Agency: Federal Crop Insurance Corporation, U.S. Department of Agriculture

Transcription

1 Agency: Federal Crop Insurance Corporation, U.S. Department of Agriculture Docket ID No. FCIC Comments on Proposed Rule: Area Risk Protection Insurance Regulations and Area Risk Protection Insurance Crop Provisions Submitted by National Crop Insurance Services (NCIS), Overland Park, KS

2 9/20/11 NCIS comments to ARPI Proposed Rule Page 2 of 33 NCIS is a membership service organization which includes all approved insurance providers (AIPs) under the Federal crop insurance program. Its staff has developed the following comments, and in doing so NCIS has sought input on drafts of these comments from all AIPs. NCIS also has encouraged all AIPs to submit their own comments. NCIS appreciates the opportunity to review the proposed rule for the new Area Risk Protection Insurance (ARPI) program. It offers the following comments for consideration. In crop year 2011, the Risk Management Agency (RMA), on behalf of the Federal Crop Insurance Corporation (FCIC), introduced the Common Crop Insurance Policy (Combo Policy) with the goal of unifying and simplifying the Federal crop insurance program. With the proposed rule on area risk protection insurance, FCIC proposes to bring the area plans in line with the Combo Policy changes. In particular, Group Risk Protection (GRP) Insurance, Group Risk Income Protection (GRIP) Insurance, and Group Risk Income Protection with Harvest Price Option (GRP-HPO) Insurance are proposed to be replaced with new plans called Area Yield Protection Insurance (AYP), Area Revenue Protection Insurance with Harvest Price Exclusion (ARP-HPE), and Area Revenue Protection Insurance (ARP), respectively. These new area plans collectively are referred to as ARPI. To summarize its review of the proposed rule, NCIS concludes that while the new area plans improve upon GRIP-HPO, GRIP, and GRP by establishing uniform commodity prices across plans, the proposed rule raises new concerns in other respects, such as the introduction of the total loss factor in the indemnity calculation and the additional burden and cost of reporting production. Despite proposing new plans of insurance for area coverages, RMA still has failed to address underlying fundamental concerns with area plan protection. 2

3 9/20/11 NCIS comments to ARPI Proposed Rule Page 3 of 33 NCIS has divided its comments into two parts. First, it comments on the background contributing the preamble to the proposed rule; these comments are intended to address fundamental issues applicable to the new ARPI program. Second, NCIS provides section-bysection comments. COMMENTS TO PROPOSED RULE BACKGROUND SECTIONS 1. Proposed Policy See comments to specific proposed policy provisions below. As we have previously commented with respect to other proposed policy changes, it is difficult to comment on proposed provisions that include references to information in the Special Provisions of Insurance (SPOI) and/or actuarial documents not included in the proposal. When releasing revisions for public examination, RMA should include a sample of the anticipated SPOI/actuarial documents for review and comment. Without such information, interested parties cannot offer comments as meaningful as they otherwise would. 2. Pricing The new plans of insurance will use futures contracts prices from commodity exchange markets, which are well-studied and established as unbiased and efficient in utilizing all the information available to market participants. Moreover, a single projected price will 3

4 9/20/11 NCIS comments to ARPI Proposed Rule Page 4 of 33 be used in all new area plans of insurance. The new area plans of insurance will use the same commodity prices as are used for individual plans of insurance (YP, RP, and RP- HPE, respectively) corresponding to the same sales closing date. These changes are positive steps toward simplifying and streamlining, in part, the Federal crop insurance program. 3. Barley and Peanuts RMA should be sensitive to comments from AIPs and individual producers concerning the proposal not to include barley and peanut coverage under the ARPI program. It is important for RMA to ascertain whether or not there is any producer interest in area coverage for these crops. 4. Insuring Other Crops No Written Agreements NCIS has no objection in principle to simplifying area coverage by not including provisions allowing for written agreements. However, in order to judge the impact of this decision on the market, it would be beneficial for RMA to provide information regarding how many written agreements have been requested to insure hybrid seed corn, hybrid sorghum seed, popcorn or sweet corn under the GRP and GRIP policies, and how many of those were approved. Since insureds growing these crops will not be allowed to have area based coverage unless the crops are subsequently added under the ARPI program, RMA should address how many producers are likely to be disadvantaged by this decision. 5. Calculations 4

