[Federal Register Volume 64, Number 91 (Wednesday, May 12, 1999)]
[Proposed Rules]
[Pages 25464-25469]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-11759]


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DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 400

RIN 0563-AB70


General Administrative Regulations; Premium Reductions; Payment 
of Rebates, Dividends, and Patronage Refunds; and Payments to Insured-
Owned and Record-Controlling Entities

AGENCY: Federal Crop Insurance Corporation, USDA.

ACTION: Proposed rule with request for comments.

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SUMMARY: The Federal Crop Insurance Corporation (FCIC) proposes to 
amend its General Administrative Regulations, to allow approved 
insurance providers to apply to the Federal Crop Insurance Corporation 
(FCIC) for authority to reduce the premium charged producers in 
accordance with section 508(e)(3) of the Federal Crop Insurance Act 
(Act), as amended, and to provide the limitations and requirements 
applicable to the payment of rebates, dividends, and patronage refunds 
to insureds, and payments to insured-owned and record-controlling 
entities.

DATES: Written comments and opinions on this proposed rule will be 
accepted until close of business July 12, 1999 and will be considered 
when the rule is to be made final. Comments on the information 
collection requirements must be received on or before July 12, 1999.

ADDRESSES: Interested persons are invited to submit written comments to 
the Director, Reinsurance Services Division, Risk Management Agency, 
Stop 0804, United States Department of Agriculture, 1400 Independence 
Avenue, SW, Washington, DC. 20250-0804. A copy of each response will be 
available for public inspection and copying from 8 a.m. to 4:30 p.m., 
EDT, Monday through Friday, except holidays, at the above address.

FOR FURTHER INFORMATION CONTACT: For further information and a copy of 
the Cost-Benefit Analysis to the General Administrative Regulations, 
contact E. Heyward Baker, Director, Reinsurance Services Division, Risk 
Management Agency, at the Washington, DC, address listed above, 
telephone (202) 720-4286.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    The Office of Management and Budget (OMB) has determined this rule 
to be significant and, therefore, it has been reviewed by OMB.

Cost-Benefit Analysis

    A cost-benefit analysis has been completed and is available to 
interested parties at the Washington, DC address listed above. In 
summary, the analysis found that: (1) The anti-rebating and record-
controlling provisions will promote actuarial soundness of the crop 
insurance program; (2) premium reductions are more likely to be offered 
to large premium policy holders than small; (3) the proposed provisions 
authorize FCIC/RMA management to deny permission to implement premium 
reductions if there would be a reduction in the overall system's 
ability to serve all farmers; and (4) the authority and basic 
requirements for premium reductions are specified in the Act. In order 
to avoid any adverse impact on small farmers or on the crop insurance 
program itself, Secs. 400.755(b)(1) to (10) provide grounds for FCIC/
RMA management to reject premium

[[Page 25465]]

reduction applications. Based on the cost benefit analysis and the 
requirements of the Act FCIC finds that this regulation is in the best 
interest of the overall crop insurance program and should be proposed 
in the Federal Register for public review and comment.

