsidies. FCIC has revised the provision to
specifically refer to risk and A&O subsidy.
Comment: An insurance service organization and a reinsured company
questioned the applicability of the provisions contained in section
400.711 that allow the Board at any time after approval to request
additional information, require appropriate amendments, revisions or
program changes for the purpose of actuarial soundness or program
integrity. Both commenters stated those changes should be made by FCIC
because the program is an FCIC program after approval. The insurance
service organization recommended clarification of the provision because
the approval process should be thorough enough that such cases are rare
and there is nothing that indicates whether such reviews, requests and
requirements would be effective for the subsequent crop year or whether
approval could be revoked retroactively. The service organization
recommended the Board's approval be effective for at least the first
year.
Response: As stated above, approval of a submission does not
convert it to an FCIC program. Further, if problems arise during the
crop year, FCIC may need to take corrective action immediately for the
purpose of maintaining actuarial soundness of the program, program
integrity, or protection of the interests of producers. If this
situation arises, FCIC will work closely with the applicant to
determine the appropriate corrective actions to be taken. Therefore, no
change has been made.
Comment: Two reinsured companies and an insurance service
organization expressed concern about the standards set forth in the
proposed regulation. All commenters stated that FCIC appears to have
approval authority over submissions but takes no responsibility for
those programs approved by the Board. The commenters suggested that if
FCIC approves a submission, then FCIC must be the regulator, manager,
maintainer and administrator of that program. In this role, FCIC will
accomplish what was intended by the Act by providing a process and
mechanism under which organizations, in addition to FCIC, can design
programs that are needed in the marketplace and make them available to
producers under the FCIC product umbrella. All commenters stated that
if FCIC is not willing to assume that role, then submissions should not
be approved.
Response: Section 508(h) of the Act was enacted for the sole
purpose to allow private insurance companies to create and manage their
own crop insurance policies. FCIC's only role in these private programs
is to provide financial assistance if FCIC determines that the
interests of producers are adequately protected and that any premiums
charged to the producers are actuarially appropriate. There is nothing
in the Act which states that the submission must be made available
``under the FCIC product umbrella.'' FCIC need only publish the policy
and disseminate information produced by the applicant. This is fully in
keeping with the intent of the Act. As stated in a previous response,
FCIC does assume the responsibility of a regulator because the
submission is approved by FCIC for financial assistance with taxpayers'
funds. The approval process is necessary to assure that taxpayers'
dollars are supporting a sound crop insurance product. Therefore, no
change has been made.
In addition to the changes described above, FCIC has made minor
editorial changes and has amended the following:
1. Section 400.700(d) has been clarified to specify those
provisions of the Act that are not applicable under section 508(h).
2. Section 400.701--Amended the definitions of ``person,'' ``
replacement program,'' ``submission,'' and ``supplemental program'' for
clarification.
3. Section 707(d)(5) has been redesignated as section 707(d)(4).
4. Section 400.708(a) has been redesignated as section 400.708(c).
5. Section 400.709(b) has been revised to clarify the changes that
are considered material.
List of Subjects in 7 CFR Part 400
Administrative practice and procedures, Claims, Crop insurance,
Reporting and recordkeeping requirements.
Final Rule
Accordingly, as set forth in the preamble, the Federal Crop
Insurance Corporation hereby amends the General Administrative
Regulations (7 CFR part 400) by adding subpart V as follows:
PART 400--GENERAL ADMINISTRATIVE REGULATIONS
Subpart V--Submission of Policies, Provisions of Policies and Rates
of Premium
Sec.
400.700 Basis, purpose, and applicability.
400.701 Definitions.
400.702 Confidentiality of submission.
400.703 Timing of submission.
400.704 Type of submission.
400.705 Contents of submission.
400.706 FCIC review.
400.707 Presentation to and review by the Board for approval or
disapproval.
400.708 Approved submission.
400.709 Review of an approved program.
400.710 Preemption and premium taxation.
400.711 Right of review, modification, and amendment.
Authority: 7 U.S.C. 1506(1), 1506(p).
Subpart V--Submission of Policies, Provisions of Policies and Rates
of Premium
Sec. 400.700 Basis, purpose, and applicability.