5 9/20/11 NCIS comments to ARPI Proposed Rule Page 5 of 33 The new ARPI plan proposal maintains the multiplier concept from GRP and GRIP so that farmers with above average yields can get higher protection, and it renames the multiplier as protection factor. The maximum protection factor a farmer can select is reduced from 1.5 to 1.2 in the proposal. Also, the proposal introduces a new concept called total loss factor (TLF) which is described as accounting for lower county variation compared to an individual farmer s variation. It seems that there is a single value for TLF for each county, and this may change from county to county. The example in the proposal uses 0.82 for the TLF. The preamble to the proposed rule states (p ): The combination of reducing the protection factor to 120 and adding a total loss factor allows for ARPI coverage to not appear overstated but also recognizes at certain thresholds, a total loss is likely to have occurred and ultimately results in overall coverage with respect to premium and indemnities to be similar to that previously provided by GRP and GRIP. RMA s reasoning in the quoted passage is not convincing. NCIS staff has worked through the total indemnity formulas and verified that reducing the protection factor to 1.2 would still accommodate the possibility of total loss in a county because the disappearing deductible feature of area plans is maintained in ARPI. A technical discussion proving these points is provided at the end of this section. Under the existing GRP and GRIP policies, selecting an amount of protection higher than 1.2 would scale up the liability, premium, and indemnity equally, so that the loss ratio would remain the same. In that situation, a farmer had to pay higher premium to choose a protection factor higher than 1.2. Whereas, with a built-in TLF, the farmer obtains free protection unless 5

6 9/20/11 NCIS comments to ARPI Proposed Rule Page 6 of 33 the premium rates are properly adjusted (see the example below). The proposed rule provides no information with regard to this issue. At a minimum, more transparency on the impact of introduction of TLF on premium rates is warranted. NCIS analyzed the example provided in the Federal Register (p ) where the farmer is assumed to choose a protection factor of 1.1 and coverage level of 75%. The premium rates for the parameters of the example are for ARP, for ARP-HPE, and for AYP. If the value of TLF were equal to 1, that would correspond to the no TLF case as was the situation in GRP and GRIP plans. This point can be verified from the equations in the technical discussion. The indemnities on this basis are shown in Table 1. Table 1: The Impact of Total Loss Factor (TLF) on Indemnities TLF=1 TLF=0.82 Indemnity Increase ARP 20,812 26,346 27% ARP - HPE 11,946 15,718 32% AYP 18,216 23,968 32% From Table 1, the farmer sees on average 30% (approximately) increase in indemnities. There is no information provided on how the premium rates accounted (if any) for that. The other aspect of TLF that should be noted is that the increase in protection is unrelated to an individual farmer s demand for insurance. Based on theoretical studies, a farmer s 6

7 9/20/11 NCIS comments to ARPI Proposed Rule Page 7 of 33 demand for coverage with area insurance (under actuarially fair premium rates) is obtained as being equal to the correlation between the farmer s loss and area loss multiplied by the standard deviation of farmer s loss divided by the standard deviation of area loss 1. The preceding formula suggests that a farmer with a higher variation of loss relative to that of the area would demand higher coverage with area plan. Nevertheless, a built-in total loss factor provides extra coverage to every farmer, ignoring the fact that some farmers may have lower variation relative to the county level and would demand less coverage. In order to understand the magnitude of premium rate adjustments (if any) due to the TLF, the details of the cost-benefit analysis would be useful. However, the analysis could not be found at the designated website (see the subsection Benefit-Cost Analysis referenced at p ). We also have several fundamental concerns with the concept of protection factors and TLF presented in the proposed rule. While the limitation of the protection factor to a maximum of 1.20 does succeed in reducing the maximum amount of protection per acre as compared to the existing GRP and GRIP plans, the TLF counters this by the way in which it determines payouts for a given percentage of loss. Under existing plans, the total policy protection is paid out only 1 Bulut, H., K. Collins, T.P. Zacharias Optimal Coverage Choice with Individual and Area Plans of Insurance. Presented at the 2011 Annual Meeting of the Agricultural and Applied Economics Association Meeting in Pittsburgh, PA, July. Miranda, M.J. Area-Yield Crop Insurance Reconsidered. American Journal of Agricultural Economics. 79(May 1991):

8 9/20/11 NCIS comments to ARPI Proposed Rule Page 8 of 33 if the county experiences a 100% loss. In other words, the deductible disappears in its entirety only when a total loss occurs. Under the new plans, the total policy protection is paid out even in cases where a total loss has not occurred. In the example in which the TLF is 0.82, the total policy protection is paid out when the percentage loss in the county equals or exceeds 82%. This is not at all similar to the coverage provided under GRP and GRIP. NCIS objects to RMA s decision to pay out the total policy protection in situations in which the loss is significantly less than a total loss. It is not convinced that this is either necessary or in the best interests of the program. The disappearing deductible feature in the current GRP and GRIP policies already provides more protection than is available under individual risk protection policies, and it should be more than sufficient to enable producers to design effective risk management solutions for their farming operations. Paying a loss equal to the total policy protection when 18% of the crop is still in the field and available to be harvested creates an opportunity for producers to profit (i.e., recover more than 100% of the crop s value) under the new insurance policy. This is not consistent with congressional intent to provide risk protection. In addition, consistent with its objection to the 1.50 multiplier in the GRP and GRIP programs, NCIS objects to the inclusion of a protection factor that permits the insured potentially to over-insure the crop. In the aggregate, this could result in total indemnity payments for a county in excess of the total value of the crop. Given the new requirement for the insured to provide his production information, this problem could be mitigated by requiring the insured to support his selected protection factor based on his 8