Paperwork Reduction Act of 1995

    In accordance with section 3507 (j) of the Paperwork Reduction Act 
of 1995 (44 U.S.C. 3501), the information collection or recordkeeping 
requirements included in the proposed rule have been submitted for 
approval to the Office of Management and Budget (OMB). Please send your 
written comments to Clearance Officer, OCIO, USDA, room 404-W, 14th 
Street and Independence Avenue SW, Washington, DC 20250. A comment to 
OMB is best assured of having its full effect if OMB receives it within 
30 days of publication of this proposed rule.
    We are soliciting comments from the public comment concerning our 
proposed information collection and recordkeeping requirements. We need 
this outside input to help us:
    (1) Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information has practical utility;
    (2) Evaluate the accuracy of our estimate of the burden of the 
proposed collection of information, including the validity of the 
methodology and assumptions used;
    (3) Enhance the quality, utility, and clarity of the information to 
be collected; and
    (4) Minimize the burden of the collection of information on those 
who are to respond (such as through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology, e.g. permitting electronic 
submission responses).
    Title: General Administrative Regulations; Premium reductions; 
payment of rebates, dividends, and patronage refunds; and payments to 
insured-owned and record-controlling entities.
    Abstract: A new program is being proposed that will allow approved 
insurance providers to apply to FCIC for authority to reduce the 
premium charged to producers in accordance with the Federal Crop 
Insurance Act (Act), as amended, and to provide the limitation and 
procedures established by FCIC.
    Purpose: The purpose of this proposed rule is to provide guidelines 
to approved insurance providers and their agents, employees, and 
contractors regarding prohibited and permitted practices with respect 
to premium reductions; payment of rebates, dividends, and patronage 
refunds; and payments to insured-owned and record-controlling entities.
    Burden Statement: The information that FCIC collects on the 
requested application as defined in Sec. 400.751 of this regulation, 
will be used to determine if the premium charged to producers may be 
reduced. The burden for this information collection assumes that 
approximately 18 reinsured companies will read this regulation. It is 
further assumed that all 18 reinsured companies will eventually 
complete an application to obtain written approval from RMA of premium 
reduction plans.
    Estimate of Burden: We estimate it will take 18 reinsured companies 
2 hours to read the regulation for a total of 36 hours. In addition, we 
also estimate it will take them 48 hours each to apply to the program 
twice a year.
    Respondents: 18 reinsured companies.
    Estimated annual number of respondents: 18.
    Estimated annual number of responses per respondent: 2.
    Estimated annual number of responses: 36.
    Estimated total annual burden on respondents: The total public 
burden for this proposed rule is estimated at 900 hours.
    Recordkeeping Requirements: FCIC requires records to be kept for 
three years, but all records required by FCIC are retained as part of 
the normal business practice. Therefore, FCIC is not estimating 
additional burden related to recordkeeping.
    Copies of this information collection can be obtained from: 
Clearance Officer, OCIO, USDA, room 404-W, 14th Street and Independence 
Avenue SW, Washington, DC 20250.

Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), Pub. 
L. 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 UMRA) for 
State, local, and tribal governments or the private sector. Therefore, 
this rule is not subject to the requirements of sections 202 and 205 of 
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 
provisions 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 economic impact on a 
substantial number of small entities. The rule provides the guidelines 
to be used by all approved insurance providers or any other applicant 
and FCIC in the application, review, and approval of plans to reduce 
the premiums charged producers. Any submission is entirely voluntary 
and the guidelines contained in this rule does not impact small 
entities to a greater extent than large 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 12988

    This rule has been reviewed in accordance with Executive Order 
12988 on civil justice reform. The provisions of this rule will not 
have a retroactive effect. 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 or action before the Board of Contract Appeals, 
whichever is applicable, must be exhausted before any action for 
judicial review of any determination made by FCIC may be brought.

Environmental Evaluation

    This action is not expected to have a significant economic impact 
on the quality of the human environment, health, and safety. Therefore, 
neither an

[[Page 25466]]

Environmental Assessment nor an Environmental Impact Statement is 
needed.