(a) The Act requires FCIC to issue regulations that establish
guidelines for the submission of policies or other material to the FCIC
Board under section 508(h) of the Act. These guidelines prescribe the
timing, submission and approval process so that the Board may timely
consider any submission for approval and, if approved, make it
available for sale to producers by any approved insurance provider in
the first crop year that the submission is authorized for reinsurance,
subsidy, or other financial support that may be available under the
Act. These guidelines also authorize FCIC and the Board to monitor the
submission to ensure continued compliance with the requirements of the
[[Page 38543]]
Act, this subpart, and changes required by the Board.
(b) These regulations apply to all applicants.
(c) An applicant may submit for consideration by the Board:
(1) Crop insurance policies that are not currently reinsured or
subsidized by FCIC;
(2) Provisions of policies that may amend existing crop insurance
policies that are approved by FCIC; or
(3) Rates of premiums for MPCI policies pertaining to wheat,
soybeans, field corn, or any other crop authorized by the Secretary of
Agriculture.
(d) A policy or other material submitted to the Board under section
508(h) of the Act may be prepared without regard to the limitations
contained in the Act. Only the provisions in the Act directly relating
to the terms of the insurance policy, such as coverage, premium rates,
or price elections, are considered as the limitations referenced in
section 508(h) of the Act.
(e) Any FCIC payment of a portion of the premium may not exceed the
amount authorized under section 508(e) of the Act, and payment of
administrative and operating expense subsidy may not exceed the amount
authorized under section 508(d).
Sec. 400.701 Definitions.
Act. The Federal Crop Insurance Act (7 U.S.C. 1501 et seq.).
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 insurance provider.
Applicant. Any person who submits a policy, provisions of a policy,
or premium rates to the Board for approval under section 508(h) of the
Act.
Board. The Board of Directors of FCIC.
FCIC. The Federal Crop Insurance Corporation, a wholly owned
government corporation within the United States Department of
Agriculture.
Insurance provider. A private insurance company that has been
approved by FCIC to provide crop insurance coverage under the Act.
Manager. The Manager of FCIC.
MPCI. The FCIC multiple peril crop insurance policies authorized
under the Act and codified in 7 CFR chapter IV.
NASS. National Agricultural Statistics Service, an agency of the
United States Department of Agriculture, or a successor agency.
Person. Any individual or legal entity possessing the capacity to
contract.
Policy. A crop insurance contract between a person and an insurance
provider, consisting of the accepted application, the applicable policy
provisions and endorsements, if applicable, and the applicable
actuarial material for the insured crop.
Rate of premium. The dollar amount per insured unit or percentage
rate per dollar of liability that is needed to pay expected losses and
provide for a reasonable reserve.
Replacement program. A crop insurance program that provides
coverage at least equal to that provided under the MPCI program with
similar terms, conditions, and covered causes of loss approved by the
Board under the authority of section 508(h) of the Act.
Revenue insurance. Plans of insurance providing protection against
loss of income, which are designated as such by FCIC.
Risk subsidy. That portion of the FCIC approved insurance premium
for the risk of loss paid by FCIC on behalf of the policyholders to the
insurance provider.
Secretary. The Secretary of the United States Department of
Agriculture.
Stochastic. A randomly determined sequence of observations, each of
which is considered as a sample of one element for a probability
distribution.
Submission. Any policy provisions, rates of premium, and related
material submitted to FCIC that differs from the present MPCI program
or replacement programs or that request a material change in an
existing insurance program.
Supplemental program. A submission requesting reinsurance only that
provides coverage in addition to, and is written concurrently with, an
MPCI policy or a replacement program.
Sec. 400.702 Confidentiality of submission.
(a) A submission made to the Board under section 508(h) of the Act
will be considered as confidential, commercial, or financial
information for purposes of 5 U.S.C. 552(b)(4) until approved by the
Board. An applicant may waive such confidentiality by advising FCIC in
writing, or by releasing such information to a person or entity other
than FCIC.
(b) Once a submission is approved, all information provided by the
applicant to the Board, including statistical modeling and data, will
be made public.
(c) Any submission disapproved by the Board will remain
confidential, commercial, or financial information in accordance with 5
U.S.C. 552(b)(4).
Sec. 400.703 Timing of submission.
Any submission for Board review must be received not later than 240
days prior to the first sales closing date for which sales are
requested for a crop to provide adequate time for review, approval, and
marketing of the program. If the submission applies to more than one
crop, the earliest applicable crop sales closing date controls.
