[Federal Register Volume 70, Number 147 (Tuesday, August 2, 2005)]
[Rules and Regulations]
[Pages 44222-44243]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-15102]


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DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 400

RIN 0563-AB84


General Administrative Regulations, Submission of Policies, 
Provisions of Policies, Rates of Premium, and Premium Reduction Plans

AGENCY: Federal Crop Insurance Corporation, USDA.

ACTION: Final rule.

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SUMMARY: The Federal Crop Insurance Corporation (FCIC) amends the 
General Administrative Regulations, which implement the statutory 
mandates of the Agricultural Risk Protection Act of 2000 (ARPA) related 
to the submission of policies for approval for reinsurance and the 
reimbursement of research and development costs and maintenance costs.

DATES: Effective September 1, 2005.

FOR FURTHER INFORMATION CONTACT: For further information or a copy of 
the Cost-Benefit Analysis, contact Louise Narber, Risk Management 
Specialist, Research and Development, Product Development Division, 
Risk Management Agency, United States Department of Agriculture, 6501 
Beacon Drive, Stop 0812, Room 421, Kansas City, MO 64133-4676, 
telephone (816) 926-7730.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined to be not significant for the 
purposes of Executive Order 12866 and, therefore, it

[[Page 44223]]

has not been reviewed by the Office of Management and Budget (OMB).

Cost-Benefit Analysis

    A Cost-Benefit Analysis has been completed and is available to 
interested persons at the Kansas City address listed above. In summary, 
the analysis finds that the guidelines contained in the regulation are 
administrative in nature and in most cases, dictated by statutory 
requirement. They are intended to facilitate the submission and review 
of policy terms and conditions, endorsements, actuarial documents, 
underwriting rules, administrative procedures, and rates of premium of 
new insurance products submitted to FCIC under section 508(h) of the 
Federal Crop Insurance Act (Act) for approval or disapproval by the 
FCIC Board of Directors (Board), as well as reimbursement of research 
and development costs, maintenance costs, and setting of user fees. 
This regulation also requires approved insurance providers, reinsured 
by FCIC, who develop and market non-reinsured supplemental (NRS) 
policies to submit them to FCIC for review to be in compliance with the 
Standard Reinsurance Agreement (SRA). These provisions provide uniform 
guidance for FCIC's review and approval of NRS policies to assure the 
orderly business transaction and vitality of the crop insurance market 
place.

Paperwork Reduction Act of 1995

    Pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 
35), the collections of information in this rule have been approved by 
the Office of Management and Budget (OMB) under control number 0563-
0064 through August 31, 2007.

Government Paperwork Elimination Act (GPEA) Compliance

    In its efforts to comply with GPEA, FCIC requires all approved 
insurance providers delivering the crop insurance program to make all 
insurance documents available electronically and to permit producers to 
transact business electronically. Further, to the maximum extent 
practicable, FCIC transacts its business with approved insurance 
providers electronically.

Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) 
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. Therefore, this rule is not 
subject to the requirements of sections 202 and 205 of UMRA.

Executive Order 13132

    It has been determined under section 1(a) of Executive Order 13132, 
Federalism, that this rule does not have sufficient implications to 
warrant consultation with the States. The provisions contained in this 
rule will not have a substantial direct effect on States, on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government.

Regulatory Flexibility Act

    FCIC certifies that this regulation will not have a significant 
economic impact on a substantial number of small entities. This action 
does not increase the burden on any entity because it merely clarifies 
the process to submit policies, plans of insurance or rates of premium 
to the FCIC Board of Directors for approval for reinsurance and subsidy 
and the process to obtain reimbursement of research and development 
costs and maintenance costs. The effect on small and large entities 
would be the same because all entities must provide the same 
information. A Regulatory Flexibility Analysis has not been prepared 
since this regulation does not have an impact on small entities, and, 
therefore, this regulation is exempt from the provisions of the 
Regulatory Flexibility Act (5 U.S.C. 605).

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. With respect to any direct action taken by FCIC 
or to require the approved insurance provider to take specific action 
under the terms of the crop insurance policy, the administrative appeal 
provisions published at 7 CFR part 11 and 7 CFR part 400, subpart J for 
the informal administrative review process of good farming practices, 
as applicable, must be exhausted before any action against FCIC for 
judicial review 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 Environmental Assessment nor an Environmental Impact 
Statement is needed.

Background

    On Monday, July 16, 2001, FCIC published a proposed rule in the 
Federal Register at 66 FR 36951-36960 to revise 7 CFR part 400, subpart 
V, General Administrative Regulations; Submission of Policies, 
Provisions of Policies, and Rates of Premium. On July 24, 2001, 
Congress enacted section 2103 of the Supplemental Appropriations Act, 
2001, which exempted the implementation of section 522(b) of the Act, 
involving the reimbursement for products submitted under section 508(h) 
of the Act, from the rulemaking process. In response, on Monday, 
September 17, 2001, FCIC published an interim rule in the Federal 
Register at 66 FR 47949-47959 to revise 7 CFR part 400, subpart V, 
General Administrative Regulations; Submission of Policies, Provisions 
of Policies, and Rates of Premium. The interim rule was effective on 
September 17, 2001.
    Following publication of the proposed rule, the public was afforded 
30 days to submit written comments and opinions. Following publication 
of the interim rule, the public was afforded 60 days to submit written 
comments and opinions. A total of 79 comments were received from a 
university, legal counsels, insurance companies, an agricultural 
association, and an insurance service organization for both rules. The 
comments received and FCIC's responses are as follows:

Section 400.701

    Comment: A legal counsel stated the definition of ``actuarially 
appropriate'' should be amended to reflect the fact that 508(h) 
proposals often cover new and innovative concepts, or previously 
uncovered crops or risks for which underlying actuarial data might be 
scarce. The commenter stated Congress chose the lesser standard of 
``actuarially appropriate'' for submissions submitted