9 9/20/11 NCIS comments to ARPI Proposed Rule Page 9 of 33 yield in relation to the county yield. This shortcoming should be corrected prior to implementation of the new program. RMA s justification for the total loss factor is that it compensates for the decreased variation in county yields relative to the individual producer. We find this unconvincing. The real world effect of this provision is to provide additional payments to producers in deminimis yield situations. If this is the actual rationale for making this change, then RMA should be upfront about this. However, regardless of the justification for this change, this provision is inconsistent with the intended purpose for the area plan program. Area plan coverage is intended to protect against yield shortfalls affecting the county as a whole. As designed, the total loss factor provision over compensates producers for their loss. This will benefit each producer to a different extent, depending on the producer s residual yield. Some producers will, in effect, be compensated for harvesting the remainder of the crop, while others will be overcompensated for their loss. This will have unintended effects on production decisions. More importantly, RMA s action to compensate producers for harvesting costs in deminimis yield situations establishes an undesirable precedent for future revisions to the individual risk forms of coverage. A Technical Discussion on the Impact of TLF: Unlike the GRP and GRIP programs, the proposed area plan rule introduces a method which allows producers to collect the full amount of their policy protection even when a total loss has not occurred. Consider a total indemnity calculation for ARP-HPE (Area Revenue Protection Insurance with Harvest Price Exclusion): Use the following notation: 0 Q 1 o 1 : Expected County Yield, Q : Final County Yield, P : Projected Price, P : Harvest 9

10 9/20/11 NCIS comments to ARPI Proposed Rule Page 10 of 33 Price, ECR : Expected County revenue and 0 0 ECR = Q P ; FCR : final county revenue 1 and FCR = Q P 1 ; denote the coverage choice with y, denote scale choice with z whose maximum is now reduced to 1.2, FPP, final policy protection FPP = ECR a s z, PF : payment factor (per acre indemnity), and TIP = FPP PF total indemnity payments then TIP = FPP PF. The effect of TLF shows up in the payment factor (also called per acre indemnity) calculation. ECR y FCR y FCR ECR PF = = ECR y ECR (1 T LF) y (1 TLF) (1) Because TLF is less than 1 (RMA takes 0.82 in their example), the denominator in the payment factor calculation goes down, therefore, per acre indemnity goes up. Note that setting TLF=1 would give the no TLF case. Rearranging equation (1) yields PF = y 1 + ( 1 FCR ECR y 1+ TLF ) (2) In the preceding equation, when the county loss (1-FCR/ECR) equals TLF, then the payment factor would be 100%, verifying the definition of TLF provided in page

11 9/20/11 NCIS comments to ARPI Proposed Rule Page 11 of 33 If the county loss greater than TLF, the PF would be greater than 1. In that situation, the PF would effectively be capped at 1.00 since the definition of TLF states that the total indemnity is capped at the final policy protection. In the absence of TLF, that is, TLF=1, the PF is less than 1 except the total loss case where the PF would be Production Record Farmers currently do not have to report their acreage and production with GRP and GRIP plans. This has kept transaction costs low and provided an advantage over individual insurance plans for which production reporting has been mandatory. With the new area plan, ARPI, FCIC proposes to require farmers to submit both an acreage report and an annual production report. The acreage report must include the land identifier (FSA serial number or common land unit, CLU, number). If a farmer fails to provide the production report, the farmer will not be paid any indemnity as the final county yield for the policy will be set equal to expected county yield. FCIC appears to believe that these requirements will not burden farmers as many producers already maintain such data, and the production reporting is mandatory for crops covered by individual plans of insurance. FCIC estimates that the reporting burden will be 0.5 of an hour per response on average (where respondents consist of producers and insurance providers reinsured by FCIC) (see p ). Given the experience with individual plans, NCIS finds this estimate to be materially understated. 11

12 9/20/11 NCIS comments to ARPI Proposed Rule Page 12 of 33 The experience with GRP and GRIP programs has pointed out significant problems with the availability of reliable county yield estimates from the National Agricultural Statistics Service (NASS). RMA discontinued GRP/GRIP programs in 1,062 counties in 2010, which included counties producing corn, soybeans, grain sorghum, and peanuts, because the revised standards introduced by NASS resulted in fewer but more reliable county estimates. With the new production reporting requirement, FCIC proposes to continue to build its own database in order to support and maintain area plans. Currently, FCIC apparently believes that it has more credible data compared to NASS data and wants to rely more heavily on its own data in establishing expected and final county yields. Using the best combination of available data, FCIC intends to release expected county yields on a crop, type, and practice basis. Otherwise, the coverage will not be available. NCIS believes that the production reporting will be helpful in establishing credible expected and final county yields. However, FCIC appears to be underestimating the burden and cost of collection of this information from producers and insurance providers. Given such burden and cost, it only makes sense that FCIC should rely more and more heavily on its own data base over time. Nevertheless, FCIC should be transparent and consistent in providing public access to the data. SECTION-BY-SECTION COMMENTS TO PROPOSED ARPI REGULATIONS AIPs have spent decades and hundreds of millions of dollars to develop an effective delivery system for selling and servicing Federal crop insurance. AIPs and their agents also have mastered a detailed, complex program and the many plans of insurance available under it. AIPs 12