However, any submission received by FCIC less than 240 days prior to
the first sales closing date may be considered if all parties agree the
submission can be reviewed, approved, and information disseminated to
insurance providers in a timely manner without creating excessive risk
and exposure to the crop insurance program or disruptions in the market
place. Such a submission must meet all statutory requirements,
specifically that the approved submission can be made available to all
persons reinsured by FCIC in a manner permitting the persons to
participate in the sales of the product in the first crop year for
which it is approved by the Board for reinsurance, premium subsidy, or
other support offered by the Act. Otherwise, the submission will be
considered for the subsequent crop year. Since submissions vary in
complexity and availability of required data, FCIC makes no assurances
that approval will be given in time for sales in any crop year. In the
event FCIC receives more submissions than it can process for an
upcoming crop year, the date received, complexity, and completeness of
the submission will determine when FCIC's review of the submission will
be initiated and the crop year for which the submission is approved.
Sec. 400.704 Type of submission.
An applicant may submit to the Board:
(a) Policies and related material identified as one of the
following types:
(1) A supplemental program;
(2) A replacement program; or
(3) Any other submission authorized under section 508(h) of the Act
but not classified by paragraphs (a) and (b) of this section.
(b) One or more proposed revisions of any MPCI policy, revenue
insurance policy, or any other policy approved by the Board; and
(c) Premium or rates of premiums for MPCI policies.
Sec. 400.705 Contents of submission.
(a) Each submission may contain any information that the applicant
wishes to provide but, at a minimum, must include the following
material:
(1) Applicant's name;
(2) Type of submission;
(3) Proposed crops, types, varieties, or practices, as applicable,
to be covered by the submission;
(4) Geographical areas in which the submission will be applicable;
[[Page 38544]]
(5) Potential crop acreage, production, and liability that could be
written (estimated by crop and state);
(6) Percentage of the crop acreage, production, and liability that
is expected to be written (estimated by crop and state);
(7) Crop year in which the submission is proposed to be effective;
(8) Proposed duration of the approval, if applicable;
(9) A statement of the applicant's intent to expand the program in
future crop years to different geographical areas or crops, types,
varieties, or practices, as applicable;
(10) A statement of whether the applicant is requesting
reinsurance, risk subsidy, or A&O subsidy for the submission, and if
so, the proposed methods of calculating the risk subsidy or A&O subsidy
(The allowable subsidies cannot exceed the amount authorized by law);
(11) A determination whether:
(i) The submission will be filed with the applicable Commissioner
of Insurance for each state proposed for sales, and if not, the reasons
such submission will not be forwarded for review by the Commissioner;
and
(ii) The submission complies in all material respects with the
standards established by FCIC for processing and acceptance of data as
specified in its Manual 13 ``Data Acceptance System Handbook,'' unless
FCIC has agreed otherwise as part of the development process (This
handbook is available from the Actuarial Division, P.O. Box 419293,
Kansas City, MO 64141);
(12) Identification of:
(i) Parties responsible for addressing the policy and procedural
issues and questions that may arise in administering the approved
program; and
(ii) Parties responsible for the product liability and the basis
for such responsibility including liability for flaws in product design
if such results in litigation against the applicant or FCIC;
(13) Procedures for annual reviews to ensure compliance with all
requirements of the Act, this subpart, and any agreements executed
between the applicant and FCIC:
(i) The title of the person responsible for completing each task;
(ii) The date by which each task will be completed; and
(iii) The date by which the information or documents will be made
available to FCIC, the policyholder, other insurance providers, or the
Commissioner of Insurance, if applicable (Policy information, forms and
other related documents must be made available to the producer at least
30 days prior to the earliest crop sales closing date for the crops to
which the submission applies.);
(14) A description of the benefits of the submission:
(i) To producers that demonstrate how the submission offers
coverages or costs that differ significantly from existing programs and
that such coverage is generally not available from the private sector
(Such descriptions should be supported by market research results from
producers, producer groups, agents, lending institutions, and other
interested parties, which should also include a summary of those
persons or organizations contacted and the number of persons or
organizations responding) that provides verifiable evidence of the
demand for the submitted product; and
(ii) To taxpayers that demonstrate how the submission meets the
public policy goals and objectives as stated in the Act, the statements
of the Secretary, or similar officials and laws (This must include the
rationale and data supporting the request for FCIC's financial
commitment to the submission);
(15) Any accumulated insurance experience from all years and in all
states in which the submission has been offered for sale and a
comparison of the submission's performance with other crop insurance
programs; and
(16) An explanation of those provisions not authorized under the
Act and the premium apportioned to those provisions.