[[Page 44224]]

under section 508(h) of the Act as opposed to the requirement that 
rates for established crop insurance policies be ``actuarially sound.'' 
The commenter also stated the following clause should be added, 
``recognizing the potential relative scarcity of data for new or 
innovative coverages.''
    Response: While ``actuarially appropriate'' may not be as strict a 
requirement as ``actuarially sound,'' there must still be at least a 
reasonable certainty that the premiums charged will cover the 
anticipated losses. FCIC has clarified the definition of ``actuarially 
appropriate'' and added provisions regarding the possible scarcity of 
data for new products.
    Comment: An insurance service organization asked if there were any 
guidelines for determining a ``reasonable reserve'' in the definitions 
of ``actuarially appropriate'' and ``rate of premium'' such as from an 
actuarial society.
    Response: It would be impossible to list any specific amount for a 
``reasonable reserve'' for any submission submitted under this rule. 
The reasonable reserve is intended to cover unanticipated losses. The 
reliability of the data used to determine the expected losses is a 
factor that must be considered when setting the reserve. The less 
reliable the data, the higher the reasonable reserve must be. Since it 
is impossible to determine the type or reliability of data applicants 
will use, it is impossible to set one amount that would be appropriate 
to all submissions.
    Comment: An insurance service organization stated ``maintenance'' 
refers to the support and improvement of the policy or plan of 
insurance, including terms and conditions, rates, expansion, and other 
measures necessary to assure financial viability and actuarial 
soundness or to respond to statutory or regulatory changes. The 
commenter stated that by comparing other defined terms, this appears to 
include underwriting and loss adjustment procedures (the definition of 
``policy'' includes ``related materials,'' which in turn includes the 
actuarial documents, special provisions, and any underwriting or loss 
adjustment manuals, handbooks, forms or other materials), and this 
could be better clarified and the use of these terms be more 
consistent. The commenter stated the definitions for ``policy'' and 
``related materials'' include references to ``actuarial documents'' and 
as a result, the ``policy'' definition is redundant in referring to the 
actuarial documents for the insured commodity, and related materials. 
The inclusion of underwriting and loss adjustment materials is not 
clear or consistent in all of the references to the ``policy.''
    Response: FCIC agrees with the commenter and has revised the 
definitions of ``actuarial documents,'' ``policy,'' and ``related 
materials'' to ensure consistency among those provisions. FCIC has also 
revised the definitions of ``development,'' ``maintenance,'' 
``research,'' and ``research and development costs'' to eliminate the 
conflicts between those provisions and better reflect the activities 
associated with these processes.
    Comment: An insurance company stated the definition of 
``maintenance period'' states the period begins on the date the Board 
approves the submission and ends on the date that is not later than 
four reinsurance years after the date of Board approval. They suggested 
the regulation should address what will happen to the product and 
maintenance thereof if the submitting company that received approval of 
a product is no longer in business or is otherwise not able to fulfill 
the maintenance responsibilities before the expiration of the 
maintenance period.
    Response: The maintenance period begins the date the Board approves 
the submission for maintenance, not approval of the submission for 
reinsurance. Section 400.712(m) has been added to specify that once the 
applicant no longer performs the maintenance responsibilities as 
determined by FCIC, or gives FCIC notice they no longer wish to 
maintain the submission, maintenance of the approved submission may be 
assumed by FCIC or reinsurance by FCIC may be withdrawn.

Section 400.702

    Comment: An insurance company stated any reference to a 
competitor's product, including the Board meeting notices that announce 
the name of the submission, indicates key characteristics of the 
product and violates the principle of confidentiality and this 
regulation should prohibit the disclosure of such information.
    Response: FCIC agrees the name of a plan of insurance may indicate 
key characteristics of the product and may give competitors an idea of 
the product being considered by the Board. In the past, FCIC asked 
submitters if they wanted the name of their product used. A new 
paragraph (d) has been added to Sec.  400.702 to specify that the 
submission must state whether the name of the submission may be used. 
If the submission does not state the name may be used, it must remain 
confidential.

Section 400.703

    Comment: An insurance company stated the requirement for the 
submission to be received a minimum of 180 days prior to the earliest 
proposed sales closing date translates to a March 30 deadline for 
winter crops and a September 15 deadline for spring crops. The 
commenter stated that while this may appear reasonable for a new 
complex plan of insurance, it appears arbitrarily lengthy for 
submissions categorized as non-significant.
    Response: In accordance with section 508(h)(4)(D) of the Act, the 
Board has 90 days to determine whether it will approve or disapprove a 
submission from the time it is accepted by the Board as a complete 
submission, unless additional time is negotiated with the applicant. 
While a single submission may be simple in design, the Board and Risk 
Management Agency (RMA) are frequently reviewing several submissions 
simultaneously. Given the workload issues, the Board may require all 90 
days to make its decision. If intent to disapprove is provided, the 
applicant can submit modifications, which must be reviewed by the Board 
within 30 days. In addition, there must be time to make any revisions 
to the policy or plan of insurance after its approval and prior to its 
release, train agents, and offer the product for sale. Based on these 
timelines, FCIC has determined that even 180 days does not provide 
sufficient time to review, approve and sell the product. Section 
400.703(c) has been revised to specify that a submission must be 
received at least 240 days prior to the earliest proposed sales closing 
date to be considered for sale in the requested crop year to allow the 
outside reviewers and FCIC a reasonable time to review and implement 
the submission. A new section (d) has been added to specify the Board, 
or RMA if authorized by the Board will determine when sales can begin 
for a submission approved by the Board.