13 9/20/11 NCIS comments to ARPI Proposed Rule Page 13 of 33 will do an excellent job delivering the new group coverages to farmers who desire to use them. Thus, although the new text of 7 C.F.R carries forward language concerning delivery by agents of USDA, FCIC should make clear its intent to use AIPs exclusively in delivering the new insurance plans when it publishes the final rule. COMMENTS TO PROPOSED ARPI BASIC PROVISIONS In addition to its overarching comments developed above regarding the proposed rule, NCIS also offers more specific comments, often of a technical nature, on a section-by-section basis. It hopes FCIC will apply them in drafting its final rule setting forth the new area plan coverages. Some suggestions are grammatical in nature, and they should be viewed as part of the benefit derived from additional sets of eyes reviewing a lengthy document. (Simple typographical or similar corrections are highlighted.) Introductory Paragraphs The third paragraph states: Throughout this policy, you and your refer to the named insured shown on the accepted application but the term named insured is not defined. Either such a definition should be added, or this should be revised to use terms that already are defined, such as refer to the person shown or refer to the insured named on the accepted application 1. Definitions Many of the defined terms are also in the Combo Policy released in April However, several of the definitions in the new ARPI Basic Provisions differ from the definitions contained 13

14 9/20/11 NCIS comments to ARPI Proposed Rule Page 14 of 33 within the Combo Policy for the same terms. Terms that have the same intent and usage under both insurance plans should be identically defined. Agricultural experts. To match use of plural Persons in first sentence, consider revising the second sentence to Persons who have a personal or financial interest and the third sentence to For example, contracting with a person [instead of the person ]. Assignment of indemnity. This definition is essentially the same as the one in the Combo Policy but is broken into two separate sentences and some of the words are rearranged. Unless these are supposed to be improvements that will be made in the next version of the Combo Policy, FCIC should consider matching this definition. Commodity. NCIS questions why ARPI has this definition rather than agricultural commodity (as in the Combo Policy) since that term is used several places throughout the ARPI BP, such as the definitions of buffer zone and conventional farming practice. County. This definition is significantly different from the definition for the same term under the Combo Policy. We question why acreage in a field that extends into an adjoining county if the county boundary is not readily discernible has not been included in the definition. That inclusion would allow for greater consistency between plans, especially due to the new production reporting requirements. Credible. This term appears to be used only in regard to data that is of sufficient quality and quantity to be representative of the county. Credible is an adjective and should not be 14

15 9/20/11 NCIS comments to ARPI Proposed Rule Page 15 of 33 redefined from its general meaning. Instead, NCIS suggests listing the term as Credible data and then define the meaning of credible data. Disinterested third party. This states (2) who will not benefit, directly or indirectly from the sale of the insured crop. The phrase directly or indirectly is used instead of financially in the definition for the same term under the Combo Policy. The terminology utilized within the ARPI definition has a broader implication but the intent is not clear. Identification of an indirect benefit will be subjective. FSA farm serial number. Correct from FSA serial farm number. Insurable interest. This new definition is significantly different from the same term as defined within the Combo Policy. We suggest also defining operator. As currently stated, the new definitions for disinterested third party, insurable interest and share may collectively imply that an operator might include a custom harvester or farm manager, both of whom would have at least an indirect financial interest in the crop. Payment factor. Factor should not be capitalized to be consistent with most other multi-word definitions. Practice. Including good farming practices is questionable, as they and practice are separate concepts with separate purposes under the policy and should be separately defined. Thus, this definition should be limited to the last sentence. 15

16 9/20/11 NCIS comments to ARPI Proposed Rule Page 16 of 33 Protection factor (PF). [ed.] FCIC should consider adding in the last phrase and that is used Share. This revised term is different from the same term as defined within the Combo Policy. The new definitions for disinterested third party, insurable interest and share may collectively imply, for example, that an operator might include a custom harvester or farm manager, both of whom would have at least an indirect financial interest in the crop. In addition, some of the policy references to share do not appear to be consistent. The definition states: Your percentage of the insured crop that is at financial risk. Premium will be determined on your share as of the acreage reporting date. However, only for the purpose of determining the amount of indemnity, your share will not exceed your share at the acreage reporting date or on the date of harvest, whichever is less. Section 8(c)(2) [under Report of Acreage and Report of Production ] states the acreage report must include Your share at the time coverage begins. The date coverage begins is addressed in section 10 [Insurance Period] and, except for the initial year of application (when it is the date the application is submitted and accepted), is the date the insured crop is planted. Section 8(e)(3) allows for acreage report revisions to add land acquired after the acreage reporting date under certain circumstances. But the insured would not have had an insurable share as of the acreage reporting date (or on the date the insured crop is planted ) on land acquired after that date. How can coverage be added via a revised acreage report if premium is determined on the share as of the ARD, and indemnities cannot exceed the share as of the ARD? Perhaps this needs to be reworded or otherwise 16