Background

    The Risk Management Agency (RMA) is charged with the administration 
of the crop insurance programs for FCIC. As such, RMA is responsible 
for maintaining an effective, orderly, and efficient crop insurance 
marketplace, including a delivery system capable of selling and 
servicing FCIC's crop insurance policies and other risk management 
products reinsured by FCIC to all producers in a manner that does not 
unfairly discriminate among producers or insurance companies. The 
delivery system must support efforts to operate in an actuarially sound 
manner, to assure program integrity, and to avoid and prevent waste, 
fraud, and abuse.
    Premium reductions; payment of rebates, dividends, and patronage 
refunds; and payments to insured-owned and record-controlling entities, 
if improperly made, may have an adverse effect on FCIC's ability to 
devise and establish an effective and efficient crop insurance 
marketplace so as to best meet the risk management needs of producers 
and its responsibility to protect the program and its participants. 
Rebates are illegal in most States for those lines of insurance 
regulated by State Departments of Insurance for several reasons, the 
most important being the destructive impact that they can have on 
delivery systems and on competition. Use of rebates could negatively 
impact the smaller insurance companies because they would not be able 
to provide the same economic incentives that larger companies could 
provide and, as a result, they may unfairly lose market share. FCIC 
relies on a healthy and competitive delivery system to assure that all 
producers are afforded the best quality service, regardless of the size 
of the farm or the amount of premium earned on the policy. The Standard 
Reinsurance Agreement in effect for the 1998 reinsurance year prohibits 
rebates.
    Dividends and patronage refunds are normal business practices for 
mutual, cooperative, and certain other insurance companies as well as 
to certain kinds of cooperatives such as insurance-buying groups and 
certain agricultural lenders. While the use of dividends and patronage 
refunds are generally benign, they can also be used to disguise rebates 
if they are guaranteed in advance or they are made contingent upon the 
continued purchase of crop insurance policies. When they are disguised 
rebates, they have the potential to impact negatively on the delivery 
system, competition, and the quality of service afforded producers. 
This rule in part provides procedures and limitations on providing such 
dividends or patronage refunds.
    The use of insured-owned entities in marketing also embodies the 
potential for disguised rebates. There are instances where associations 
or cooperatives have contracted with insurance companies to provide a 
list of members and a product endorsement in exchange for a sum of 
money. In these cases, the insured may have an interest in the 
association or cooperative and the insured-owned entity may have the 
capacity to reward those producers who purchase insurance. Such 
inducements may be prohibited rebates. This rule is proposed to ensure 
that any funds paid to the insured-owned entity are used to the benefit 
of all members and not only those who purchase insurance.
    The use of record-controlling entities presents different potential 
problems. Here the potential impact is not on the delivery system and 
competition but on FCIC's ability to achieve actuarial soundness and 
protect program integrity. Record-controlling entities are processors, 
packers, etc. that maintain the production records for the producer and 
also have an interest in the insurance policy as the insured or 
assignee of the policy. FCIC uses production records and related crop 
production information from storage facilities, packers, processors, 
and marketers to design insurance products, set premium rates, 
establish yield guarantees for individual producers through the actual 
production history program, and to determine the production to count 
when there is a claim. There are also cases where the record-
controlling entity is recruited as an agent and paid a commission. This 
creates, at the least, a potential conflict of interest and may 
jeopardize actuarial soundness and program integrity. This rule 
provides the conditions under which record-controlling entities can 
participate in the Federal crop insurance program.
    Premium reductions for FCIC-reinsured policies are specifically 
authorized by section 508(e)(3) of the Act, which specifically 
authorizes reinsured companies to reduce the amount of producer paid 
premiums if they can demonstrate that they can deliver the crop 
insurance program for less than the amount of administrative and 
operating expense reimbursement they receive under the Act. This rule 
establishes the procedures and limitations required to implement 
premium reductions.

List of Subjects in 7 CFR part 400

    Administrative practice and procedure, Crop insurance, Disaster 
assistance, Fraud, Penalties, Reporting and recordkeeping requirements.

Proposed Rule

    Accordingly, as set forth in the preamble, the Federal Crop 
Insurance Corporation proposes to amend 7 CFR part 400 by adding 
subpart W, effective for the 1999 and succeeding reinsurance years, to 
read as follows:

PART 400--GENERAL ADMINISTRATIVE REGULATIONS

Subpart W--Premium Reductions; Payment of Rebates, Dividends, and 
Patronage Refunds; and Payments to Insured-Owned and Record-controlling 
Entities for the 1999 and Subsequent Crop Years

Sec.

400.750  Basis, purpose, and applicability.
400.751  Definitions.
400.752  Payment of Rebates.
400.753  Dividends and Patronage Refunds.
400.754  Payments to Insured-Owned and Record-Controlling Entities.
400.755  Reductions in premiums.
400.756  Records and Review.
400.757  Sanctions.

    Authority: 7 U.S.C. 1506(1), 1506(p), 1508(e)(3)

Subpart W--Premium Reductions; Payment of Rebates, Dividends, and 
Patronage Refunds; and Payments to Insured-owned and Record-
controlling Entities for the 1999 and Subsequent Crop Years


Sec. 400.750  Basis, purpose, and applicability.