(b) With respect to any submission that impacts the amount of
premium charged to the producer, the applicant must provide with the
submission:
(1) A detailed description of the rating methodology, including all
mathematical formulae and equations used in determining all
unsubsidized and subsidized premiums or rates of premium;
(2) A list of the assumptions used in the formulation of the
premiums or rates of premium;
(3) Simulations of the performance of the proposed premiums or
rates of premium based on one or more of the following:
(i) By determining the total premiums and anticipated losses that
would be paid under the submission and comparing these totals to a
comparable insurance plan offered under the authority of the Act (Such
simulations must use all experience available to the applicant and must
include at least one year in which indemnities for the submission and
the comparable crop exceed total premiums);
(ii) By means of a stochastic simulation of the submission that is
based on the same assumptions as those used to develop the premiums or
rates of premium, including sensitivity tests with regard to each
assumption that demonstrates the probable impact of an erroneous
assumption; or
(iii) By means of any simulation that can be proven to provide
results comparable to those described in paragraphs (b)(3)(i) and (ii)
of this section;
(4) Worksheets that provide the calculations in sequential order
and in sufficient detail to allow verification that the premiums
charged for the coverage are consistent with policy provisions (Any
unique premium component must be explained in sufficient detail to
determine whether the existence or amount of the premium or premium
rate is appropriate); and
(5) A certification that includes, but is not limited to, an
evaluation of all supporting documentation and analysis from an
accredited associate or fellow of the Casualty Actuarial Society or a
similar uninterested third party who did not participate in the primary
development, or peer review panel or both. The evaluation must
demonstrate that the submission is consistent with sound insurance
principles, practices, and requirements of the Act.
(c) With respect to those submissions that involve new crop
insurance programs or revision of an existing crop insurance program:
(1) The applicant must provide with the submission:
(i) An application and related policy forms together with the
instructions for completing and processing such forms;
(ii) The insurance policy provisions;
(iii) A sample of the actuarial documents;
(iv) The underwriting rules, including but not limited to:
(A) The procedures for accepting the application;
(B) The rules for determining program eligibility, including but
not limited to, minimum acreage, premium requirements, sales closing
dates, production reporting requirements, and inception or termination
dates of the policy;
(C) The application of administrative fees as required by the Act;
(D) A description of available options that are different from any
existing crop insurance program;
(E) Any information needed to establish coverage and determine
claims, including prices that must be made available during the
insurance period (This information must specify how and when such
determination is
[[Page 38545]]
made and that the process is in compliance with policy provisions);
(F) Any other applicable underwriting requirements that may be
required by FCIC; and
(G) The agent training plans;
(2) The applicant may be required to submit statements from at
least three commercial reinsurers or reinsurance brokers regarding the
availability of commercial reinsurance, the amount of commercial
reinsurance available, and the proposed terms of reinsurance;
(3) Loss adjustment procedures and calculations that include, but
are not limited to:
(i) Procedures that clearly specify the methods for determining the
existence of and the amount of any payable loss under the submission
and that demonstrate that such determinations are consistent with
policy provisions; and
(ii) Examples and worksheets that provide the steps for calculating
the amounts of any payment for indemnity (loss in yield or price),
prevented planting payment or replant payment in sequential order and
in sufficient detail to allow review and verification that the
indemnity calculations are consistent with policy provisions. Any
unique component must be explained in sufficient detail to determine
whether the existence or amount of the claim is appropriate;
(4) A detailed calculation for determining commodity prices,
coverage levels, the amounts of insurance, and production guarantees;
and
(5) A detailed description of the causes of loss covered and
excluded under the submission.
(d) The submission must be sent to the Deputy Administrator,
Research and Development, Federal Crop Insurance Corporation, 9435
Holmes Road, Kansas City, MO 64131. The submission must also include
computer disks or other electronic media in a format acceptable to RMA.
Sec. 400.706 FCIC review.
Each submission will be reviewed by FCIC to determine if all
necessary and appropriate documentation is included. The submission may
be returned to the applicant if it does not comply in all material
respects with these requirements. Any returned submission must be
resubmitted in its entirety unless otherwise determined by FCIC.