Section 400.705

    Comment: An insurance company stated the requirement to furnish 
FCIC with seven identical copies of a submission should be eliminated 
because submissions that are major new plans of insurance or 
significant changes to an existing program, require a large amount of 
documentation, not all of the internal RMA reviewers will have need for 
a complete version of the submission, and shipping costs dramatically 
outweigh the costs of RMA preparing its own working copies. The 
commenter also stated limiting the

[[Page 44225]]

number of copies required will reduce development costs for new 
submissions and will also reduce the reimbursement for research and 
development costs, therefore, a larger amount of money will remain in 
the fund to reimburse other submissions that are approved.
    Response: FCIC agrees there is a cost for persons to supply RMA 
with seven identical copies of a submission. However, the seven copies 
are necessary. Five of the copies go to the five external reviewers, 
one copy goes to the RMA Deputy Administrator, in Kansas City, 
Missouri, and one copy goes to the FCIC Administrator in Washington DC. 
All of these people must receive the full copy of the submission. RMA 
makes working copies for RMA internal reviewers, Board members, and 
legal counsel. Receiving seven copies expedites the review of 
submissions, assures necessary and appropriate personnel of RMA and the 
Board receive all of the applicable materials. However, Sec. Sec.  
400.703(a), 400.705, and 400.713 have been revised to allow submissions 
to be sent in an electronic format in accordance with the Freedom to E-
File Act (Pub. L. 106-222). They must contain all the information 
required of hard copy documents and be in the same order. However, this 
should substantially reduce the costs of transmitting such submissions.
    Comment: An insurance company stated the word ``or'' in Sec.  
400.705(a)(3)(iii), redesignated as Sec.  400.705(b)(3)(ii), of the 
proposed rule should be deleted because it indicates an applicant must 
select either reimbursement for research and development or 
reimbursement for maintenance, but not both, and this is inconsistent 
with the Act and other relevant sections of the proposed rule.
    Response: Since requests for reinsurance, reimbursement for 
research and development, and reimbursement for maintenance is at the 
discretion of the applicant, the use of the term ``and'' would not be 
appropriate. Therefore, the word ``or'' is correct. However, nothing 
precludes the applicant from requesting reimbursement for both research 
and development and maintenance in the first year, just as nothing 
precludes the applicant from requesting reinsurance and reimbursement 
for research and development. The term ``or'' implies the term ``and'' 
unless its usage indicates otherwise, which is not the case with these 
provisions.
    Comment: An insurance company stated Sec.  400.705(a)(8), 
redesignated as Sec.  400.705(b)(8), should be clarified to indicate 
any required marketing plan be limited solely to the intentions of the 
applicant, if the applicant is an approved insurance provider or an 
entity representing or affiliated with an approved insurance provider. 
The commenter also stated there does not appear to be a requirement in 
the Act for an applicant to demonstrate any capacity to market the new 
insurance product.
    Response: To be approved for reinsurance, there is no need for the 
applicant to demonstrate the policy or plan of insurance is marketable. 
However, in accordance with section 522(b)(3) of the Act, if the 
applicant wants to be reimbursed for research and development or 
maintenance costs, the applicant must demonstrate the policy or plan of 
insurance is marketable. The applicant is responsible for developing 
the marketing plan. If the applicant is not an approved insurance 
provider, the applicant must show that it has a commitment from an 
approved insurance provider to deliver the policy or plan of insurance. 
The definitions of ``marketable'' and ``marketing plan'' and 
redesignated Sec.  400.705(e) have been revised to add to and clarify 
the information to be included in the marketing plan and the standards 
used in evaluating whether a product or plan of insurance is 
marketable.
    Comment: An insurance service organization stated Sec.  
400.705(a)(10)(i), redesignated as Sec.  400.705(b)(10)(i), requires 
contact information for those who can answer questions regarding the 
policy, underwriting rules and procedures, rate and price 
methodologies, data processing and record keeping requirements, and any 
other questions. The commenter states that if the underwriting rules 
and procedures are listed separately from the policy, it seems loss 
adjustment procedures should be listed as well.
    Response: FCIC agrees and has added the phrase ``loss adjustment'' 
before the word ``procedures'' in redesignated Sec.  400.705(b)(10)(i).
    Comment: An insurance company stated language in Sec.  
400.705(b)(2), redesignated as Sec.  400.705(c)(2) should specify in 
detail what constitutes ``verifiable evidence of demand'' because costs 
for market research will increase submission costs considerably if more 
than simple requests from producers, producer groups, or agents are 
mandated. The commenter also stated credentialed marketing studies 
should be discouraged, as their increased costs will inevitably lead to 
higher reimbursement appropriations.
    Response: When developing a product that will be accepted and 
bought by producers, market research must be completed to determine 
what is needed or what is desired. If the producers do not see a 
benefit, they will not purchase the policy. Provisions have been added 
to the definition of ``marketing plan'' and redesignated Sec.  
400.705(e) to specify that focus group results, market research 
studies, qualitative market estimates, correspondence from producers 
expressing the need for such policy or plan of insurance, responses 
from a reasonable representative cross-section of producers to be 
affected by the product or plan of insurance and commitments from 
approved insurance providers to sell and support the policy or plan of 
insurance must be included in the submission. While market research 
studies may increase the costs and reimbursements, at a time when 
resources are scarce and the systems are straining to handle the 
existing product load, the information obtained will be invaluable to 
ensuring that only marketable products are offered.
    Comment: An insurance service organization stated Sec. Sec.  
400.705(c)(1)(i) and (ii), redesignated as Sec. Sec.  400.705(d)(1)(i) 
and (ii), indicates what needs to be provided as part of the ``policy'' 
but makes no mention of the underwriting and loss adjustment procedures 
that are considered part of the policy according to the ``policy'' 
definition. Section 400.705(e), redesignated as Sec.  400.705(f), 
mentions ``underwriting'' information but only touches briefly on loss 
adjustment examples in Sec.  400.705(e)(5), redesignated as Sec.  
400.705(f)(5). The commenters state that this raises concerns relating 
to past problems with new products that are issued before their loss 
adjustment procedures are developed and issued. To be more consistent 
with the ``policy'' definition, the commenter suggests it might help to 
clarify that paragraph (c) deals only with the policy provisions and 
endorsements, and that paragraph (e) addresses both underwriting and 
loss adjustment information.
    Response: FCIC agrees and has revised the provisions to clarify 
that paragraph (c) involves the policy provisions related to the terms 
of insurance and paragraph (e) involves the underwriting and loss 
adjustment information.
    Comment: An insurance company stated language in Sec.  
400.705(c)(2), redesignated as Sec.  400.705(d)(2), should be clarified 
by defining ``impact'' of changes to cut down on procedural delay since 
assumptions made by the applicant may not be sufficient for RMA 
reviewers.
    Response: It is impossible to define the impact of the change 
because it will be dependent on the type of change.