    (a) There is a growing trend to use marketing techniques that 
compensate or reward insureds who obtain crop insurance in order to 
increase the amount of premium written and the potential profitability 
of the reinsured companies. This rule is intended to regulate such 
conduct to protect the integrity of the crop insurance program.
    (b) Section 508(e)(3) of the Act, as amended, authorizes FCIC to 
approve applications by approved insurance providers to reduce premiums 
payable by insureds when the private insurance provider is able to 
demonstrate that it can sell and service the crop insurance program, in 
accordance with the Act, the Standard Reinsurance Agreement, and the 
applicable regulations, directives, bulletins and procedures, for less 
than the amount paid by FCIC to the approved insurance provider for 
administrative and operating expenses. This subpart provides the timing 
of the application, the material to be included,

[[Page 25467]]

and describes FCIC's approval process for such application.


Sec. 400.751  Definitions.

    Act. The Federal Crop Insurance Act (7 U.S.C. 1501 et seq.).
    Application. A written request to RMA for authority to reduce 
producer paid premiums
    Approved insurance provider. A private insurance company that has 
been approved by FCIC to sell and service crop insurance policies 
reinsured by FCIC under the Act.
    Cost-accounting statement. A listing of all of the approved 
insurance provider's administrative and operating costs related to the 
delivery of the Federal crop insurance program, prepared in a manner 
that permits comparison with the Expense Exhibit submitted to RMA with 
the Plan of Operation.
    Covered person. An approved insurance provider; any employee, 
contractor, agent, broker, or solicitor of such approved insurance 
provider; any agency representing the approved insurance provider; any 
owner, employer or controller of any such agency or contractor; any 
spouse or family member residing in the same household as any such, 
employee, contractor, agent, broker, solicitor, owner, or controller; 
or any affiliate of any such approved insurance provider, agency, or 
contractor.
    Dividend. Profits or earnings divided among the owners or 
shareholders in proportion to their ownership share.
    Efficiency. A measurable monetary savings realized by an approved 
insurance provider from changes to the compensation paid to its owners, 
agents, or employees, or from changes to the administrative and 
operating procedures that it employs in selling or servicing FCIC-
reinsured policies in accordance with the Act, the Standard Reinsurance 
Agreement, and the applicable regulations, directives, bulletins and 
procedures. Efficiency does not include underwriting profits earned on 
such policies, or investment returns.
    Entity. Any person, whether incorporated or not, including 
associations, cooperatives, mutuals, corporations, and similar business 
organizations that provide any good or service to insured producers.
    FCIC. The Federal Crop Insurance Corporation, a wholly owned 
government corporation within the United States Department of 
Agriculture.
    Insured. The named person shown on the properly completed 
application for insurance that has been accepted by an approved 
insurance provider and any person with a substantial beneficial 
interest in the insured.
    Insured-owned entity. Any entity that is at least 25 percent owned 
or controlled by insureds.
    Insured's premium. The portion of the FCIC-approved insurance 
premium for the risk of loss that the insured must pay.
    Patronage refund. A payment to an entity's clients in proportion to 
the volume of business that each did with the entity or the amount of 
profit generated from that business.
    Person. Any individual or legal entity.
    Premium reduction. Payment of a portion of the insured's premium by 
the approved insurance provider in accordance with section 508(e)(3) of 
the Act and these regulations.
    Rebate. The giving or paying, either directly or indirectly, by a 
covered person of anything of value to an insured or applicant, or a 
person affiliated with an insured or applicant, such that the gift or 
payment may reasonably be construed by RMA as intended to induce the 
insured or applicant to obtain or maintain insurance coverage with or 
through the covered person.
    Record-controlling entity. Any entity, or its employee, agent, 
contractor, or affiliate, that produces or controls the crop production 
records used to establish the amount of the insurance coverage or the 
amount of production to count in case of loss on an FCIC-reinsured crop 
insurance policy, who also has an interest in the insurance policy as 
the insured or assignee of the policy.
    RMA. The Risk Management Agency, an agency of the United States 
Department of Agriculture that administers the crop insurance program 
for FCIC.
    Sales closing date. The final date by which an FCIC-reinsured 
policy may be purchased.
    Small Producer. The producer of an insurable crop, which if insured 
at 65 percent of the recorded or appraised average yield indemnified at 
100 percent of the market price, or an equivalent coverage, would have 
earned a premium, including premium subsidy but excluding 
administrative and operating subsidy, of no more than $500.


