[Federal Register Volume 61, Number 217 (Thursday, November 7, 1996)]
[Proposed Rules]
[Pages 57595-57597]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-28608]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 61, No. 217 / Thursday, November 7, 1996 / 
Proposed Rules  

[[Page 57595]]



DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 400

RIN 0563-AB05


General Administrative Regulations; Nonstandard Underwriting 
Classification System

AGENCY: Federal Crop Insurance Corporation.

ACTION: Proposed rule.

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SUMMARY: Federal Crop Insurance Corporation (FCIC) proposes to amend 
subpart O of the General Administrative Regulations, effective with the 
1998 (1999 for Texas and Arizona/California Citrus) and succeeding crop 
years. This proposed amendment is intended to clarify the effect of the 
Nonstandard Underwriting Classification System (NCS) and to ensure that 
NCS is applied to all producers in a fair and consistent manner.

DATES: Written comments, data, and opinions on this proposed rule will 
be accepted until close of business January 6, 1997, and will be 
considered when the rule is to be made final. The comment period for 
information collection under the Paperwork Reduction Act of 1995 
continues through January 6, 1997.

ADDRESSES: Written comments, data, and opinions on this proposed rule 
should be sent to the Chief, Product Development Branch, Federal Crop 
Insurance Corporation, United States Department of Agriculture, 9435 
Holmes Road, Kansas City, MO 64131. Written comments will be available 
for public inspection and copying in room 0324, South Building, USDA, 
14th and Independence Avenue, SW., Washington, DC, 8:15 a.m.-4:45 p.m., 
est, Monday through Friday, except holidays.

FOR FURTHER INFORMATION CONTACT: For further information, contact Bill 
Smith, Supervisory Insurance Management Specialist, Research and 
Development Division, Product Development Branch, FCIC, at the Kansas 
City, MO address listed above, telephone (816) 926-7743.

SUPPLEMENTARY INFORMATION:

Executive Order 12866 and Departmental Regulation 1512-1

    This action has been reviewed under United States Department of 
Agriculture (USDA) procedures established by Executive Order 12866 and 
Departmental Regulation No. 1512-1. This action constitutes a review as 
to the need, currency, clarity, and effectiveness of these regulations 
under those procedures. The sunset review date established for these 
regulations is June 1, 2000.
    This rule has been determined to be not significant for the 
purposes of Executive Order 12866 and, therefore, has not been reviewed 
by the Office of Management and Budget (OMB).

Paperwork Reduction Act of 1995

    This rule does not contain information collection requirements that 
require approval by OMB under the Paperwork Reduction Act of 1995 (44 
U.S.C. chapter 35).

Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandate Reform Act of 1995 (UMRA), Public 
Law 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. Under section 202 of the UMRA, FCIC 
generally must prepare a written statement, including a cost-benefit 
analysis, for proposed and final rules with ``Federal mandates'' that 
may result in expenditures to State, local, or tribal governments, in 
the aggregate, or to the private sector, of $100 million or more in any 
1 year. When such a statement is needed for a rule, section 205 of the 
UMRA generally requires FCIC to identify and consider a reasonable 
number of regulatory alternatives and adopt the least costly, more 
cost-effective or least burdensome alternative that achieves the 
objectives of the rule.
    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 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 
policies and procedures 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

    NCS program determinations are applied equally on a county basis 
and affect only a small number to insureds (approximately 1 percent of 
all insureds). This regulation will not have a significant impact on a 
substantial number of small entities. Therefore, this action is 
determined to be exempt from the provisions of the Regulatory 
Flexibility Act (5 U.S.C. 605) 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.

Executive Order 12778

    The Office of the General Counsel has determined that these 
regulations meet the applicable standards provided in subsections 2(a) 
and 2(b)(2) of Executive Order 12778. The provisions of this rule will 
preempt State and local laws to the extent such State and local laws 
are inconsistent herewith. The administrative appeal provisions 
published at 7 CFR parts 11 and 780 must be exhausted before judicial 
action may be brought.

Environmental Evaluation

    This action is not expected to have any significant impact on the 
quality of the human environment, health, and

[[Page 57596]]

safety. Therefore, neither an Environmental Assessment nor an 
Environmental Impact Statement is needed.

National Performance Review

    The regulatory action is being taken as part of the National 
Performance Review Program to eliminate unnecessary regulations and 
improve those that remain in force.

