[Federal Register Volume 62, Number 180 (Wednesday, September 17, 1997)]
[Proposed Rules]
[Pages 48798-48799]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24770]
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Proposed Rules
Federal Register
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This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 62, No. 180 / Wednesday, September 17, 1997 /
Proposed Rules
[[Page 48798]]
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DEPARTMENT OF AGRICULTURE
Federal Crop Insurance Corporation
7 CFR Chapter IV
General Administrative Regulations; Nonstandard Underwriting
Classification System
AGENCY: Federal Crop Insurance Corporation, USDA.
ACTION: Advanced Notice of Proposed Rulemaking; Request for Comments.
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SUMMARY: This notice announces a public comment period on the
Nonstandard Underwriting Classification System (NCS) which is
administered by the Federal Crop Insurance Corporation (FCIC) in
conjunction with the Federal crop insurance program. The NCS program
compares an individual producer's crop loss history with the losses for
the producer's county. If the producer exceeds the level of loss
frequency and severity set by FCIC, the producer's rates and coverages
are adjusted to bring the policy into line with FCIC's statutory
mandate to implement an actuarially sound crop insurance program.
Concurrently, the loss histories for these NCS producers are removed
from the accumulated program statistics which are used to set the
insurance rates for the remainder of the policyholder population. This
has the effect of moderating rate increases for the majority of
producers by making high loss producers responsible for paying more
premium based on their individual risk.
A number of interested parties, including producer groups and
insurance agent associations, have indicated that NCS does not treat
producers fairly and that it does not correctly identify those
producers who represent greater risk to the crop insurance program
based on their individual loss histories. These comments have come at a
time when FCIC is seeking ways to improve the NCS process relative to
reducing the administrative burden of the program. In its current form,
NCS creates a significant amount of work to review individual producers
who are selected under the current NCS regulations.
FCIC is soliciting comments concerning improving NCS in a manner
consistent with the administration of an actuarially sound crop
insurance program.
DATES: Submit comments on or before October 17, 1997.
ADDRESSES: Interested persons are invited to submit written comments to
the Director, Claims and Underwriting Services Division, Risk
Management Agency, United States Department of Agriculture, 1400
Independence Avenue, S.W., STOP 0803, room 6749-S, Washington, D.C.
20250-0803. A copy of each response will be available for public
inspection and copying during regular business hours (7:00 a.m. to 4:30
p.m., Eastern Time, at the above address).
FOR FURTHER INFORMATION CONTACT: Michael F. Hand, Director, Claims and
Underwriting Services Division, Risk Management Agency, at the
Washington, D.C. address listed above, telephone (202) 720-3439.
SUPPLEMENTARY INFORMATION:
Title: Nonstandard Underwriting Classification System. 7 CFR part
400, subpart O.
Respondents/Affected Entities: Parties affected by the NCS process
and any changes which may occur as a result of this review include
producers, insurance companies reinsured by FCIC, and insurance agents.
Abstract: FCIC is conducting a review of the NCS program to address
reported and identified problems with the process as it currently
exists. FCIC had previously identified a need to change the system
consistent with a need to simplify the crop insurance program in
general and reduce the time and resources needed to administer NCS each
year. The goal was to identify advances in the availability of crop
insurance program data and computer processing capabilities and use
these improvements to automate the NCS process.
Subsequent to the start of the automation improvement effort, FCIC
began to receive comments regarding perceived problems with the NCS
selection process. For many producers in the Upper Midwest and
Southwest, 1997 was the third year of consecutive flooding or drought
respectively. Producers who had received crop insurance payments in
1995 and 1996 were concerned that the 1997 losses in conjunction with
any other loss history they had would result in their being placed on
NCS. Combined with the increasing emphasis being placed on crop
insurance by lending institutions, some producers worried that a sharp
increase in premium rates or adjustment to their coverage could
adversely impact their ability to obtain financing. Additional comments
received reflected concerns about the impact of NCS on new producers
and other situations which might be viewed as being unfair relative to
the NCS selection process.