[[Page 44226]]

However, the applicant must consider all possible impacts, including on 
the policy, participants and the crop insurance program. If all impacts 
are considered and addressed, there should not be any procedural 
delays. However, if reviewers question some important aspect of the 
change that has not been identified, the applicant will be required to 
respond or take the chance of the submission being disapproved. 
Therefore, no change has been made.
    Comment: An insurance company stated language in Sec.  
400.705(d)(3), redesignated as Sec.  400.705(e)(3), should be amended 
to include regions or other geographic areas that may apply to a 
particular plan of insurance.
    Response: Since the premiums are generally calculated on a county 
basis, FCIC usually requires the expected liability and premium for 
each county and state be listed rather than by large areas such as 
multi-state regions or geographic areas. If the information is desired 
by region or geographical area it would be simple to derive from county 
and state data. Therefore, no change has been made.
    Comment: An insurance company stated language in Sec.  
400.705(d)(5), redesignated as Sec.  400.705(e)(5) of the proposed rule 
is redundant with paragraphs (e) and (f), redesignated as paragraphs 
(f) and (g) respectively, and should be eliminated.
    Response: The language in the proposed rule was changed in the 
interim rule so the request was not redundant. Redesignated paragraph 
(e) contains information related to the marketing of the policy or plan 
of insurance, redesignated paragraph (f) contains information related 
to underwriting and loss adjustment, and redesignated paragraph (g) 
contains information related to prices and rates of premium. To clarify 
the information required, FCIC removed Sec.  400.705(d)(5) of the 
interim rule and added paragraph (g)(6) to the final rule, which will 
require a simulation of expected losses capturing both a probable loss 
and a total loss.
    Comment: An insurance company stated language in Sec.  
400.705(e)(1) in the interim rule is unnecessary for the purpose of 
reviewing the submission and impractical for the applicant because it 
would necessitate additional cost on the part of the applicant to 
produce marketing materials that may become obsolete before the 
submission is approved. Providing a sample of each document that will 
be used raises the prospect that FCIC must approve all marketing 
materials. The commenter also asked what the implications are of 
developing and using additional marketing materials after approval of 
the submission.
    Response: FCIC agrees advertising material and brochures do not 
need to be included in the submission. Therefore, Sec.  400.705(e)(1) 
of the interim rule has been removed.
    Comment: An insurance company stated language in Sec.  
400.705(e)(5) in the interim rule is overreaching as it is impossible 
to anticipate every unique situation. It would be much more reasonable 
to require an acceptable and reasonable number of examples to most 
probable situations.
    An insurance service organization also asked how many unique 
situations occur and if FCIC considers all possible unique situations 
now.
    Response: FCIC agrees with the comment. The applicant should 
determine all the probable situations there may be. The language in 
Sec.  400.705(e)(5) of the interim rule, redesignated as (f)(4) in the 
final rule has been revised accordingly.
    Comment: An insurance company stated language in Sec.  
400.705(f)(4), redesignated as 400.705(g)(4), is impractical for 
applicant response because anticipating the questions of internal RMA 
and external contract reviewers is unlikely and will be unnecessarily 
burdensome. The commenter stated most applicants are expected to have a 
high degree of faith in the reliability of the data used.
    Response: Redesignated section 400.705(g)(4) does not require the 
applicant to anticipate questions of the reviewers. As stated above, 
there will be situations where the data will be scarce or related data 
will be used. This section requires the applicant to objectively 
evaluate the quality, quantity and applicability of the data relied 
upon in the submission to assess its reliability and provide that 
assessment in its submission. Since the amounts and types of data can 
differ widely between submissions, the submitter is in the best 
position to make this assessment. Further, this provides the applicant 
an opportunity to explain why they have a high degree of faith in the 
reliability of the data used. The provision has been revised to clarify 
that an objective assessment of the data is required.
    Comment: An insurance company stated language in Sec.  
400.705(f)(5)(i), redesignated as Sec.  400.705(g)(5)(i), raises 
questions regarding whether coverage of the same crop constitutes 
``similar or comparable'' insurance plans and what would be the 
necessity in conducting calculations comparing a new submission with 
every product available for a crop. The commenter stated the review 
process is meant to ensure the interests of producers are protected, 
the interests of the public are protected, the submission is compliant 
with the Act, is actuarially appropriate and complies with industry 
standards and practices. Comparison outside this realm of review may be 
inappropriate or unnecessary.
    Response: Redesignated Sec.  400.705(g)(5)(i) requests a 
recalculation of total premium and losses compared to a similar or 
comparable insurance plan offered under the authority of the Act. It 
does not ask for a comparison with every product available for a crop. 
Further, the applicant is not required to conduct this analysis. 
Redesignated Sec.  400.705(g)(5) only requires that one or more of the 
three analyses be performed. If the analysis in redesignated Sec.  
400.705(g)(5)(i) is chosen, the applicant must determine which 
insurance plan offered under the Act is the most similar or comparable 
to the applicant's submission so an analysis can be made on the 
proposed premium rates and commodity prices, as applicable. Such 
analysis is necessary for FCIC in its evaluation of whether the 
interests of producers are protected, the interests of the public are 
protected, the submission is compliant with the Act, is actuarially 
appropriate, and does not introduce any program vulnerabilities. 
Therefore, no change has been made.
    Comment: An insurance company and an insurance service organization 
suggested FCIC require detailed loss adjustment procedures/forms be 
included with the initial submission and subject to the same approval 
scrutiny as the policy provisions, rates, etc. The commenter stated 
major problems have been incurred in the past because claims-handling 
procedures were not finalized until after a product had been sold.
    Response: FCIC agrees loss adjustment procedure should be included 
with the initial submission. FCIC has revised redesignated Sec.  
400.705(f) accordingly and has also added a new Sec.  400.705(l) so 
approved insurance providers will have the information available to 
immediately train personnel, including loss adjusters, on loss 
adjustment procedures.
    Comment: An insurance company stated language in Sec.  
400.705(i)(4), redesignated as Sec.  400.705(j)(4), which requires the 
applicant's legal counsel to certify compliance with the Act, 
applicable regulations, and the SRA, is not necessary because the Board 
relies solely on the Office of General Counsel (OGC) for legal 
recommendations and it is difficult to see any value to the applicant, 
FCIC, or the public. The