Sec. 400.752  Prohibited practices.

    (a) Rebating in any form is a prohibited practice. Any covered 
person who provides a rebate to any insured or applicant will be 
subject to the sanction provisions in Sec. 400.757.
    (b) No crop insurance policy will be eligible for FCIC reinsurance, 
premium subsidy, or administrative and operating subsidy if any covered 
person makes any of the following payments to the insured producer:
    (1) Rebate;
    (2) Premium reduction, except with the prior approval of RMA; and
    (3) Dividend or patronage refund, if such dividend or refund is 
promised to the applicant or insured, or is contingent upon the insured 
maintaining coverage with or through the entity;
    (c) No crop insurance policy will be eligible for FCIC reinsurance, 
premium subsidy, or administrative and operating subsidy if a covered 
person makes any payment to:
    (1) A record-controlling entity or to any employee, agent, or 
contractor of such an entity, or any entity controlled by such an 
entity, except as specified in paragraph (d) of this section; or
    (2) An insured-owned entity, except an insurance company, or to any 
employee, agent, or contractor of such an entity, or any entity 
controlled by such an entity, when the entity participates in or 
effects any control over the sale of policies and the establishment or 
verification of the yields upon which insurance guarantees are based or 
claims for indemnities are made, except as specified in paragraph (d) 
of this section.
    (d) Crop insurance policies specified in paragraph (b)(1) and (2) 
of this section will be eligible for FCIC reinsurance, premium subsidy, 
and administrative and operating subsidy when the specified payments:
    (1) Are approved in writing by RMA;
    (2) Are not based on the amount of FCIC-reinsured crop insurance 
business sold through the entity; and
    (3) The approved insurance provider presents a plan, accepted by 
RMA, that demonstrates how, in cases involving record-controlling 
entities, the integrity of the crop production records used to 
establish the amount of the insurance coverage or the amount of 
production to count in case of loss on an FCIC-reinsured crop insurance 
policy, will be protected.


Sec. 400.753  Dividends and patronage refunds.

    (a) Dividends and patronage refunds are permitted unless:
    (1) A dividend or patronage refund is promised or guaranteed to be 
paid to the insured or applicant;
    (2) The payment of the dividend or patronage refund is contingent 
upon the insured or applicant obtaining or maintaining coverage with or 
through a specific covered person; or

[[Page 25468]]

    (3) The payment of the dividend, crop insurance, or patronage 
refund is made only to insureds.
    (b) Prior to paying any dividends or patronage refunds to insureds 
or applicants, the covered person must certify that such payments do 
not violate paragraph (a) of this section. The covered person making 
such payments will make those financial records applicable to such 
payments available for inspection at the request of RMA.
    (c) Payment of any dividend or patronage refund in violation of 
this section will result in the imposition of sanctions in accordance 
with Sec. 400.757.


Sec. 400.754  Payments to insured-owned and record-controlling 
entities.