17 9/20/11 NCIS comments to ARPI Proposed Rule Page 17 of 33 clarified as an exception (as is the case with land/shares acquired by Transfer of Right to an Indemnity). Section 8(g)(2) addresses when the share is misreported, using the reported share if under-reported and the share we determine to be correct if over-reported. Total premium. FCIC should not capitalize Premium to be consistent with other definitions. 2. Life of Policy, Cancellation, and Termination (b): NCIS suggests consolidating the first two sentences to minimize repetition: All the following information in this subsection must be included in your application for insurance or your application will not be accepted and no coverage will be provided. The following information must be included in your application: (b)(6)(i) states: You must include your social security number (SSN) if you are an individual (if you are an individual applicant operating as a business, including joint ventures, limited liability companies, and trusts, you may provide an employer identification number (EIN) but must also provide your SSN). Some of the language in the parenthetical phrase does not match the revised procedure in the 2012 CIH. The word including suggests that joint ventures, limited liability companies, and trusts are considered to be under the individual operating as a business person type, but they are identified as separate person types in the CIH. Use of an EIN is now required (as opposed to the implied option indicated by the word may ) for individuals operating as a business and for irrevocable trusts, and for 17

18 9/20/11 NCIS comments to ARPI Proposed Rule Page 18 of 33 revocable trusts if an EIN has been established (SSN can be used only if there is no EIN for the revocable trust). [See 2012 CIH Sec. 5B(1), 5D(1)(e) & (3), and 5K(2)(a).] The phrase but must also provide your SSN is not clear that the SSN would be for the individual who has a substantial beneficial interest in the insured entity using an EIN as the identification number [and identification numbers for SBIs are addressed in 2(b)(7)]. (c)(1): This begins with a reference to a single person with a substantial beneficial interest but later refers to plural ineligible persons with a substantial beneficial interest. (c)(2): Consider either not subdividing the parenthetical language into subparagraphs (i) and (ii) within the parentheses, or setting it up as a separate subparagraph. (c)(3): This states Your policy will be void any time that an incorrect or omitted SSN or EIN, provided on the application, would have allowed Since an omitted SSN or EIN would not be provided on the application, this merits rewriting. (f): With respect to (f): Is it really intended to allow revision of any of your information until the acreage reporting date, per (f)(1), or even until the time a claim is paid, (f)(2), which differs considerably from plans of insurance covered under the Combo Policy? If so, does that include all the categories of information listed in 2(b), or is this supposed to be restricted to the tax identification number(s) of the insured and SBIs, as suggested by 18

19 9/20/11 NCIS comments to ARPI Proposed Rule Page 19 of 33 the reference in (f)(3) to 2(c)(1) and (3)? Also, please see comments to section 8(e) below, which imposes requirements before any information pertaining to the planted acreage originally reported can be revised. The word and should be moved from the end of (2) to the beginning of (3) to make (3) flow properly from the lead-in of (f). (g): NCIS suggests moving the comma from before to after is [as done in (g)(1)]. (k)(2)(ii): This states any indemnities paid subsequent to the termination date must be repaid. Doesn t FCIC intend this to be prior to the termination date? (l): This refers to In cases where there has been a death, disappearance, judicially declared incompetence, or dissolution of marriage of any insured person, with the phrase of marriage added in comparison to the equivalent section 2(g) of the Combo Policy [and equivalent procedure in the 2012 CIH]. This appears to limit these provisions to that form of dissolution only so other kinds of dissolution such as dissolution of a partnership are not included. Since (l)(4) refers to If an insured entity is dissolved and (l)(5) refers to dissolution of the entity without being restricted to a dissolved marriage, presumably the phrase of marriage in (l) was added in error. (q)(2):ncis suggests updating the years in the example given. 4. Insured Crop 19

20 9/20/11 NCIS comments to ARPI Proposed Rule Page 20 of 33 (c): In the second sentence, FCIC should add or before practice and delete comma after practice. 5. Insurable Acreage (a)(1): RMA s formatting increasingly capitalizes the first word of a parenthetical phrase but this is not consistently applied and often does not make sense when the phrase is not a complete sentence. In the two parenthetical phrases here, the first is a sentence (but does not have a period at the end), but the equivalent phrase in the Combo Policy is not capitalized; the second is not a complete sentence. NCIS suggests neither of these should be capitalized (and others throughout the policy provisions be reviewed as well). (c)(2): Does the parenthetical phrase (We will remove the acreage from the acreage report, no premium will be due, and no indemnity paid) really apply only to acreage for which good farming practices were not carried out, or should this be moved so it also applies to the other types of uninsured acreage in (c)(1) and (3)-(5)? (c)(5): This begins as in the equivalent Combo Policy, ( Of a crop planted following a second crop or following an insured crop that is prevented from being planted after a first insured crop. ); however, it ends there instead of continuing unless it is a practice that is generally recognized to plant three or more crops for harvest on the same acreage Is it intended that the ARPI policy will provide coverage only on the first insured crop 20