[[Page 44227]]

commenter also asked what the implications are of a conflict between 
the certification and the opinions of OGC.
    Response: The goal is for the submission to be as accurate, 
comprehensible, and complete as possible. Requiring the applicant's 
legal counsel to review the submission allows the applicant to revise 
the submission if necessary before it is submitted to FCIC. This 
requirement should improve the quality of the product and expedite the 
review process by identifying and resolving issues prior to submitting 
the product. OGC provides advice to the Board; it does not make 
decisions for the Board. Regardless of whether there is a conflict 
between the opinions of counsel, OGC will continue to provide its 
advice and the Board will make its decision based on all the 
information it receives. Therefore, no change has been made.
    Comment: An insurance company and an insurance service organization 
stated it is imperative that the submission fit into the existing Data 
Acceptance System, so accurate programming may be accomplished by other 
approved insurance providers with minimal time and expense.
    Response: Redesignated Sec.  400.705(k) requires the submission to 
comply in all respects with the standards established for processing 
and acceptance of data as specified in the FCIC Data Acceptance System 
Handbook (Appendix III), unless otherwise authorized by FCIC. New 
provisions have also been added to require applicants to provide the 
system or software necessary to allow FCIC to implement the product as 
part of the research and development of such product. If the applicant 
has the ability to deliver the policy or plan of insurance and has 
developed a new system for processing and data acceptance that is 
functional with FCIC, FCIC cannot limit the availability of innovative 
products that may be advantageous to producers solely on the basis of 
the time required for other approved insurance providers to program 
data automation systems in order to sell and service the product. 
However, the key is that any new system is functional and this will be 
taken into consideration by FCIC and the Board when determining 
reasonable timeframes for program implementation. Therefore, no change 
has been made.
    Comment: An insurance company stated this regulation does nothing 
to minimize the burden of preparing a submission on the part of the 
applicant, it will lengthen the time required to develop a submission 
which will drive up costs significantly, the complexity required will 
prove a hindrance to anyone desiring to casually submit a plan of 
insurance and it will limit the opportunity to respond to last minute 
market indications with any degree of flexibility.
    Response: This regulation was designed to specify the information 
necessary to properly evaluate a submission to ensure the interests of 
producers are protected, the interests of the public are protected, the 
submission is compliant with the Act, is actuarially appropriate, and 
does not introduce any program vulnerabilities. While this may appear 
burdensome and complex, the information requested should already have 
been developed and considered by the applicant in the development of 
the policy or plan of insurance. The costs associated with providing 
such information are much less than the costs the program could incur 
if a flawed policy or plan of insurance were offered to the 
marketplace. Therefore, no change has been made.

Section 400.706

    Comment: An insurance company stated it is not appropriate for the 
requirement in Sec.  400.706(a)(2) to be implemented without a deadline 
for action by RMA. The commenter suggested the requirement be within 10 
business days of receipt. The commenter stated the questions of quality 
of documentation may be subjective and asked what standard of measure 
is to be applied and under whose responsibility will it fall. The 
commenter stated the quality of documentation is best addressed during 
the review process (not before) and includes the prospect that a 
submission review be delayed or that it be disapproved. The commenter 
also stated Sec.  400.706(a)(3) and (a)(4) should be amended to reflect 
comments and revisions to paragraph (a)(2).
    Response: The time frames for providing submissions are limited and 
any number of submissions may be submitted each time frame. Further, 
the submissions have varying levels of complexities from changes to 
existing policies to introducing new and innovative plans of insurance. 
Therefore, it is not possible for FCIC to set a time frame to review 
the quality of the submissions. RMA agrees that the review of the 
quality of the submission may be subjective but such a review is 
necessary to ensure that the resources of the agency and expert 
reviewers are not wasted on products that have not been sufficiently 
developed. Such review is only intended to determine if there is 
sufficient information to allow a meaningful review. This initial 
review process is the responsibility of the Deputy Administrator of 
RMA's Office of Research and Development. Without the initial review 
process and a determination by the Board the submission is complete, 
approval by the Board could be delayed for months or longer if the 
submission goes to the experts and receives poor reviews or reviews 
that state it is impossible to determine whether the standards for 
approval have been met because there is insufficient information. An 
initial determination of quality could preclude the need for multiple 
expert reviews. A definition of ``complete submission'' has been added 
for clarity. Further, Sec.  400.706(b) has been revised to clarify that 
the Board will determine if a submission is complete.
    Comment: An insurance company questioned if the language in Sec.  
400.706(c)(3) of the interim rule requiring the Board to render a 
decision to approve or give notice of an intent to disapprove within 90 
days after acceptance of the submission and requiring the applicant to 
be notified in writing at least 30 days prior to the Board taking such 
action would require written notification of intent to disapprove 
within 60 days of acceptance.
    Response: Section 508(h)(4)(D) of the Act allows the Board 120 days 
after a complete submission is received to make a determination whether 
to approve or disapprove the submission. Section 508(h)(4)(C)(i) of the 
Act directs the Board to give notification of its intent to disapprove 
a submission not later than 30 days prior to making the disapproval. 
This means the Board must initially act not later than 90 days after 
determining the submission is complete, as reflected in Sec.  
400.706(c)(3) of the interim rule. Due to other revisions made to Sec.  
400.706, the 90 day notice of intent to disapprove is now contained in 
Sec.  400.706(g) and the 30 day time frame for the applicant to be 
notified if the Board intends to disapprove the submission is now 
contained in Sec.  400.706(i) of this regulation.
    Comment: A legal counsel stated Sec.  400.706(f)(3) which states, 
``The submission does not conform to sound insurance and underwriting 
principles;'' should be deleted because many coverages explicitly 
mandated by Congress extend beyond traditional insurance concepts and 
do not conform to sound insurance and underwriting principles. For 
instance, crop insurance production risks for drought, price risks 
under Crop Revenue Coverage (CRC), Group Risk Protection (GRP) allowing 
a producer to collect an indemnity even though the producer did not 
sustain a