    (a) Covered persons may not enter into agreements with insured-
owned entities to purchase a list of producers affiliated with the 
insured-owned entity or an endorsement of the covered person by the 
insured-owned entity except as specified in this section.
    (1) The covered person must request approval from FCIC in writing 
in accordance with paragraph (d) of this section.
    (2) Covered persons may not execute agreements or make any payments 
to insured-owned entities until receiving written approval from FCIC.
    (3) The insured-owned entity must agree in writing not to make any 
payments or provide any benefits to any insured or applicant affiliated 
with the insured-owned entity that is contingent upon the insured or 
applicant obtaining or maintaining insurance coverage with or through a 
covered person.
    (4) The insured-owned entity must agree in writing that all 
payments made by the covered person will be deposited in the general 
fund to be used for the benefit of all producers affiliated with the 
insured-owned entity equally or in proportion to the persons interest 
in the insured-owned entity, as applicable.
    (5) The amount of the covered persons' payment to the insured-owned 
entity must be a fixed amount and must not be based on the number of 
crop insurance policies sold to producers affiliated with the insured-
owned entity or the volume of premium written.
    (b) For any other type of agreement between covered persons and 
insured-owned entities, the covered person must comply with all the 
requirements of this section.
    (c) A covered person is prohibited from providing any crop 
insurance or making any payment to a record-controlling entity unless:
    (1) The covered person or the record-controlling entity provides a 
written request for approval for the record-controlling entity to 
obtain insurance or receive a payment from FCIC;
    (2) The covered person or the record-controlling entity obtains the 
written approval from FCIC; and
    (3) The covered person agrees in writing to appraise any crop under 
the control of the record-controlling entity and insured with or 
through the covered person not less than 5 days prior to harvest.
    (d) All requests for approval under this section must comply with 
the following:
    (1) All requests for approval must be received not later than 60 
days prior to the date an agreement between covered persons and 
insured-owned entities is to be effective or, for insurance or payments 
for record-controlling entities, the sales closing date or payment date 
(requests received after the deadline will be considered for the next 
crop year unless the request is withdrawn by the approved insurance 
provider or unless FCIC otherwise agrees in writing);
    (2) Each request must include the following material and address 
each of the following items:
    (i) The name of the covered person and the person who may be 
contacted for further information regarding the request for approval;
    (ii) A detailed description of the amounts to be paid by the 
covered persons and the goods or services to be provided by the 
insured-owned entity or record-controlling entity; and
    (iii) Any other information required by FCIC.
    (e) Entering into any agreement, providing insurance or making any 
payment under this section without the prior written consent of FCIC 
will result in the imposition of sanctions in accordance with 
Sec. 400.757.
    (f) Approval under this section will only be valid for the period 
specified by FCIC in its written approval.


Sec. 400.755  Reductions in premiums.

    (a) Approved insurance providers may obtain written approval of 
premium reduction plans by submitting an application to RMA as follows:
    (1) Applications must be received not later than 120 days before 
the first sales closing date on any crop for which a premium reduction 
is requested. Applications filed less than 120 days before the sales 
closing date will be considered for the next crop year unless the 
application is withdrawn by the approved insurance provider or unless 
FCIC otherwise agrees in writing.
    (2) The application under this section must be sent to the 
Director, Reinsurance Services Division, USDA/RMA/Stop 0804, 1400 
Independence Avenue, SW, Washington, DC 20250-0804.
    (3) Each application must include the following:
    (i) The name of the approved insurance provider, the person who may 
be contacted for further information regarding the application, and the 
person who will be responsible for administration of the premium 
reduction;
    (ii) The crops, insurance plans, the states or counties, and all 
other eligibility criteria used to determine which insureds will be 
offered the premium reduction;
    (iii) An estimate of the number of producers who will be affected, 
the crops, counties, and states affected, and the projected total 
dollar amount of the reduction;
    (iv) The first crop year for which the premium reduction is 
proposed to be offered;
    (v) A detailed description of the changes in administrative and 
operating procedures that produce the efficiency and a detailed cost-
accounting statement verifying the existence and the amount of the 
efficiency (Both statements must be certified by the person authorized 
to sign the Standard Reinsurance Agreement for the approved insurance 
provider. The cost-accounting statement must include historical data 
that permits a comparison of administrative and operating costs before 
and after the introduction of the new procedures. Estimates may be 
supplied whenever the procedures have not yet been implemented or have 
not been implemented long enough to permit the proper collection of 
cost accounting data);
    (vi) A description and an example as to how the approved insurance 
provider will calculate the premium reduction and present it to 
eligible insureds;
    (vii) A description of those features of the proposed premium 
reduction plan that will assure that it will not discriminate against 
small producers, limited resources farmers as defined in section 1 of 
the Basic Provisions, 7 CFR 457.8, or minority producers.
    (viii) A narrative statement explaining how the application 
satisfies all applicable approval criteria specified in Sec. 400.755; 
and
    (ix) Any other information that the approved insurance provider 
wishes to submit or that is required by FCIC.
    (b) Compliance with all the following criteria is required for 
FCIC's approval:
    (1) All required information must be timely submitted;
    (2) There must not be a reduction in service to policyholders;

