October 18, 2002
Director, Product Development Division
Risk Management Agency
United States Department of Agriculture
6501 Beacon Drive
Stop 0812, Room 421
Kansas City, MO 64133-4676
RE: General Administrative Regulations, Subpart T – Federal Crop Insurance Reform 7 CFR Parts 400, 407 and 457
Dear Director, Product Development Division:
The undersigned organizations appreciate the opportunity to comment on the proposed changes to the Common Crop Insurance Regulations and the Group Risk Plan of Insurance Regulations as announced by RMA (Federal Register, Vol. 67, No. 181, September 18, 2002).
An effective crop insurance program is vital to farmers’ efforts to manage their production risk. Historically, however, many cotton farmers found that crop insurance did not provide adequate coverage at reasonable rates, as evidenced by low program participation. As a result, crop insurance in many parts of the Cotton Belt was plagued by severe adverse selection and the attendant ills associated with this phenomenon. Building on previous efforts, the Agricultural Risk Protection Act of 2000 (ARPA) introduced major legislative and management reforms that greatly improved the federal crop insurance program and made it a much more effective and affordable risk management tool for our nation’s agricultural producers. Rating reform, increased premium subsidy, multi-year disaster APH adjustments, and new compliance provisions have greatly improved the viability of federal crop insurance. Cotton growers have responded with a significant increase in their participation, particularly for buy-up levels of coverage. In 2001, for example, over 70 percent of all upland cotton acres were insured under a buy-up policy according to RMA’s latest summary of business report; as recently as 1998, buy-up participation was only 50 percent.
We recognize the considerable difficulties associated with implementing comprehensive legislation such as ARPA. RMA is to be commended for its implementation of the legislation to date, particularly Agency actions enhancing program integrity. The cotton industry has consistently stressed the importance of maintaining program integrity and improving the crop insurance program so that adequate, cost-effective levels of risk-management can be provided. The overwhelming majority of insured cotton producers properly use crop insurance. These growers should not be penalized for the actions of the relatively few non-compliant program participants. Overly stringent rules and sanctions will lead to disillusionment with federal crop insurance and jeopardize future producer support for the program.
The National Cotton Council, along with the undersigned regional and state cotton interest organizations, are pleased to offer the following specific comments on the proposed rules. While these comments address proposed changes to the Common Crop Insurance Regulations, please note that our comments also pertain to the Group Risk Plan of Insurance Regulations, where applicable.
An overriding concern is that the proposed rules and sanctions seemingly make no distinction between inadvertent errors on the part of producers and malevolent attempts to abuse the program. We urge RMA to carefully evaluate the proposed rules and sanctions to determine whether they are commensurate with the perceived significance of the infractions. Insured producers should be given the opportunity to correct inadvertent mistakes without penalty other than repayment of any indemnities attributable to the misreported information. If, however, a producer is deemed ineligible for the crop insurance program, we believe said producer should at most be responsible for a modest administrative fee, not the full premium as proposed in Sections 3, 6, 14, and 21. This approach is used in Section 2, for example, as the proposed rules specify that only 20 percent of the premium will be due if a producer is declared ineligible for an indemnity for incorrectly reporting Social Security numbers. Further, the language in these sections should be clarified to make clear that the premium being referenced is the producer-paid premium, not the gross (unsubsidized) premium.
Comments with respect to particular sections of the proposed Common Crop Insurance Regulations are offered below.
[Section 1] Definitions and [Section 2] Life of Policy, Cancellation, and Termination
We concur that the insurance application should contain the Social Security numbers for all persons with a substantial beneficial interest (SBI) in the applicant or insured. However, we believe that proposed redefinition to presumptively cover spouses and children residing in the same household is an unwarranted expansion of the scope of SBI. (The same concern exists with respect to Manager’s Bulletin MGR-02-005). It would place an onerous burden on an insured producer to ‘prove’ that spouses and children derive no material benefit from the farming operation. Denial of coverage or subsequent termination of the policy when an incomplete list of persons with SBI is provided is a sufficient incentive to compel accurate and complete reporting of ownership structures.
We believe the proposed definitions of "First Crop" and "Second Crop" are contrary to the intent of the double insurance language in ARPA which was designed to address issues related to indemnities received for multiple crops within a particular growing season, e.g., two spring-planted crops such as cotton and sorghum. The proposed definitions, however, span an entire crop year and distinct growing seasons. Under the proposed definition, for example, insured winter wheat and insured cotton would constitute the first and second crops, respectively. We encourage RMA to develop new definitions for "First Crop" and "Second Crop" such that both crops are defined with respect to a particular growing season, consistent with Congressional intent.