[[Page 44228]]

loss, Catastrophic Risk Protection (CAT) coverage allowing a producer 
to obtain a coverage guarantee possibly worth millions of dollars for 
no premium and a token administrative fee, and the Agricultural Risk 
Protection Act (ARPA) mandating the use of futures and options 
contracts designed to provide reasonable protection from the financial 
risks of price for income fluctuations inherent in the production and 
marketing of livestock, transcend traditional insurance and 
underwriting principles. Federal Crop Insurance is not simply a 
business-based insurance system but a Federally subsidized program with 
a social policy element and a mandate to address the full range of 
agricultural risk management, not simply traditional insurance. Trying 
to apply traditional insurance models as a legal standard for new 
products under ARPA 2000 inevitably will result in selective 
enforcement and arbitrary judgments. FCIC has the responsibility to 
assure itself that any proposed new tool is technically sound and 
protects the interests of both the taxpayers and farmers.
    Response: Section 400.706(f)(5) has been redesignated as Sec.  
400.706(h)(6). FCIC agrees ARPA encourages the development of products 
that may be non-traditional and innovative in design. FCIC agrees that 
not all traditional principles of insurance apply to these types of 
products. However, there is express statutory authority to offer the 
coverage referred to by the commenter. Absent express authority to the 
contrary, the sound principles of insurance and underwriting continue 
to apply since they are one of the underpinnings of a determination of 
actuarial soundness. In addition to the requirements of the Act, FCIC 
must protect taxpayer dollars. This means that insurance cannot provide 
coverage in excess of the value of the commodity and no known program 
vulnerabilities can be introduced as a result of the implementation of 
the submission. Therefore, FCIC will review the submission to determine 
whether it is in accordance with sound insurance and underwriting 
principles and if it is not, FCIC will determine whether the Act 
authorizes an exception. Redesignated section 400.706(h) has been 
revised for clarity.
    Comment: An insurance company stated language in Sec.  
400.706(f)(5) should include a limitation that would prevent use of 
this provision to deny approval of a submission when the time 
constraint was created due to the action or inaction of RMA or the 
Board, and not the applicant.
    Response: Congress has set very tight time limits on the approval 
process. In some quarters there may be many products submitted. This 
provision was specifically intended to permit denial of a submission 
if, even after due diligence, there is insufficient time to properly 
evaluate the submission. For example, expert reviewers may not be 
available because they are working on other projects or the submission 
is so complex or requires such significant changes that it is 
impossible to determine what changes are necessary in the available 
time frame. To the extent that the applicant believes that RMA or the 
Board is stalling on acting on a submission in order to utilize this 
provision, the applicant always has recourse to challenge such actions 
are arbitrary and capricious. Therefore, no change has been made.

Section 400.708

    Comment: An insurance company suggested language be added to Sec.  
400.708 to give SRA holders the option to not offer specific products 
that the Board has approved. This decision by the SRA holder may be 
based on the approved insurance provider's assessment of the product, 
the reinsurance terms for the product, or any other reason.
    Another insurance company and an insurance service organization 
asked if all approved insurance providers reinsured by FCIC will be 
required to offer every product that is approved or will a separate SRA 
addendum be optional for each such product. The commenter also asked if 
an insurance company reinsured by FCIC could opt out of a program if 
the company deems the user fees to be excessive.
    Response: Section II.A.2. of the 2005 Standard Reinsurance 
Agreement, states in part ``* * * The Company is not required to offer 
such plans of insurance as may be approved by FCIC under the authority 
of section 508(h) of the Act. However, if the Company chooses to offer 
any such plan, it must offer the plan in all approved states in which 
it writes an eligible crop insurance contract and it must comply with 
all provisions of this paragraph as to such plan.'' This means that 
approved insurance providers can opt not to offer any policy or plan of 
insurance approved under section 508(h) of the Act. However, if the 
approved insurance provider opts to offer the policy or plan of 
insurance, it must offer it everywhere. Separate SRAs or addendums to 
the existing SRA will be used as appropriate. Therefore, no change has 
been made.
    Comment: An insurance company and an insurance service organization 
stated Sec.  400.708(a)(1) needs to be clarified because it seems to 
require a post approval disposition of property rights from the payment 
for said property rights manifested in the reimbursement for research 
and development costs articulated in Sec.  400.712(a) and it appears 
the applicant ultimately gives up the property rights.
    Response: The applicant continues to have property rights to the 
submission until responsibility for maintenance is relinquished to 
FCIC, as determined by the applicant. However, if research and 
development or maintenance costs have been paid by RMA, section 
522(b)(5) of the Act makes it very clear that if the applicant elects 
not to continue to maintain the product, the research and development 
or maintenance costs paid by RMA are payment in full for the product 
and RMA has the property rights to the product. Section 400.708(a)(1) 
simply incorporates this provision. Section 400.708(a)(1) has been 
revised to clarify when property rights are transferred.

Section 400.709

    Comment: An insurance company stated Sec.  400.709(a)(1)(ii) 
requires the applicant to annually update and provide maintenance 
changes to the insurance product and they suggested the regulation 
should address what happens if the applicant is no longer able or 
willing to continue to maintain or offer the product prior to the end 
of the maintenance period.
    Response: As previously stated, Sec.  400.712(m) has been added to 
specify the maintenance period ends for an approved submission once the 
applicant no longer performs the maintenance responsibilities, as 
determined by FCIC, or the applicant gives FCIC notice they no longer 
wish to maintain the submission. Maintenance of the approved submission 
may be assumed by FCIC or the Board may withdraw reinsurance, risk 
subsidy and A&O subsidy.
    Comment: An insurance service organization stated Sec.  
400.709(a)(2) requires any changes be submitted to FCIC no later than 
180 days prior to the earliest sales closing date and asked how this 
compares to the current requirement.
    Response: Before this regulation was effective, specific deadlines 
for changes were contained in a Memorandum of Understanding (MOU) 
between the applicant and FCIC. For example, currently the CRC and RA 
MOU's allow 153 days for changes to spring crop provisions and 122 days 
for changes to