21 9/20/11 NCIS comments to ARPI Proposed Rule Page 21 of 33 and/or second crop, as applicable? If so, references to two or more crops also should be removed from ARPI section 13 (and anywhere else it appears). 6. Coverage, Coverage Levels, Protection Factor, and Policy Protection (a)-(c): According to these proposed provisions, insureds would have to elect the same plan (ARP, ARP-HPE, or AYP) for the crop/county, but could elect different protection factors (percentages) and coverage levels for each crop practice/type. Does FCIC intend such consequences? (c)(1) & (2): [ed.] (1)(ii) & (2)(ii): NCIS offers similar formatting comments as to 5(a)(1) above regarding not capitalizing the first word of parenthetical phrases, especially these short ones. (2)(ii): The first parenthetical phrase does not have an end parenthesis, which probably should be added as shown: (specified in the actuarial documents) for each crop, type, and practice. (2)(iii): Commas are not needed in the phrase type, and practice in the first and last sentences. (c)(2)(iii): FCIC should consider adding a reference here to the insured having to pay administrative fees for both CAT and additional coverage if both levels are elected on different practices/types of a crop/county. This is stated in section 7(a)(5), which might be sufficient, but some indication here might be useful. 21

22 9/20/11 NCIS comments to ARPI Proposed Rule Page 22 of 33 (f)(1): NCIS suggests: Multiply the dollar amount of insurance (g)(4): FCIC should consider if the last phrase should be unless you cancel your coverage by the cancellation date or change your coverage plan of insurance by the sales closing date. 7. Administrative Fees and Annual Premium (a): FCIC should consider combining the information in (5) & (7) since the limitation of not more than one additional and one CAT administrative fee will apply only if a producer elects both levels for the crop in the county. NCIS suggests adding but at the end of (5), followed by the statement currently in (7). 8. Report of Acreage and Report of Production (c)(2): See comments regarding the various share references under the definition in section 1 above. (e): This addresses the ability to revise an acreage report and requires: (1) The consent of the AIP; and (2) That consent may only be provided when no cause of loss has occurred and [the AIP has] made a determination that the crop in the county will likely produce at least 90 percent of the expected county yield 22

23 9/20/11 NCIS comments to ARPI Proposed Rule Page 23 of 33 This stipulation in (e)(2) introduces a subjective factor and will make it virtually impossible for AIPs to determine on a county basis. Parameters need to be included on how this determination is to be based. Additional comments are as follows: Since, as stated in section 11(a) [Causes of Loss], ARPI provides protection against widespread loss of revenue or yield in a county and in section 12(a) [ Indemnity Calculations], Individual farm revenues and yields are not considered when calculating losses under ARPI, would the AIP be able to make these determinations for all acreage of the crop planted in the entire county (or specified area ) at any time an insured requests revision of the acreage report? Would the AIP be able to reject the revised acreage report rather than attempt to make those determinations on a county basis? Also see comments to section 2(f) above, which, as worded, could be understood to allow (and perhaps require) revision of ANY information at any time during the insurance period. (e)(3): See comments under the share definition in section 1 above. (e)(3): The last sentence states This does not apply to any acreage for which insurance attached under a different person s policy. Is this intended to refer to land acquired after the ARD via a Transfer of Right to an Indemnity, meaning perhaps that the requirements in (e)(1)-(2) do not apply? Or is it supposed to mean that a landlord who has requested the tenant to insure the landlord s share on the tenant s policy [per section 9(a)(ii)] cannot try to switch that coverage to his/her own policy (which he/she cannot have as a result) later that year? As worded, it could prevent an insured from adding 23

24 9/20/11 NCIS comments to ARPI Proposed Rule Page 24 of 33 coverage to land acquired by becoming a tenant on a share-rent basis because his/her new landlord has coverage on his share and the previous tenant did not have coverage. (i)(2) & (3): These seem to be in reverse order chronologically [and as compared to the equivalent provisions in Combo Policy section 6(d)(3)(ii) & (iii)] concerning when the acreage measurement is not provided to the AIP: (2): At least 15 days prior to the premium billing date. (3): By the time the final county revenue or final county yield is calculated. (i)(5)(i): FCIC should add a hyphen in first on-farm measurement to match the others in (5)(i)-(ii). (k): See comments to Background section 6 above regarding the proposed requirement in 8(k) & (l) for ARPI insureds to submit production reports. In addition: This ARPI requirement of an annual production report is a significant conceptual difference from what is required under the GRP or GRIP plans of insurance. The primary selling point of the GRP or GRIP plans is that the insured is not required to maintain or provide production records, a key consideration for dairy farmers or livestock producers. The proposed rule states that FCIC s primary purpose for this provision is to assure that county yields are based on the most accurate, credible data available. However, production is simply required to be certified by the practice and type insured. The provisions need to specify how production or potential production will be accounted for that has been pastured or plowed under. Using corn as an example, the provisions need 24