FCIC is seeking public comment on a range of options being
considered to address the above stated issues. These options include
but are not limited to: (a) Eliminate the NCS program altogether; (b)
amend the current NCS program regulations as needed in order to address
identified issues (to include moderation of premium increases and
changes to recognize and exclude widespread disasters.); (c) implement
an entirely new NCS process that would segregate producers with
excessive crop insurance losses and rate their policies separate from
the mainstream producer population (proposals include the use of
premium adjustment tables to identify excessive ratios, using Actual
Production History (APH) yield floors to trigger higher premium rates,
or other means of identifying the frequency and severity of losses);
(d) maintain the current NCS program and adjust the process to achieve
administrative efficiencies and assure fair and equitable
determinations; and (e) place a two year moratorium on the current
regulation to delay adding any new NCS selections until acceptable
program changes can be implemented. If sufficient consensus exists,
FCIC would consider implementing the revised NCS process for the 1999
crop year.
Background: The NCS program was implemented in 1991 in response to
data analysis which showed that a relatively small number of crop
insurance policyholders were receiving as much as twenty-eight (28)
percent of the indemnities for the period reviewed. The purpose of NCS
was to isolate producers with adverse loss experience
[[Page 48799]]
exceeding established limits and rate them separately from the rest of
the policyholder population. This concept is consistent with other
private and public insurance programs which have the means to identify
participants with high losses and separately rate them for the risk
associated with the losses they have incurred. In 1997 25,126 NCS
listings appeared on county crop actuarial documents. This number,
which is less than two percent of the policyholders with active crop
policies in 1996, includes producers no longer actively engaged in
farming, as well as duplicate names for those producers who farm
multiple crops or farm in more than one county. The list does not
include other persons who share in the crop with a NCS producer, but
who are required to pay the same NCS rates as the listed producer. The
primary benefit of the NCS program is that by individually rating high
loss producers under this process, FCIC is able to exclude their loss
histories from the premium rating formulas. It has been estimated that
on a crop policy basis, this saves non-NCS producers from five to nine
percent on the cost of their crop insurance coverage. It has also been
estimated that if NCS were eliminated, the reintroduction of the loss
history into the rating pool would result in across the board premium
increases for all non-NCS producers of $50 to $90 per crop policy
annually.
Under the current NCS regulations, producers are selected for NCS
adjustment if they meet the following criteria:
(1) Three or more indemnified losses during the NCS base period,
(The base period generally means ten consecutive crop years. The base
period for 1998 NCS selections is 1987-1996 for most crops.)
(2) Cumulative indemnities exceed same period cumulative premiums
by at least $1,000.
(3) A premium has been earned in at least one of the most recent 4
crop years in the base period.
(4) The result of dividing the number of indemnified losses during
the base period by the number of years premium is earned is equal to,
or greater than, .60.
(5) Either of the following apply:
(a) The ``Z'' score (a reference loss ratio used to ensure
comparability between producers) equals 2.00 or greater; or
(b) Five or more indemnified losses have occurred during the NCS
base period and the cumulative loss ratio equals 1.50 or greater.
The consecutive occurrence of widespread adverse weather conditions
in the Upper Midwest and Southwest, at the same time when changing U.S.
farm policy has increased producer's reliance on crop insurance, has
resulted in a greater awareness of the NCS program. Some producers are
concerned that their recent losses will be followed by selection for
NCS rate or coverage adjustments. This concern has also been echoed by
producer organizations and elected representatives. FCIC had formulated
a two tiered strategy to deal with these concerns. The short-term plan
was to thoroughly review the 1998 NCS selections to ensure that
producers who had been impacted by widespread disasters were not placed
on NCS based primarily on losses associated with the disasters. For the
longer term, FCIC was to survey interested parties about NCS and form a
work group to recommend changes to the NCS program for the 1999 crop
year. The survey was completed and the responses received reviewed. The
work group was not formed because of concerns relating to the Federal
Advisory Committee Act. Instead, FCIC has determined to seek public
comment regarding the NCS process through the Federal Register and this
notice. Comments received in response to the original survey will be
considered in conjunction with any comments received in response to
this notice.
Executive Order 12866
The Office of Management and Budget (OMB) has determined this rule
to be not significant for the purposes of Executive Order 12866, and,
therefore, this rule has not been reviewed by OMB.
Signed in Washington, D.C., on September 12, 1997.
Kenneth D. Ackerman,
Manager, Federal Crop Insurance Corporation.
[FR Doc. 97-24770 Filed 9-16-97; 8:45 am]
BILLING CODE 3410-08-P
