[Federal Register Volume 62, Number 81 (Monday, April 28, 1997)]
[Rules and Regulations]
[Pages 22873-22877]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-10890]
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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, USDA.
ACTION: Final rule.
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SUMMARY: Federal Crop Insurance Corporation (FCIC) finalizes amendments
to subpart O of the General Administrative Regulations, effective with
the 1998 (1999 for Texas and Arizona/California Production Citrus) and
succeeding crop years. This 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.
EFFECTIVE DATE: May 28, 1997.
FOR FURTHER INFORMATION CONTACT: Bill Smith, Supervisory Insurance
Management Specialist, Research and Development, Product Development
Division, Federal Crop Insurance Corporation, United States Department
of Agriculture, 9435 Holmes Road, Kansas City, MO 64131, telephone
(816) 926-7743.
SUPPLEMENTARY INFORMATION:
Executive Order 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 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).
[[Page 22874]]
Unfunded Mandates Reform Act of 1995
Title II of the Unfunded Mandates 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. 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
This regulation will not have a significant impact on a substantial
number of small entities. New provisions in the rule will not impact
small entities to a greater extent than larger entities. NCS program
determinations are applied to all producers on a county basis and
affect only a small number of producers (approximately 1 percent of all
insureds). 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 12988
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 part 11 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 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
On Thursday, November 7, 1996, FCIC published a proposed rule in
the Federal Register at 61 FR 57595-57597 to amend the General
Administrative Regulations (7 CFR part 400, subpart O) to be effective
for the 1998 (1999 for Texas and Arizona/California Production Citrus)
and succeeding crop years. Following publication of that proposed rule,
the public was afforded 60 days to submit written comments and
opinions. A total of 22 comments were received from the crop insurance
industry and FCIC. The comments received and FCIC responses are as
follows:
Comment: One comment received from FCIC recommended that the
Summary, Background, and List of Subjects statements be clarified by
changing references to ``Texas and Arizona/California Citrus'' to
``Texas and Arizona/California Production Citrus'' and adding
``sugarcane'' to the list of crops for which this subpart applies for
the 1999 crop year. These changes would correspond with the usage of
``production'' and ``sugarcane'' in the definition of ``NCS base
period.''
Response: The referenced statements specify the crop year this
subpart is to be effective based on the crop year and contract change
date contained in the applicable crop provisions. Since citrus trees
and citrus production have different crop year definitions and contract
change dates, FCIC will add ``production'' to eliminate any possible
confusion regarding the crops affected by these statements. Under the
policy provisions for sugarcane, this rule is applicable to the 1998
crop year which is consistent with the applicable effective dates
specified in this rule as currently written. The exceptions made for
crops such as sugarcane in the definition of the ``NCS base period''
are necessary due to the availability of insurance experience data and
are not related to the effective date of this subpart. Therefore, no
change will be made regarding the addition of ``sugarcane'' to these
statements.
Comment: One comment received from FCIC questioned if insurance
experience under the Group Risk Protection plan of coverage should be
specifically excluded in this subpart from insurance experience based
on the individual producer.
Response: FCIC agrees with the comment and will amend Sec. 400.301
to limit this subpart's effect to producers whose insurance coverage or
indemnities are based on determinations applicable to the individual
insured rather than determinations made on a county or area basis.
Comment: One comment received from the crop insurance industry
inquired how FCIC considered certain types of indemnities in making NCS
determinations.
Response: FCIC provided language in its definition of ``insurance
experience'' that permits adjustment for certain types of indemnities
and for the exclusion of replant payments for purposes of NCS
selection, as applicable. Limiting the effect of certain losses, which
do not clearly establish nonstandard risks, produce more accurate NCS
determinations consistent with the purpose for which NCS was developed.
Comment: One comment received from the crop insurance industry
recommended that the reference to ``a significant contribution'' in the
definition of ``actively engaged in farming'' was too broad and
subjective.
Response: FCIC agrees and will change the definition from ``a
significant contribution'' to ``a contribution,'' reflecting the
current definition before the term ``significant'' was added.
Comment: One comment received from the crop insurance industry
recommended ``applicable adjustments'' contained in the definition of
``insurance experience'' be specified.
Response: FCIC believes it is better to reference experience
adjustments in broad terms as stated in the proposed definition to
maintain flexibility in managing the effects of different loss
conditions on insurance experience. Adjustments are made to limit the
effect of losses caused by wide-spread crop failures caused by one or
more perils affecting a large number of producers or other similar
situations determined by FCIC to not reflect nonstandard risks. The
impact of such adjustments is to improve identification of persons who
represent nonstandard risks. Therefore, no change will be made.