[[Page 44229]]

fall crop provisions; except, in the event of unforeseen circumstances, 
changes may be made if they are submitted 30 days prior to the contract 
change date. Given that RMA will be reviewing new submissions, revising 
existing submissions, and maintaining its own products, the 180 day 
deadline is necessary to allow adequate time for the review process and 
Board approval and treat all products consistently. However, since some 
submissions may allow producers to obtain insurance coverage at various 
times during the year, the references to sales closing dates have been 
changed to contract change dates in Sec. Sec.  400.709(a)(1)(ii) and 
(2).
    Comment: An insurance company and an insurance service organization 
stated Sec.  400.709(b)(1)(ii) indicates approved insurance providers 
should contact FCIC to obtain and execute a copy of the reinsurance 
agreement for approved products and they suggested this language be 
modified to require FCIC/RMA to contact approved providers and make 
them aware of products that have been approved because the 
responsibility for advising providers should fall to FCIC/RMA, as FCIC/
RMA holds the approval authority over the products.
    Response: Section 400.709(b)(1)(ii) of the interim rule has been 
redesignated as Sec.  400.709(b)(1)(iii). The fact that FCIC holds the 
approval authority does not mean it is required to provide notice to 
the approved insurance providers that products have been approved. The 
approved insurance providers have notice throughout the process. When 
products are considered by the Board, they are placed on the Board 
meeting agenda, which is made public. Any approval of the product is 
made in an open Board session and all resolutions are published on 
RMA's public Web site at http://www.rma.usda.gov/ as soon as new 
products are approved. Further, FCIC notifies all approved insurance 
providers via a Manager's Bulletin when the product is released. Since 
participation is voluntary, once RMA makes the information available, 
it is the approved insurance providers who are appropriately 
responsible for requesting and executing a copy of the reinsurance 
agreement for the approved product. The specified section has been 
redesignated as Sec.  400.709(b)(1)(iii) for clarity, however, no other 
change has been made.
    Comment: An insurance company and an insurance service organization 
suggested the language in Sec.  400.709(b)(1)(iii) which states, 
``Conducting the best review of the submission possible in the time 
allowed'' should be revised to state, ``Conducting a thorough review of 
the submission.'' Since FCIC/RMA has approval authority, and exercise 
of that authority does have consequences, the language should reflect 
the full responsibility that accompanies the authority. The commenter 
asked if the best review possible in the brief time allowed will always 
be adequate.
    Response: Section 400.709(b)(1)(iii) of the interim rule has been 
redesignated as Sec.  400.709(b)(1)(i). RMA has a limited time frame to 
conduct its review and must conduct as thorough a review as possible 
within that time frame. RMA acknowledges that its review may not catch 
all the mistakes, errors, or flaws. However, since RMA is not the 
developer of the product, the responsibility for such mistakes, errors, 
or flaws correctly lies with the applicant. This provides applicants 
with the incentive to thoroughly review and test their product prior to 
submitting it to the Board. Since applicants will be reimbursed for 
costs associated with such research and development, there is no 
financial impediment to conducting a thorough review and test of the 
product. Except for redesignation of the provision, no change has been 
made.
    Comment: A legal counsel, a university, an insurance service 
organization, and insurance companies stated FCIC should be liable for 
mistakes, errors, or flaws in a submitted product and its related 
materials. The Board now conducts a substantial review process prior to 
approving 508(h) submissions, including analyses by five outside 
independent reviewers, OGC, and RMA's staff. It is unrealistic and 
inconsistent with FCIC's past practice for FCIC to not be liable. 
FCIC's formal approval of a product signifies that the Board has 
reviewed it, and that the Board has determined its reviews to be 
positive. The public and the applicant should be able to rely on this 
public action by the Board. When the Board approved Crop Revenue 
Coverage in the late 1990s, the memorandum of understanding between 
FCIC and the sponsoring company assigned liability for such policy 
errors to FCIC, and every legal challenge involving the policy since 
that time has presumed FCIC responsibility. By sharing in the liability 
for errors or flaws, FCIC retains an incentive for maintaining a high 
level of quality control over new products. The Act intended to provide 
a process and mechanism under which organizations can evaluate and 
design programs that are needed in the marketplace and have them 
available to producers under the FCIC/RMA umbrella. If FCIC/RMA 
approves a submission, then FCIC/RMA must be the regulator, manager, 
maintainer and administrator of that program. Section 
400.709(a)(1)(iii) requires the applicant to respond to procedural 
issues, questions, problems, etc., in regard to a policy or plan of 
insurance and they suggested this is a role for FCIC/RMA as regulator 
of the program, not the applicant that developed the product. Section 
400.705(a)(10) requires the submission to include the names of those 
responsible for addressing the policy and procedural issues and 
questions that arise in administering the approved program. Once FCIC/
RMA grants approval of the product, responsibility for the product and 
its delivery, including responding to questions about procedural 
issues, policy language, etc., for the product should belong to FCIC/
RMA. The program becomes an FCIC/RMA program the same as MPCI or GRP or 
any other RMA/FCIC approved or designed insurance program. Any other 
conclusion is inconsistent with the SRA, which holds SRA holders 
responsible for complying with FCIC policies, procedures, etc., not 
those of other parties. This issue again reinforces that once FCIC/RMA 
grants product approval, it becomes responsible for the product. 
Section 400.709(a)(2) indicates only the applicant may make changes to 
the policy, plan of insurance, or rates of premium approved by the 
Board. The commenter stated FCIC/RMA has the responsibility to make 
such changes after FCIC has approved the submission. It was also stated 
that Sec.  400.709(b)(2) should be modified by removing the word 
``not'' as FCIC assumes liability for submissions once they are 
approved.
    Response: Section 400.709(b)(2) has been redesignated as Sec.  
400.709(b)(3). Applicants are liable for the insurance products they 
submit under 508(h) of the Act because they own the product. FCIC does 
not gain ownership or control over the product until such time as the 
applicant agrees to relinquish the product to RMA. Further, while the 
product is owned by the applicant, FCIC does not have the authority to 
modify it. All it can do is disapprove a submission or withdraw 
reinsurance if errors are discovered and the applicant is not willing 
to correct the error. Also, it is the applicant that chooses the method 
to use to correct the identified mistake. Therefore, FCIC cannot assume 
the liability of a product over which it has so little control. In 
addition, if FCIC were to assume the liability for mistakes, it would 
delay the approval process considerably. All submissions would have to 
be disapproved until FCIC had thoroughly completed its review and 
tested the product. For its