[Section 3] Insurance Guarantees, Coverage Levels, and Prices for Determining Indemnities and [Section 6] Report of Acreage
We believe the requirement that the insured provide the most recent three years of production history to substantiate every claim is duplicative and unnecessary in most instances. Instead, a more practical approach would require the insured to annually ‘prove’ his actual production data at the time of or prior to the purchase of coverage for the next insurance period. If producers provide actual production history to the agent when establishing his APH, it should not be necessary to resubmit this data on the occasion of a loss claim. Once the insured has reported this data, it should be the responsibility of the agent and/or RMA to maintain the insured’s production history and validate any claims. In addition, we believe that the proposed five percent tolerance for acreage and yield reporting should be eliminated. Rather, an insured producer should simply be afforded the opportunity to correct any misreported acreage or yield information without penalty, unless there is evidence of fraudulent behavior. And, in such situations there already exist other punitive measures at RMA’s disposal. If implemented, the producers who will be most affected by the proposed tolerances and attendant sanctions will be those who simply make inadvertent errors.
If a tolerance is maintained, we believe it should be more reasonable and consider exceptions. Many growers have noted that it is often logistically impossible for an acreage measuring service to complete its survey of a parcel of land by the specified acreage reporting date. Hence, we believe that when an insured producer has contracted for the services of an acreage measuring service, the insured should only be required to file a preliminary acreage report by the acreage reporting date. This should be followed by a reasonable time period (e.g., 30-days) for the insured to file a final acreage report and have his production guarantee adjusted accordingly without penalty.
In addition, we believes that if a producer’s claim is denied because of inaccurate acreage and/or yield reports exceeding a tolerance, the insured should not be responsible for the full premium, as noted above. In such cases, only a modest administrative fee is warranted. Further, the insured should be given the opportunity to correct inadvertent errors with no penalty, other than repayment of any indemnities received from the incorrect information.
[Section 10] Share Insured
We urge RMA to modify the language of this proposed rule to clarify that the intent is no broader than the current requirement that common owners/operators within a county have all of their farming operations under one policy.
[Section 12] Causes of Loss
We strongly support the addition of coverage for production losses due to failure of irrigation equipment or facilities resulting from an insured cause of loss.
[Section 14] Duties in the Event of Damage or Loss
As noted previously, we believe that the insured should not be responsible for the full premium when coverage is denied because of an inadvertent failure to meet notification deadlines. In such cases, only a modest administrative fee is warranted.
[Section 15] Production Included in Determining an Indemnity and Payment Reductions and [Section 17] Prevented Planting
We support the ARPA provisions related to double insurance for crop failure and prevented planting situations. We would suggest, however, that the language pertaining to prevented planting in Section 15 be modified to explicitly note that a second crop is insurable, provided the insured accepts only a partial prevented planting payment on the first crop.
In a broader context, it is now widely acknowledged that current rules are impractical for many prevented planting situations, particularly those related to extended drought. RMA has established the Prevented Planting Working Group to provide the agency with guidance on the development of new prevented planting rules. We believe that RMA should refrain from promulgating any rules on this issue until the Prevented Planting Working Group has completed its work, except for those necessary to implement other provisions (e.g., the "double insurance" provision in Section 15).
[Section 20] Arbitration
We believe that arbitration should be retained as an option for settling disputes between producers and the reinsured companies. For many producers the arbitration process is much less costly than the judicial process and is perceived as delivering fair and just outcomes. However, recognizing that some arbitrators have exceeded the scope of their authority, we urge RMA to incorporate an explicit list of issues subject to arbitration into the Common Crop Insurance Regulations.
[Section 21] Access to Insured Crop and Records, and Record Retention
We object to the proposed language in this section that would grant any USDA employee virtually unlimited access to any records held by the insured (or a third party) that pertain to an insured crop. The authority being sought by RMA is entirely too broad and has significant implications for use by agencies totally unrelated to the crop insurance program. We urge RMA to modify this language such that the records of the insured (and third parties) are available only to those Agencies with responsibilities for crop insurance policy administration and compliance.
As noted above, we believe that the insured should not be responsible for the full premium when coverage or claims are denied because of an inadvertent failure to maintain adequate records. In such cases, only a modest administrative fee is warranted.
[Section 30] Subrogation
We urge RMA to add clarifying language to this section that declares indemnities received from private hail policies and government-provided ad hoc disaster payments are not subject to subrogation.
The undersigned organizations appreciate the opportunity to submit these comments on the proposed change to the Common Crop Insurance and Group Risk Plan Regulations. The cotton industry appreciates RMA’s efforts to provide an affordable and effective crop insurance program and we look forward to working with the Agency in the future.
National Cotton Council of America
Arizona Cotton Growers Association
Agricultural Council of Arkansas
California Cotton Growers Association
Louisiana Cotton Producers Association
Louisiana Farm Bureau Federation, Inc.
Cotton Producers of Missouri
New Mexico Pecos Valley Farmers Association
Plains Cotton Growers, Inc.
Rolling Plains Cotton Growers
South Texas Cotton and Grain Association
Southern Cotton Growers, Inc.