[[Page 22875]]
Comment: One comment received from FCIC recommended the definition
of ``insurance experience'' be revised to remove the language which
excludes replant payments from consideration in determining insurance
experience.
Response: FCIC believes that replant payments should not be
considered in determining insurance experience for NCS selection
purposes. FCIC provides replant payments to defray costs incurred by
insureds replanting an insured crop damaged by insured causes,
necessary to keep insurance in force or to reduce any future
indemnities. Considering such payments when identifying insureds with
nonstandard risks would be inequitable when FCIC requires or encourages
replanting as a means to promote a sounder insurance program.
Therefore, no change will be made.
Comment: One comment received from FCIC recommended that the
definition of ``NCS base period'' be changed to establish the base
period for raisins as the 10 crop year period ending immediately
preceding the crop year the NCS classification becomes effective.
Response: The NCS base period ends 2 or 3 crop years (depending on
the crop) prior to the effective NCS crop year to assure that all
insurance experience records are available to meet NCS determination
and notification requirements prior to the contract change date for
each crop. The NCS base period, as defined, meets this requirement.
Therefore, no change will be made.
Comment: One comment received from the crop insurance industry
recommended the definition of ``NCS base period'' not specify
individual crops by base period. Changes in the crops listed would
cause the definition to be inaccurate.
Response: FCIC agrees with this comment and will revise the
definition to provide crop exceptions on the Special Provisions.
Comment: One comment received from FCIC suggested that the
definition of ``NCS base period'' did not agree with the example
contained in the definition.
Response: FCIC agrees and has amended the provisions accordingly.
Comment: One comment received from FCIC suggested that section
400.303(a) (1) and (4) were mathematically redundant.
Response: The selection criteria contained in Sec. 400.303(a) (1)
and (4) would provide the same effect if, for example, the number of
indemnified losses in the NCS base period equals three and the loss
frequency is set at 30 percent. However, other frequency percentages
are permitted under this subpart. FCIC currently uses 60 percent. The
number of indemnified losses will also vary. In either case, each
criteria impacts the NCS selection process differently. Therefore, no
change will be made.
Comment: Two comments received from FCIC recommended the reference
to ``cumulative indemnities'' and ``cumulative loss ratio'' contained
in Secs. 400.303 (a)(2) and (b)(5) be changed to ``cumulative adjusted
indemnities'' and ``cumulative adjusted loss ratio'' to reflect
adjustments to indemnities FCIC may make under certain circumstances.
Response: Section 400.303(a) states that nonstandard classification
procedures apply when all of the insurance experience criteria,
including any adjustments to insurance experience which may be made
under Sec. 400.300(c), have been met. However, since the insurance
experience for individual producers or individual crop years may not
qualify for insurance experience adjustment, it would be incorrect to
add the term ``adjusted'' as recommended by the respondent. Therefore,
no change will be made.
Comment: One comment received from FCIC recommended deleting
Sec. 400.303(a)(3) due to its inconsistency with Sec. 400.307,
Discontinuance of participation which, other than as excepted, requires
continued insurance experience to be eligible for removal from NCS.
Response: FCIC agrees and will delete paragraph (a)(3) and
redesignate paragraphs (a)(4) and (5) as (a)(3) and (4) and correct
other section references accordingly.
Comment: Two comments received from FCIC concerning
Sec. 400.303(a)(5)(ii) questioned the necessity and advisability of
providing notification in the Special Provisions of changes increasing
the minimum standards for certain selection criteria contained in this
section.
Response: Sec. 400.303 establishes minimum NCS selection criteria
which the public is notified through the rule making process. Certain
criteria are allowed to increase above the minimum standards, reducing
the probability of selection for NCS adjustments. However, such
increases can only be applicable if the criteria stated in
Sec. 400.303(a) are met and such decisions will be made on a county by
county basis. The Special Provisions, which are part of the insurance
contract and contain those terms and conditions specific to the county,
are the appropriate documents to contain such increases which reduce
the probability of selection for NCS. All increases will apply to all
producers in the county. For any change in the selection criteria
contained in this section that may result in an increased probability
of selection for NCS, FCIC will make such changes through the
rulemaking process. Therefore, no change will be made.
Comment: One comment received from FCIC recommended Sec. 400.303(c)
describe how indemnities are adjusted and reference the procedures and
methods used by FCIC in its determinations and their availability to
the public.