[[Page 25469]]

    (3) There must not be a reduction in training and supervising of 
agents, loss adjusters, or underwriting and quality assurance 
personnel;
    (4) There must not be a reduction in program integrity or an 
adverse affect on actuarial soundness;
    (5) There must not be a reduction in the total delivery system's 
ability to serve all producers, including small producers, limited 
resource farmers as defined in the Basic Provisions, 7 CFR 457.8, 
minority producers, and producers located in areas with small volumes 
of crop insurance business;
    (6) There must not be a reduction in the total delivery system's 
ability to provide risk management education to all producers;
    (7) The efficiency must be measurable in dollar terms;
    (8) RMA must be able to verify the existence and amount of the 
efficiency and that it is derived from the administrative and operating 
subsidy and not any expected underwriting gain;
    (9) The efficiency must not derive from marketing or underwriting 
practices that are unfairly discriminatory; such as discriminating 
among producers on the basis of farm size or premium amount; and
    (10) The premium reduction must not jeopardize or diminish the 
financial condition of the approved insurance provider.
    (c) Each application will be reviewed to determine if all necessary 
documentation is included. FCIC may require changes or adjustments to 
the application consistent with the Act and FCIC's regulations.
    (d) An application to reduce premium will not be approved if FCIC 
determines that it will discriminate against small producers, limited 
resources farmers as defined in section 1 of the Basic Provisions, 7 
CFR 457.8, or minority producers.
    (1) If the insurance provider proposes to offer the premium 
reduction to an identifiable group of producers or in a specific 
geographical area, then the premium reduction must be made available to 
all producers in that group or area, regardless of the amount of 
premium to be earned on the producer's policy.
    (2) No group or geographical area may be defined in such a manner 
as to exclude small producers, limited resource farmers, or minority 
producers.
    (e) The Director of the Reinsurance Services Division will notify 
the approved insurance provider of the action taken.
    (1) If the application is disapproved, the approved insurance 
provider:
    (i) Will be notified of the reason for disapproval and will be 
allowed to amend the application in an effort to obtain FCIC's 
approval. If the approved insurance provider amends the application, 
the review process starts again and it may not be possible to approve 
the application in time to have it applicable for the crop year for 
which such application was submitted; and
    (ii) May request reconsideration of the decision with the Deputy 
Administrator of Insurance Services within 30 days of disapproval. Such 
request must provide a detailed narrative of the basis for 
reconsideration.
    (2) Approval is solely within the discretion of FCIC.
    (3) An approved application may be implemented by the approved 
insurance provider by the next sales closing date for the affected crop 
after approval by RMA.
    (4) Approved applications for premium reduction will only be valid 
for the period specified by RMA.
    (5) FCIC may rescind any approval at any time that it determines 
that the requirements imposed by this rule are no longer satisfied or 
if a change in the Act necessitates rescission. In such case, 
rescission will not take effect earlier than the date of FCIC's written 
notice to the approved insurance provider.
    (6) The approved insurance provider must report all changes causing 
a material impact upon a previously-approved application to the 
Director of the Reinsurance Services Division.


Sec. 400.756.  Records and Review.

    At any time after approval, RMA may conduct a review or audit of 
any action approved under this subpart and require additional 
information or access to records pertaining to such actions. Failure to 
comply with this section will result in the impositions of sanctions in 
accordance with Sec. 400.757.


Sec. 400.757  Sanctions.

    (a) No crop insurance policy in violation of this subpart will be 
eligible for reinsurance, premium subsidy, or administrative and 
operating expenses. If reinsurance, premium subsidy, or administrative 
and operating expenses have been paid for such policy, they must be 
repaid to FCIC.
    (b) Approved insurance providers are responsible for the conduct of 
all of their covered persons. If such covered person violates any 
provision in this subpart, the approved insurance provider will be held 
strictly liable.

    Signed in Washington, DC, on May 4, 1999.
Kenneth D. Ackerman,
Manager, Federal Crop Insurance Corporation.
[FR Doc. 99-11759 Filed 5-11-99; 8:45 am]
BILLING CODE 3410-08-P