Background

    FCIC proposes to amend the General Administrative Regulations (7 
CFR part 400, subpart O) effective for the 1998 (1999 for Texas and 
Arizona/California Citrus) and succeeding crop years. The principal 
changes to the provisions are as follows:
    1. Section 400.302--Clarify the definitions of ``actively engaged 
in farming'' and ``insurance experience;'' rename the term ``base 
period,'' as ``NCS base period'' and clarify the definition; and add 
definitions for ``earned premium'' and ``indemnified loss''.
    2. Section 400.303--In paragraph (a), expand the nonstandard 
classification selection criteria by adding several new criteria to 
assist efforts to identify those producers whose potential adverse 
impact on insurance program performance is greatest. Specify that the 
minimum standards provided in this subsection may be different in a 
specific county if that county's insurance experience is substantially 
different from the insurance experience for which the criteria were 
determined. Add paragraph (c) to describe adjustments which may be made 
to insurance experience due to widespread adverse weather conditions 
and other causes.
    3. Section 400.305, paragraph (c)--Permit nonstandard 
classifications for persons, land, and any combination thereof to be 
assigned on a crop or crop practice, type, varietal, or crop option 
basis.
    4. Section 400.307--Clarify that nonstandard classifications for 
persons, or persons on identified land will be discontinued in the case 
of the person's death or if the person has discontinued farming. In 
such cases, insurance experience will not change, so there is no 
administrative reason to continue to annually review these listings. 
FCIC will determine whether the person has ``discontinued farming'' by 
determining that all present and future potential for farming has 
ceased, e.g., sold all cropland and means of crop production. If the 
person begins farming again, or acquires a substantial beneficial 
interest in any farming operation, the nonstandard classification will 
be reinstated.
    5. Section 400.309, paragraph (a) is revised to change the deadline 
for submitting reconsiderations from 45 days to 30 days to be 
consistent with appeal regulations a 7 CFR parts 11 and 780. Paragraphs 
(e) and (f) are deleted because regulations for filing an appeal are 
provided in 7 CFR parts 11 and 780.

List of Subjects in 7 CFR Part 400

    Crop insurance; Nonstandard Underwriting Classification System.

    Accordingly, pursuant to the authority contained in the Federal 
Crop Insurance Act, as amended (7 U.S.C. 1501 et seq.) the Federal Crop 
Insurance Corporation proposes to amend 7 CFR part 400, subpart O, 
effective for the 1998 (1999 for Texas and Arizona/California Citrus) 
and succeeding crop years, as follows:

PART 400--[AMENDED]

Subpart O--Nonstandard Underwriting Classification System

    1. The authority citation for 7 CFR part 400, subpart O, is revised 
to read as follows:

    Authority: 7 U.S.C. 1506(1), 1506(p).

    2. In Sec. 400.302, remove all paragraph designations and the 
definition of ``base period;'' the definition of ``actively engaged in 
farming'' and ``insurance experience'' are revised; and definitions of 
``earned premium,'' ``indemnified loss,'' and ``NCS base period'' are 
added to read as follows:


Sec. 400.302  Definitions.

    Actively engaged in farming--means a person who, in return for a 
share of profits and losses, makes a significant contribution to the 
production of an insurable crop in the form of capital, equipment, 
land, personal labor, or personal management.
    Earned premium--means premium earned (both the amount subsidized 
and the amount paid by the producer, but excluding any amount of the 
subsidy attributed to the operating and administrative expenses of the 
insurance provider) for a crop under a policy insured or reinsured by 
the Corporation.
    Indemnified loss--means a loss applicable for the policy for any 
year during the NCS base period for which the total adjusted indemnity 
exceeds the total earned premium. If the person has insurance for the 
crop in more than one county for any crop year, indemnities and 
premiums will be accumulated for all counties for each crop year to 
determine an indemnified loss.
    Insurance experience--means earned premiums, indemnities paid 
(after applicable adjustments), and other data for the crop (but not 
including replant payments), resulting from all of the insured's crop 
insurance policies insured or reinsured by the Corporation for one or 
more crop years and will include all information from all counties in 
which the person was insured.
    NCS base period--means the 10 consecutive crop years (as defined in 
the crop policy) ending 1 crop year prior to the crop year in which the 
NCS classification becomes effective for all crops except Arizona, 
California and Texas citrus (production) and sugarcane. For these 
excepted crops, the NCS base period means the 10 consecutive crop years 
ending 2 crop years prior to the crop year in which the NCS 
classification becomes effective. For example: An NCS classification 
effective for the 1996 crop year against a producer of citrus 
production in Arizona, California, and Texas, and sugarcane would have 
a NCS base period that includes the 1984 through 1993 crop years. An 
NCS classification effective for the 1996 crop year against a producer 
of all other crops would have a NCS base period that includes the 1985 
through 1994 crop years.
    3. Section 400.303 is amended by revising paragraph (a) and adding 
paragraph (c) to read as follows:


Sec. 400.303  Initial selection criteria.

