[Federal Register Volume 62, Number 176 (Thursday, September 11, 1997)]
[Proposed Rules]
[Pages 47772-47776]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-23904]


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DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 400

RIN 0563-AB15


General Administrative Regulations; Submission of Policies and 
Provisions of Policies, and Rates of Premium

AGENCY: Federal Crop Insurance Corporation.

ACTION: Proposed rule.

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SUMMARY: The Federal Crop Insurance Corporation (FCIC) proposes to 
amend its General Administrative Regulations. The intended 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.

DATES: Written comments and opinions on this rule will be accepted 
until close of business November 10, 1997, and will be considered when 
the rule is to be made final.

ADDRESSES: Interested persons are invited to submit written comments to 
the Director, Product Development Division, Federal Crop Insurance 
Corporation, United States Department of Agriculture, 9435 Holmes Road, 
Kansas City, MO 64131.

FOR FURTHER INFORMATION CONTACT: Timothy Hoffmann, Director, Product 
Development Division, Federal Crop Insurance Corporation, at the Kansas 
City, MO, address listed above, telephone (816) 926-3707.

SUPPLEMENTARY INFORMATION:

Executive Order No. 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, has not been reviewed by the Office of Management and 
Budget.

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. Thus, this 
rule is not subject to the requirements of sections 202 and 205 of the 
UMRA.

Executive Order No. 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 
provision 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

    The Manager, Federal Crop Insurance Corporation, certifies that 
this regulation will not have a significant economic impact on a 
substantial number of small entities. The action provides the 
guidelines to be used by approved insurance providers, or any other 
applicant, FCIC, and its Board, for the submission, review, and 
approval of policies, provisions of policies, or rates of premium 
which, if approved by FCIC, may ultimately be sold to producers through 
approved insurance providers and reinsured by FCIC or incorporated into 
policies reinsured by FCIC. Section 508(h)(5) of the Act requires FCIC 
to publish the guidelines and regulations for the submission and Board 
review of policies and other related materials. 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.

[[Page 47773]]

Executive Order No. 12988

    This proposed rule has been reviewed in accordance with Executive 
Order 12988 on civil justice reform. The provisions of this rule will 
not have retroactive effect prior to the effective date. The 
administrative appeal provisions published at 7 CFR part 11 must be 
exhausted before any action against FCIC for judicial review may be 
brought.

Environmental Evaluation

    This action is not expected to have a significant 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 unnecessary or duplication 
of regulations and improve those that remain in force.

Background

    The Corporation makes available standard policies and forms for 
producers to insure certain crops against various agricultural 
production risks and perils. Under the provisions of 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 as 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 material 
submitted to the Board under the Act.
    This regulation provides the guidelines needed to carry out the 
requirements of the Act with respect to the submission of policies and 
materials to the Board.

List of Subjects in 7 CFR part 400

    Administrative practice and procedures, Claims, Crop insurance, 
Reporting and record keeping requirements.

Proposed Rule

    Accordingly, for the reasons set forth in the preamble, the Federal 
Crop Insurance Corporation proposes to amend 7 CFR part 400 by adding 
Subpart V to read 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  RMA 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(l), 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 providers for the first 
crop year that the submission is authorized for either reinsurance, 
subsidies, 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 
Act, this subpart, and required changes in the case of noncompliance.
    (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 multiple peril crop insurance 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 limitations 
contained in the Act including the requirements concerning the level of 
coverage, rates of premium, or the requirement that a price level for 
each commodity insured must equal the expected market price for the 
commodity as established by the Board.
    (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, as amended (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 Company.
    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 the Federal Crop Insurance 
Corporation.
    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 multiple peril crop insurance policies authorized under 
the Act and 7 CFR chapter IV.
    NASS. National Agriculture Statistics Service, an agency of the 
United States Department of Agriculture, or a successor agency.
    Person. An individual, partnership, association, corporation, or 
other legal entity.
    Policy. A crop insurance contract between a person and an insurance 
provider consisting of the accepted application, the Basic Provisions, 
the Crop Provisions, the Special Provisions, the Catastrophic Risk 
Protection Endorsement, if applicable, and the applicable actuarial 
material for the insured crop.
    Premium or 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 or an 
existing crop insurance program with similar terms, conditions, and 
covered causes of loss.