Sec. 400.707 Presentation to and review by the Board for approval or
disapproval.
(a) Upon completion of staff review, all recommendations will be
forwarded to the Board.
(b) After scheduling the submission to be presented to the Board,
the Manager will inform the applicant of the date, time, and place of
such meeting.
(c) The applicant will be given the opportunity to present the
submission to the Board. The applicant must notify FCIC in writing in
advance of the Board meeting as to whether the applicant will present
the submission to the Board. If the applicant plans to present the
submission and fails to appear, or if the applicant requests FCIC to
present the submission, an FCIC representative will present the
submission to the Board.
(d) The Board may consider for approval the submission for sale to
producers as an additional risk management tool if:
(1) Producers interests are adequately protected;
(2) Premiums charged are actuarially appropriate;
(3) The applicant agrees to make any requested FCIC substantive
changes in the submission to ensure compliance with the Act and to
protect the interests of producers and the integrity of the program.
FCIC will categorize recommended changes in a submission into
substantive and non-substantive. (Failure of the applicant to
incorporate non-substantive changes suggested by FCIC will not serve as
a basis for the Board to disapprove the submission);
(4) The insurance provider's resources, procedures, and internal
controls are adequate to make the product available to producers in a
timely manner in the proposed market areas; and
(5) The applicant provides rates, defining each variable used in
any rating formulae, forms, guidelines, standards, actuarial material,
rating procedures, indemnity procedures, and related documents.
(e) The Board may disapprove the submission for financial
assistance if all the requirements of paragraph (d) of this section are
not met. When the Board indicates its intention to disapprove, it will:
(1) Notify the applicant in writing of its intent to disapprove the
submission at least 30 days prior to taking such action (Such notice
will contain the basis for disapproval, and may include changes
necessary for Board approval);
(2) Consider any resubmission as a new proposal and complete the
review process at a later time; and
(3) Reserve the right to act upon an applicant's revised submission
or defer action to a later time or for a subsequent crop year.
Sec. 400.708 Approved submission.
(a) Within 30 days of Board approval, the following must be
completed:
(1) A Memorandum of Understanding or other such agreement between
the applicant and FCIC that specifies the responsibilities of each with
respect to the implementation, delivery and oversight of the
submission, and;
(2) A reinsurance agreement between FCIC and the applicant that
specifies the amount of reinsurance coverage, risk subsidy, and A&O
subsidy, as applicable.
(b) Any solicitation, sales, marketing, or advertising of the
program before FCIC has made the submission and related 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 in violation of this provision.
(c) A submission approved by the Board under this subpart will be
published as a notice of availability in the Federal Register, and be
made available to all persons contracting with or reinsured by FCIC
under the same terms and conditions as required of the submitting
company.
Sec. 400.709 Review of an approved program.
(a) Responses to procedural issues, questions, problems or needed
clarification regarding an approved submission shall be jointly
addressed by the applicant and FCIC. All such resolutions shall be
communicated to all insurance providers through FCIC's official
issuance system. Any corrected material must be presented to FCIC in a
format specified in Sec. 400.705(d).
(b) Any change causing a material impact upon a submission
previously approved by the Board must be resubmitted for Board
consideration and approval. (A material impact is any one that may
affect the premium charged or liability under the policy.)
(c) The approved submission will be administered in accordance with
all terms of the reinsurance agreement, any applicable Memorandum of
Understanding, or any other requirement deemed appropriate by the
Board.
Sec. 400.710 Preemption and premium taxation.
A policy that is approved by the Board for FCIC reinsurance only,
or FCIC reinsurance and risk and A&O subsidies, and published in the
Federal Register as a notice of availability is preempted from state
and local taxation. Any changes to policy provisions requested under
state and local laws
[[Page 38546]]
and regulations must be submitted to FCIC for review and Board
approval.
Sec. 400.711 Right of review, modification, and amendment.
At any time after approval, if sufficient material, documentation
or cause arises, the Board may review any approved program, request
additional information, and require appropriate amendments, revisions
or program changes for purposes of actuarial soundness, program
integrity or protection of the interests of producers.
Signed in Washington, DC, on July 12, 1999.
Kenneth D. Ackerman,
Manager, Federal Crop Insurance Corporation.
[FR Doc. 99-18263 Filed 7-16-99; 8:45 am]
BILLING CODE 3410-08-P