Response: FCIC believes Sec. 400.303(c) adequately describes
indemnity adjustments. Complete details are contained in procedures
FCIC develops and publishes. This information is available for public
inspection on request. FCIC will amend the rule to determine where such
procedures will be available.
Comment: One comment received from FCIC recommended the last
sentence of Sec. 400.303(c) be changed to use a means other than the
Special Provisions to provide for alternate methodologies of
establishing crop disaster adjustments to insurance experience.
Response: FCIC believes the Special Provisions, which are part of
the insurance contract and contain those terms and conditions specific
to the county, are the appropriate documents to provide for such
alternatives. Therefore, no change will be made.
Comment: Two comments received from the crop insurance industry
regarding Sec. 400.305 suggested that FCIC implement measures using
social security (SSN) or employer identification numbers (EIN) to
correctly identify persons affected by NCS and to assure applicable
coverage or rate classifications were used to establish liability and
premium. Limiting the availability of optional units was also suggested
as another way to improve insurance experience.
Response: FCIC currently identifies persons listed on NCS through
the use of SSN and EIN's. Changing the availability of optional units
would represent a significant change and require an additional comment
period to allow interested parties to consider the effects of this
change. Therefore, no change will be made to the present rule. However,
consideration will be given to this recommendation in any future change
to this subpart.
Comment: One comment received from the crop insurance industry
recommended NCS classifications under Sec. 400.305(c) should not be
assigned to identified insurable acreage or to specific crop practices,
types, varieties, options, or amendments.
[[Page 22876]]
Response: FCIC believes that assigning NCS classifications to
identified insurable acreage or by practice, type, variety, option, or
amendment rather than to a person only or to all crop production
alternatives for the crop is fair and equitable. Where adverse
insurance experience can be attributed to a specific land location or
crop production choice, appropriate coverage or rating actions should
be targeted at those conditions. Therefore, no change will be made.
Comment: One comment received from FCIC recommended Sec. 400.307 be
changed to eliminate the reinstatement requirement for persons who are
removed from the NCS listing after stopping all farm operations and
then begin farming again at some later time. Such determinations would
be difficult to make and there was uncertainty about when the
reinstatement would be effective.
Response: FCIC agrees that reinstatements may be difficult to
administer timely. FCIC will amend Sec. 400.307 to state that the
person will continue to be listed on the NCS list in the county until
the producer has ceased participation in the crop insurance program as
a policyholder or person with a substantial beneficial interest in a
policyholder for as least 10 consecutive crop years. NCS adjustments
applicable to such persons will remain in effect in accordance with
Sec. 400.307.
Comment: One comment received from FCIC recommended language be
added to Sec. 400.309 referencing applicable appeals regulations issued
or being developed by the National Appeals Division or FCIC.
Response: Producers are notified of their selection for NCS
adjustments and of their rights to reconsideration under Sec. 400.309
(a) through (d). Once FCIC has completed its appeals procedures,
producers will be provided with a right to appeal under such
regulations. Until such time, FCIC will amend Sec. 400.309 to add
paragraph (e) stating that the producer's rights to appeal will be
provided under 7 CFR part 11.
In addition to the changes described above, FCIC has made the
following changes to this subpart:
1. Clarified the definition of ``indemnified loss'' by changing
``total adjusted indemnity'' to ``total indemnity''. Any applicable
adjustments to indemnities for purposes of this definition are provided
in the definition of insurance experience.
2. Clarified the definition of ``insurance experience'' by
rearranging ``(applicable adjustments)'' and ``(but not including
replant payments).'' This change will clarify that adjustments may be
made in premiums, indemnities, and other data but that replant payments
are not included in indemnities used for NCS selection purposes.
3. Corrected Sec. 400.305(b) to replace the reference to subpart J
with 7 CFR part 11.
List of Subjects in 7 CFR Part 400
Crop insurance, Nonstandard Underwriting Classification System.
Final Rule
Accordingly, for the reasons set forth in the preamble, the Federal
Crop Insurance Corporation hereby amends 7 CFR part 400, subpart O, as
follows:
PART 400--GENERAL ADMINISTRATIVE REGULATIONS
Subpart O--Nonstandard Underwriting Classification System
Regulations for the 1991 and Succeeding Crop Years
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. Section 400.301 is revised to read as follows:
Sec. 400.301 Basis, purpose, and applicability.