[[Page 47774]]

    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.
    RMA. Risk Management Agency, an agency of the United States 
Department of Agriculture which administers the crop insurance program 
for FCIC.
    Secretary. The Secretary of the United States Department of 
Agriculture.
    Submission. Any policy provisions, rates of premium, and related 
material that differ from an MPCI or existing replacement program or 
that request a material change in an approved insurance program.
    Supplemental program. A submission requesting reinsurance only that 
provides coverage in addition to, and is written concurrently with, an 
MPCI policy or an approved 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 RMA in writing, or 
by releasing such information outside the applicant.
    (b) Once a submission is approved, all information provided by the 
applicant to the Board 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.

    (a) 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. Any 
untimely submission will be considered for the subsequent crop year. 
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.
    (b) Six copies of the submission under this section must be sent to 
the Deputy Administrator, Research and Development, Federal Crop 
Insurance Corporation, 9435 Holmes Road, Kansas City, MO 64131.


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 under section 508(h) of the Act 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 under 
section 508(h) of the Act; and
    (c) Provisions or rates of premiums for MPCI policies.


Sec. 400.705  Contents of submission.

    Each submission may contain any information that the applicant 
wishes to provide but, at a minimum, it must include the following 
identified material:
    (a) All submissions must contain at a minimum:
    (1) The applicant's name;
    (2) The type of submission;
    (3) The proposed crops, types, varieties, or practices, as 
applicable, to be covered by the submission;
    (4) The geographical areas where the submission will be applicable;
    (5) The percentage of the crop production and acreage that 
potentially could be affected by the submission and the estimated total 
liability (by state and crop);
    (6) The percentage of the crop production and acreage that is 
expected to be affected by the submission (estimated participation by 
crop and state) and the estimated liability (by state and crop);
    (7) The crop year in which the proposed submission will be 
effective;
    (8) The proposed duration of the program, if applicable;
    (9) A statement of whether the applicant intends 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. In the event that circumstances change, procedures also must 
be included to show how to recompute the risk subsidy or A&O subsidy so 
that the amounts of subsidy do not exceed the amount authorized by law;
    (11) A schedule of the tasks to be completed for the implementation 
of the submission including;
    (i) A list of the tasks that must be completed, including, as 
applicable;
    (A) Premium rates;
    (B) Actuarial data;
    (C) Crop prices;
    (D) Application and related policy forms;
    (E) Training materials;
    (F) Loss adjustment procedures;
    (G) Procedures for compliance reviews;
    (H) Examination of insurance experience;
    (I) A determination if:
    (1) The submission will be filed with the applicable Commissioner 
of Insurance for each state proposed for sales, and if not, the basis 
of why such submission will not be forwarded for review by the 
Commissioner; and
    (2) 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, PO Box 419293, 
Kansas City, Mo 64141;
    (J) Identification of:
    (1) Parties and responsibilities for addressing the policy and 
procedural issues and questions that arise in administering the 
approved program; and
    (2) Party 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; and
    (K) Procedures for annual reviews to ensure compliance with all 
requirements of the Act, this subpart and any agreements executed 
between the applicant and FCIC;
    (1) The name and title of the person responsible for completing 
each task;
    (2) The date by which each task will be completed; and
    (3) The date by which the information or documents will be made 
available to RMA, 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 not 
later than 30 days before the earliest crop sales closing date for the 
crops to which the submission applies.);
    (12) A description of the benefits of the submission:
    (i) To producers, that demonstrate how the submission offers 
coverages or costs that are significantly different from existing 
programs and that such coverage is generally not available from the 
private sector. Such descriptions should be supported by sample survey

[[Page 47775]]

results from producers, producer groups, agents, lending institutions, 
and other interested parties; 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;
    (13) 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 competing crop 
insurance programs; and
    (14) 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 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 revisions of the provisions of an existing crop 
insurance program, the applicant must provide with the submission:
    (1) Copies of the application and related policy forms together 
with the instructions for completing and processing such forms;
    (2) Copies of the insurance policy provisions;
    (3) The underwriting rules, including but not limited to:
    (i) The procedures for accepting the application;
    (ii) The rules for determining program eligibility, including but 
not limited to, minimum acreage, premium requirements, sales closing 
dates, production reporting requirements, inception or termination 
dates of the policy;
    (iii) The application of administrative fees as required by the 
Act;
    (iv) The description of available options that are different from 
any existing crop insurance program;
    (v) 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 made and that the process is in compliance with policy 
provisions.); and
    (vi) Any other applicable underwriting requirements that may be 
required by RMA;
    (4) Statements from at least three commercial reinsurers or 
reinsurance brokers regarding the availability of commercial 
reinsurance, the amount of commercial reinsurance available, the 
proposed terms of reinsurance and, if applicable, any past insurance 
experience of the submission or similar crop insurance program;
    (5) The 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 for 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;
    (6) A detailed calculation for determining commodity prices, 
coverage levels, the amounts of insurance, and production guarantees; 
and
    (7) A detailed description of the causes of loss covered and 
excluded under the submission.