    (a) Nonstandard Classification procedures in this subpart initially 
apply when all of the following insurance experience criteria (see 
paragraph (c) of this section) for the crop have been met:
    (1) Three or more indemnified losses during the NCS base period;
    (2) Cumulative indemnities in the NCS base period that exceed 
cumulative premiums during the same period by at least $500.00;
    (3) A premium has been earned in at least 1 of the most recent 4 
crop years in the NCS base period;
    (4) The result of dividing the number of indemnified losses during 
the NCS base period by the number of years premium is earned for that 
period equals .30 or greater; and
    (5) Either of the following apply:
    (i) The natural logarithm of the cumulative earned premium rate 
multiplied by the square root of the cumulative loss ratio equals 2.00 
or greater; or
    (ii) Five (5) or more indemnified losses have occurred during the 
NCS base period and the cumulative loss ratio equals or exceeds 1.50. 
The minimum standards provided in paragraphs (a)(2), (3), (4), and (5) 
of this

[[Page 57597]]

section may be increased in a specific county if that county's overall 
insurance experience for the crop is substantially different from the 
insurance experience for which the criteria was determined. The 
increased standard will apply until the conditions requiring the 
increase no longer apply. Any change in the standards will be contained 
in the Special Provisions for the crop.
* * * * *
    (c) Insurance experience for the crop may be adjusted, by county 
and crop year, to discount the effect of indemnities caused by 
widespread adverse growing conditions. Adjustments are determined as 
follows:
    (1) Determine the average yield for the county using the annual 
county crop yields for the previous 20 crop years, unless such data is 
not available;
    (2) Determine the normal variability in the average yield for the 
county, expressed as the standard deviation;
    (3) Subtract the result of paragraph (c)(2) from paragraph (c)(1);
    (4) Divide the annual crop yield for the county for each crop year 
in the NCS base period by the result of paragraph (c)(3), the result of 
which may not exceed 1.0;
    (5) Subtract the result of paragraph (c)(4) for each crop year from 
1.0;
    (6) Multiply the result of paragraph (c)(5) by the liability for 
the crop year; and
    (7) Subtract the result of paragraph (c)(6) from any indemnity for 
that crop year. FCIC may substitute the crop yields of a comparable 
crop in determining paragraphs (c) (1) and (2), or may adjust the 
average yield or the measurement of normal variability for the county 
crop, or any combination thereof, to account for trends or unusual 
variations in production of the county crop or if the availability of 
yield and loss data for the county crop is limited. Alternate methods 
of determining the effects of adverse growing conditions on insurance 
experience may be implemented by FCIC if allowed in the Special 
Provisions.
    4. Section 400.305 is amended by revising the introductory text of 
paragraph (c) to read as follows:


Sec. 400.305  Assignment of Nonstandard Classification.

* * * * *
    (c) A Nonstandard Classification may be assigned to identified 
insurable acreage; a person; or to a combination of person and 
identified acreage for a crop or crop practice, type, variety, or crop 
option or amendment whereby:
* * * * *
    5. Section 400.307 is amended by adding two sentences at the end 
thereof to read as follows:


Sec. 400.307  Discontinuance of participation.

* * * * *
    A Nonstandard Classification will no longer be applicable to the 
person or the person on identified acreage if the Corporation 
determines the person is deceased or has discontinued all farming 
operations for all crops, such as the legitimate sale of the farming 
operation to a disinterested person. If the person who discontinues all 
crop farming operations later returns to farming or obtains a 
substantial beneficial interest in a farming operation, the nonstandard 
classification will be reinstated.
    6. In Sec. 400.309, paragraph (a) is amended by revising the phrase 
``45 days'' to read ``30 days'' and paragraphs (e) and (f) are removed.

    Signed in Washington, D.C., on October 31, 1996.
Kenneth D. Ackerman,
Manager, Federal Crop Insurance Corporation.
[FR Doc. 96-28608 Filed 11-6-96; 8:45 am]
BILLING CODE 3410-FA-P