25 9/20/11 NCIS comments to ARPI Proposed Rule Page 25 of 33 to include how FCIC will correlate production that has been harvested as hay, fodder, silage or earlage. This requires An annual production report on our form Based on the explanation in the Background section of the Proposed Rule, is it intended for this production report form to be the same as the one used for crops insured under APH/YP/RP plans in order for RMA to track the insured s history even though some or all of that data will not be used for ARPI purposes? The ARPI Basic Provisions should include a definition of production report (and production reporting date ); or whether these details will be addressed in the underwriting guidelines for ARPI should be clarified. This also indicates the production report must be submitted for each insured crop (separate lines for each type and practice as shown on the Special Provisions) in the county Will these types and practices (which are not indicated; see general comment that providing a sample Special Provisions would be helpful) correspond to the types and practices insurable under the other plans for which production reports are required? (And what about separate production reports by unit for those other plans?) (k) & (l): These refer to the deadline for submitting production reports as the date specified in the Special Provisions In (k), FCIC should change on the date to by the date as in (l). Without a sample SPOI (as noted above), NCIS has not been given the opportunity to comment on this part of the proposed policy provisions. How will production reporting dates correspond to the ARPI acreage reporting dates, end of insurance period dates, dates of normal harvest, and dates by which any ARPI claims will probably be settled? 9. Share Insured 25

26 9/20/11 NCIS comments to ARPI Proposed Rule Page 26 of 33 (b)(2)(i): The reference to section 18(a)(1) and (2) is incorrect since there is no 18(a)(1)-(2) in the ARPI Basic Provisions. (c): FCIC should delete the comma following etc. at the end of the parenthetical phrase. 10. Insurance Period This states Unless specified otherwise in the Crop Provisions, coverage begins at the later of: (a) The date we accept your application (For the purposes of this paragraph, the date of acceptance is the date that you submit a properly executed application in accordance with section 2); or (b) The date the insured crop is planted. Should there not also be some indication of when the insurance period ends? 11. Causes of Loss (a): This states that ARPI provides protection against widespread loss of revenue or yield in a county caused by natural occurrences. Is there no need to specify the types of natural occurrences that are considered insured causes of loss other than excluding Failure to follow good farming practices in (b)? Why would ARPI insureds be required to submit their individual production history, as proposed, when this indicates that information is unrelated? (We realize RMA provides an explanation in the Proposed Rule s Background, but producers considering which plan of insurance to elect may question the benefit of choosing ARPI if they have to provide their production history regardless.) See general comments to Background section 6 above. 26

27 9/20/11 NCIS comments to ARPI Proposed Rule Page 27 of 33 (b): NCIS suggests adding commas before and after the phrase, or planting or producing a crop using a practice that has not been widely recognized as used to establish the expected county yield, 12. Triggers, Final Policy Protection, Payment Factor, and Indemnity Calculations (a): Since Individual farm revenues and yields are not considered when calculating losses under ARPI, producers considering ARPI coverage may question why they are required to provide their production history See general comments to Background section 6 above. (b): FCIC should change the semicolon at end of the first line to a colon. 13. Indemnity and Premium Limitations (d)(2) FCIC should add a comma after If the records in at least two of the last four crop years, 14. Organic Farming Practices (c) & (e): 14(c) identifies (1) certified organic, (2) transitional acreage, and (3) buffer zone acreage as being insured under the organic farming practice. However, (e) says to separate certified organic and transitional acreage on the acreage report, but makes no mention of how to report the buffer zone acreage. This needs to be resolved in the final rule. 27

28 9/20/11 NCIS comments to ARPI Proposed Rule Page 28 of Yields Throughout this entire section, it is implied that FCIC retains sole discretion in determining credibility, application and source of data utilized in establishing yields. This approach is openended and subjective. The provisions need to include the specific criteria FCIC will utilize in making these determinations as well as prioritize and list all data sources that might be considered. (a): Please see editorial suggestion under (b) below to assure that these two subparagraphs do not appear to conflict. (a)(i): FCIC should delete the comma preceding the parenthetical phrase. (b): This states Not withstanding any other provision in this section, for a specific county in any given crop year, FCIC may elect to establish the expected county yield and final county yields based on [any of the data sources listed in (a)(i)-(ii)]. If this is going to allow FCIC to make an exception in the data source used for a specific county in any given crop year, NCIS suggests that (a) should say that Yields used under this insurance program for a crop generally will be based on:. Notwithstanding should be one word. (d): This states: If the data source is not available or credible, FCIC will determine the final county yield based on the most accurate data available When will this determination be made, and when will the AIPs and policyholders be notified that the data source identified in the actuarial documents has been replaced? 28

