PRP Should Be Halted
January 30th, 2007 by David Graves
Congressional Authorization. Congress amended the Federal Crop Insurance Act (Act) in 1994 to authorize the approval of premium reduction plans within the crop insurance program. Language of the amendment (Amendment) is found in Section 508(e)(3) of the Act [7 U.S.C. §1508(e)(3)], which provides as follows:
“If an approved insurance provider determines that the provider may provide insurance more efficiently than the expense reimbursement amount established by the Federal Crop Insurance Corporation (FCIC), the approved insurance provider may reduce, subject to the approval of the FCIC, the premium charged the insured by an amount corresponding to the efficiency. The approved insurance provider shall apply to the FCIC for authority to reduce the premium before making such a reduction, and the reduction shall be subject to the rules, limitations, and procedures established by the FCIC.”
Initial Implementation. RMA implemented the Amendment in 2003 through the Standard Reinsurance Agreement (SRA). In this initial implementation, premium reduction plans (PRPs) were prospective in nature, that is, they allowed farmers to pay a reduced premium up-front (a discount) based on efficiencies that an eligible approved insurance provider (AIP) “projected” it would realize over the course of the reinsurance year. Only one AIP applied.
Second Implementation. In 2005, RMA published an interim federal rule in which it adopted a new approach to administering the Amendment. Where previously, reduced premiums were based on “projected” efficiencies and provided to farmers at issuance of their policies, under the interim federal rule, reduced premiums would have to be based on audited financial reports of AIP operations for the reinsurance year and paid to farmers after the close of the reinsurance year (a rebate). Companies have yet completed all aspects of the PRP program for the 2006 crop insurance year, therefore it is not yet known how many will submit the application required by the rule to determine which, if any, of the nine eligible AIPs will be approved to pay a rebate.
Halting of PRP. However, over concerns about fairness, equity and possible discrimination, Congress halted implementation of the PRP Amendment for the 2007 crop insurance year by including the following language in the FY06 Agriculture Appropriations Bill:
“None of the funds appropriated or otherwise made available by this Act shall be used to pay salaries and expenses of personnel who implement or administer section 508(e)(3) of the Federal Crop Insurance Act )7 U.S.C. 1508(e)(3)) or any regulation, bulletin, policy or agency guidance issued pursuant to section 508(e)(3) of such Act for the 2007 reinsurance year.”
Current Situation and Conclusion. RMA has indicated it will restart PRP for the 2008 reinsurance year if Congress does not include relevant halting language in the FY07 Continuing Resolution, which will provide funding for the balance of the fiscal year. With the House having voted to halt PRP for the 2008 reinsurance year, demonstrating a continuing concern about the program, RMA should halt the program until Congress again acts on the amendment. Development of the 2007 Farm Bill will likely provide Congress with that opportunity.
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