The regulations contained in this subpart are issued pursuant to
the Federal Crop Insurance Act, as amended (7 U.S.C. 1501 et seq.), to
prescribe the procedures for nonstandard determinations and the
assignment of assigned yields or premium rates in conformance with the
intent of section 508 of the Act (7 U.S.C. 1508). These regulations are
applicable to all policies of insurance insured or reinsured by the
Corporation under the Act and on those policies where the insurance
coverage or indemnities are based on determinations applicable to the
individual insured. These regulations will not be applicable to any
policy where the amount of coverage or indemnities are based on the
experience of the area.
3. Section 400.302 is amended to remove all paragraph designations
and the definition of ``base period;'' definitions of ``actively
engaged in farming'' and ``insurance experience'' are revised; and
definitions of ``earned premium,'' ``indemnified loss,'' ``NCS,'' 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 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 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 (but
not including replant payments), and other data for the crop (after
applicable adjustments), 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 means nonstandard classification system.
NCS base period means the 10 consecutive crop years (as defined in
the crop policy) ending 2 crop years prior to the crop year in which
the NCS classification becomes effective for all crops, except those
specified on the Special Provisions. For these excepted crops, the NCS
base period means the 10 consecutive crop years ending 3 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, or 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.
* * * * *
4. Section 400.303 is amended by revising paragraph (a),
redesignating paragraph (b) as (c) and adding paragraphs (b), (d), and
(e) to read as follows:
[[Page 22877]]
Sec. 400.303 Initial selection criteria.
(a) Nonstandard classification procedures in this subpart initially
apply when all of the following insurance experience criteria
(including any applicable adjustment in Sec. 400.303(d)) for the crop
have been met:
(1) Three (3) 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;
(3) 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
(4) 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.
(b) The minimum standards provided in paragraphs (a) (2), (3), and
(4) of this 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.
* * * * *
(d) Insurance experience for the crop will 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 Sec. 400.303(d)(2) from
Sec. 400.303(d)(1);
(4) Divide the annual crop yield for the county for each crop year
in the NCS base period by the result of Sec. 400.303(d)(3), the result
of which may not exceed 1.0;
(5) Subtract the result of Sec. 400.303(d)(4) for each crop year
from 1.0;
(6) Multiply the result of Sec. 400.303(d)(5) by the liability for
the crop year; and
(7) Subtract the result of Sec. 400.303(d)(6) from any indemnity
for that crop year.
(e) FCIC may substitute the crop yields of a comparable crop in
determining Sec. 400.303(d) (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. Information about how these
determinations are made is available by submitting a request to the
FCIC Regional Service Office for the producer's area. Alternate methods
of determining the effects of adverse growing conditions on insurance
experience may be implemented by FCIC if allowed in the Special
Provisions.
5. Section 400.305 is amended by revising paragraph (b) and the
introductory text of paragraph (c) to read as follows:
Sec. 400.305 Assignment of Nonstandard Classification.
* * * * *
(b) Nonstandard classification assignment will be made each year,
for the year identified on the assignment forms, and are not subject to
change under the provisions of this subpart by the Corporation for that
year when included in the actuarial tables for the county, except as a
result of a request for reconsideration as provided in section 400.309,
or as the result of appeals under 7 CFR part 11.
(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:
* * * * *
6. Section 400.307 is revised to read as follows:
Sec. 400.307 Discontinuance of participation.
If the person has discontinued participation in the crop insurance
program, the person will still be included on the NCS list in the
county until the person has discontinued participation as a
policyholder or a person with a substantial beneficial interest in a
policyholder for at least 10 consecutive crop years. The most recent
nonstandard classification assigned will be continued from year to year
until participation has been renewed for at least one crop year and at
least three years of insurance experience have occurred in the current
base period. 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.
7. Section 400.309 is amended by revising paragraph (a), removing
paragraph (e), and redesignating paragraph (f) as (e) and revising
newly redesignated paragraph (e) to read as follows:
Sec. 400.309 Requests for reconsideration.
(a) Any person to be assigned a nonstandard classification under
this subpart will be notified of and allowed not less that 30 days from
the date notice is received to request reconsideration before the
nonstandard classification becomes effective. The request will be
considered to have been made when received, in writing, by the
Corporation.
* * * * *
(e) Any person not satisfied by a determination of the Corporation
upon reconsideration may further appeal under the provisions of 7 CFR
part 11.
Signed in Washington, DC, on April 23, 1997.
Suzette M. Dittrich,
Deputy Manager, Federal Crop Insurance Corporation.
[FR Doc. 97-10890 Filed 4-25-97; 8:45 am]
BILLING CODE 3410-FA-P