Sec. 400.706  RMA review.

    Each submission will be reviewed by RMA to determine if all 
necessary and appropriate documentation is included. RMA will provide 
the Board with the result of its review and recommendation with respect 
to whether the submission complies with the Act and this subpart. The 
submission may be returned to the applicant if it does not comply in 
all material respects with these requirements. To be considered, any 
returned submission must be resubmitted in its entirety unless 
otherwise agreed to by RMA.


Sec. 400.707  Presentation to and review by the board for approval or 
disapproval.

    (a) Upon completion of RMA's review, RMA's recommendations will be 
forwarded to the Board.
    (b) The Manager shall schedule the submission to be presented to 
the Board and inform the applicant of the date, time, and place of such 
meeting.
    (c) The applicant will be given the option of presenting the 
submission to the Board. The applicant must notify FCIC in writing in 
advance of the Board meeting as to whether the applicant or a 
representative of FCIC will present the submission to the Board. If the 
applicant plans to present the submission and fails to appear, 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:

[[Page 47776]]

    (1) Producers interests are being adequately protected;
    (2) Premiums charged are actuarially appropriate with regard to the 
frequency and severity of anticipated losses;
    (3) A memorandum of understanding or other such agreement has been 
executed between the applicant and FCIC, which specifies the 
responsibilities of each with respect to the implementation, delivery 
and oversight of the submission at least 60 days prior to the sales 
closing date of the crop with the earliest sales closing date;
    (4) The sponsoring company agrees to make any adjustment FCIC may 
suggest in any terms and conditions of the policy, procedures, or other 
related materials as needed to protect the interests of producers and 
the integrity of the program;
    (5) Company resources, procedures, and internal controls are 
adequate to make the product available to producers in a timely manner 
in the proposed market areas; and
    (6) The applicant provides RMA all material and information 
necessary to administer the program including but not limited to:
    (i) An agreement between FCIC and the applicant which specifies the 
amount of reinsurance coverage, risk subsidy, and A&O subsidy, as 
applicable, to be paid by FCIC. The agreement shall be completed at 
least 60 days before the sales closing date for the crop with the 
earliest sales closing date; and
    (ii) Rates, forms, guidelines, standards, actuarial, rating 
procedures, indemnity procedures, and related documents in an 
electronic format that can be used by all interested parties.
    (e) The Board may disapprove the submission for financial 
assistance if all the requirements in Sec. 400.707(d) are not met. When 
the Board indicates its intention to disapprove, the Board will:
    (1) Notify the applicant in writing of its intent to disapprove the 
submission not later than 30 days prior to taking such action. Such 
notice will contain the basis for disapproval, and may include 
recommended 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 subsequent crop year.


Sec. 400.708  Approved submission.

    (a) A submission approved by the Board under this subpart shall 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.
    (b) Any solicitation, sales, marketing, or advertising of the 
program made by any party 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 the first approved crop year.


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 RMA. All such resolutions shall be 
communicated to all insurance providers through FCIC's official 
issuance system. Any corrected material must be presented to RMA in a 
format specified in Sec. 400.707(d)(6)(ii).
    (b) Any change causing a material impact upon a submission 
previously approved by the Board must be resubmitted for Board 
consideration and approval.
    (c) The approved submission shall 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 full subsidy, and published in the Federal 
Register as a notice of availability is preempted from state and local 
taxation, and any policy provision changes requested under other state 
and local laws and regulations must be submitted to RMA for review and 
Board approval.


Sec. 400.711  Right of review, modification, 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 September 4, 1997.
Kenneth D. Ackerman,
Manager, Federal Crop Insurance Corporation.
[FR Doc. 97-23904 Filed 9-10-97; 8:45 am]
BILLING CODE 3410-08-P