29 9/20/11 NCIS comments to ARPI Proposed Rule Page 29 of 33 (h): This states: If there is not credible data available from any source, as determined at the sole discretion of FCIC, to establish the final county yield in accordance with this section, no coverage for the crop year will be provided and your premium will be refunded. When will this determination be made, and when will the AIPs and policyholders be notified? Will this present problems for farmers whose loans were dependent on their having crop insurance? 16. Assignment of Indemnity (c): FCIC should make lienholder(s) one word throughout. 20. Notices (a)(2): NCIS suggests The time the notice is provided 21. Access to Insured Crop and Records, and Record Retention (a)-(d): FCIC should consider if there is any way to abbreviate the phrase any employee of USDA authorized to investigate or review any matter relating to crop insurance so it is not repeated five times in these four subsections. Perhaps the first occurrence could be followed by (hereafter referred to as authorized employee of USDA ) or something similar. (e): Within this provision it states that failure to provide needed records will result in a determination that no indemnity is due for those acres in which the records are not 29

30 9/20/11 NCIS comments to ARPI Proposed Rule Page 30 of 33 provided. [emphasis added]. Under similar provisions contained in the Combo Policy, it instead states that no indemnity is due for the crop year in which such failure occurred. The ARPI language implies that some insured acreage on a policy or even within a type or practice may still be eligible for an indemnity but some acreage may not. Section 21(d) includes accessibility to records for every conceivable matter associated with production of the insured crop. This provision needs to specify how unavailability of any particular record will be allocated to any specific acreage on the policy. 23. Mediation, Arbitration, Appeal, Reconsideration, and Administrative and Judicial Review (b): FCIC should address adding (b) to (a), instead of creating a separate subsection, since it follows the last sentence of (a) concerning a request for determination of nonappealability from the Director of the National Appeals Division. (e)(3)(iii): FCIC needs to delete two words: you must to request a determination of nonappealability from the Director of the National Appeals Division is not later than (f): [ed.] The first two sentences refer to this policy, while the last sentence refers twice to your policy. This corresponds to the equivalent provision in Combo Policy 20(f), but FCIC might consider if the last sentence also should refer to this policy. 24. Interest Limitations 30

31 9/20/11 NCIS comments to ARPI Proposed Rule Page 31 of 33 The opening sentence probably should end with as specified in the applicable Crop Provisions [instead of on the applicable crop provision. ]. 28. Concealment, Misrepresentation, or Fraud (e): FCIC should add a comma after If you willfully and intentionally provide false or inaccurate information to us, COMMENTS TO PROPOSED ARPI CROP PROVISIONS General CP Comments Planted acreage definitions in CP section 1 fall into two categories: ARPI Corn, Cotton, and Grain Sorghum have a short definition adding to the definition in the basic provisions that seed broadcast and subsequently mechanically incorporated will not be considered planted. These additions are sound. ARPI Forage, Soybeans, and Wheat have longer definitions with some overlap with the information in the basic provisions definition. Is it supposed to be significant for these to refer to land on which seed is initially spread [instead of placed ] and incorporated into the soil in a timely manner and at the proper depth [instead of at the correct depth ]? ARPI Corn Crop Provisions 2(b): 31

32 9/20/11 NCIS comments to ARPI Proposed Rule Page 32 of 33 FCIC should consider rephrasing 2(b) to avoid referring twice to 2(a)(1). One possible alternative: Other varieties of corn, other than that specified in section 2(a)(1) (including but not limited to or any other open pollinated corn), may be insurable NCIS also recommends moving the phrase in (b)(1) to the end of (b) and renumbering (2) & (3), which are separate statements while (1) is the finish of the sentence started in (b): may be insurable under this policy if specified in the Special Provisions. [This could end with either a period or a colon.] ARPI Cotton Crop Provisions 2(b): This list of what is not insured does not include two situations that are in the current GRP Cotton Crop Provisions: Grown on acreage in which a hay crop was harvested in the same calendar year unless the acreage is irrigated [GRP Cotton CP 2(d)(4)]; Grown on acreage on which a small grain crop reached the heading stage in the same calendar year unless [GRP Cotton CP 2(d)(5)]. Are these planting practices considered insurable under the ARPI policy? Or are they perhaps going to be moved to the Special Provisions (which are not provided in the Proposed Rule, and which would require looking at each applicable county SPOI to determine whether or not they are insurable)? 2(c): NCIS offers similar comment as for Corn CP 2(b). Also, FCIC should add a period at the end of (c)(3) [as numbered in the Proposed Rule]. ARPI Forage Crop Provisions 32

33 9/20/11 NCIS comments to ARPI Proposed Rule Page 33 of 33 Planted acreage definition: See general comment above. ARPI Grain Sorghum Crop Provisions 2(b): Similar comment as for Corn CP 2(b). ARPI Soybean Crop Provisions Planted acreage definition: See general comment above. ARPI Wheat Crop Provisions Planted acreage definition: See general comment above. ***** NCIS reiterates its appreciation for RMA s and FCIC s work to create a new area coverage program that continues simplification beginning with the Combo Policy. In general, the new approach to coverage which has been proposed constitutes a useful change. 33