[[Page 44230]]

own products, this process can take years. However, the Act only 
provides 90 days to review the submission. This is not a sufficient 
time to conduct a thorough review and test of the product. When CRC was 
approved, the 90-day review requirement did not exist and RMA could 
take such time as necessary to review the product. Therefore, FCIC 
should not be responsible for the errors in a product that Congress has 
given it insufficient time to thoroughly review and test. It is the 
applicant that has unlimited time to develop, evaluate and test the 
product and has the authority to make such changes as are necessary. 
Therefore, the liability correctly lies with the applicant.
    Comment: An insurance service organization stated the Web site is a 
useful tool for making information available, but approved insurance 
providers should be notified in writing when policies, plans of 
insurance, or rates of premium are timely withdrawn because they are 
deemed canceled and applications for insurance are not accepted as of 
the date that FCIC publishes the notice of withdrawal on its Web site. 
Section 400.709(a)(5) would require approved insurance providers to 
check the Web site each time an application is processed in case a 
cancellation notice was posted after the last check.
    Response: Section 400.709(a)(5) applies to both producers and 
approved insurance providers and simply provides the consequences if 
reinsurance is withdrawn from a policy, plan of insurance, or rates of 
premium. The reference to the Web site simply provides the date by 
which cancellation is effective. FCIC agrees that if reinsurance is 
withdrawn or denied from a policy, plan of insurance or rate of 
premium, the approved insurance provider should be notified in writing 
and has revised the provision accordingly.

Section 400.712

    Comment: An insurance company and an agricultural association 
stated Sec. Sec.  400.712(b) and (c) of the interim rule do not address 
procedures for submissions sent to RMA and not yet approved by the 
Board prior to publication of the interim rule and such circumstances 
prevent compliance with paragraph (b), which states a request for 
reimbursement be included with the original application.
    Response: Revisions were made to Sec.  400.712 when the interim 
rule was completed to accommodate this situation. However, this 
information has been removed in the final rule since such information 
is now obsolete.
    Comment: An insurance company stated Sec.  400.712(d) is more 
appropriate to the decision to approve or disapprove an application and 
if an application is approved, the question of qualification for 
reimbursement should be moot. The commenter also asked whose marketing 
plan would be utilized to help render this decision.
    A legal counsel stated the proposed rule requires that to be 
eligible for reimbursement, a product must be marketable based on a 
reasonable marketing plan. Marketability so defined, is a judgement 
that the Board can make in advance when the product is approved, and it 
addresses a statutory requirement. However, the proposed rule defines 
marketability as a measure of the acceptability of a policy as 
reflected by the percent of market penetration of the identified target 
market which is an after-the-fact judgement. It is unclear how or 
whether the after-the-fact judgement applies as it is not referenced in 
Sec.  400.712. The commenter opposes use of the after-the-fact test as 
being unnecessary to legislative requirements, creating excessive 
uncertainty, and conflicting with the regulatory scheme. Once the Board 
has approved a reimbursement request at the time it approves the new 
product (a full marketing plan will be included in the submission), the 
applicant should be able to rely on the Board's decision.
    Response: Section 400.712(d) has been redesignated as section 
400.712(c). The definition of ``marketability'' in the proposed rule 
was deleted and a definition of ``marketable'' was added in the interim 
rule. The definition of ``marketable'' has been revised in the final 
rule to make it clear that the determination of marketable will be 
based on the marketing plan and the documentation provided to support 
it. FCIC has also determined that marketability should also be 
considered when determining whether the policy or plan of insurance 
protects the interest of producers because unmarketable products waste 
valuable resources that could be better used to provide products that 
producers want to purchase. Therefore, it has also included the 
requirement in redesignated Sec.  400.706(h).
    Comment: A legal counsel stated it should be explicitly stated the 
Board will approve a proposed research and development reimbursement 
request, conditioned only on subsequent proration as specified in Sec.  
400.712(f)(2) of the interim rule, at the same time the applicant's 
proposed new product is approved.
    Response: FCIC cannot determine when it approves a submission that 
it will pay the research and development costs. Some of those costs may 
not have yet been incurred and certain costs may be reduced or excluded 
in accordance with Sec.  400.712(h). FCIC has revised the provisions to 
clarify that a submission is eligible for reimbursement if the Board 
determines the submission is marketable.
    Comment: A legal counsel suggested Sec.  400.712(e) be modified by 
adding ``except as provided in paragraph (c) of this section'' after 
the phrase ``August 1'' because they stated that it could be read to 
require that such requests be received by FCIC not later than August 1 
to be considered for reimbursement in the current fiscal year.
    Response: The information referencing a submission approved by the 
Board or submitted to the Board prior to the interim rule being 
published on September 17, 2001, is now obsolete and has been removed 
in the final rule.
    Comment: An insurance company asked if since limited funds exist 
each fiscal year for reimbursement of research and development costs, 
and maintenance costs, if the limit is met in any year, whether the 
applicant can resubmit the ``shortfall'' for possible reimbursements in 
a subsequent year.
    A legal counsel stated that under the proposed rule in Sec.  
400.712(f)(2) if the sum of all applicants requests for reimbursement 
in a given year exceeds available funding, each amount is adjusted 
downward by a uniform factor and portions of the reimbursement that 
remains unpaid as a result of this reduction appear simply to expire. 
This could be unfair based on arbitrary timing factors if applicants 
adversely select against annual pools to the disadvantage of others. A 
fairer approach would be to permit each company to receive its full 
reimbursement as calculated under the rule and if the sum of all 
applicants claims exceed available funding in a given fiscal year and a 
uniform downward adjustment is applied, the unpaid portions should be 
rolled over and paid in the following fiscal year when funds are 
available.
    Response: Applicants will not be allowed to receive additional 
funds in a subsequent year for the ``short fall'' between the amount of 
reimbursement they requested and the amount of reimbursement they 
receive. The Act only authorizes one payment for research and 
development costs. Therefore, these costs cannot be broken into two 
separate payments in separate fiscal years. Further, the payment for 
maintenance costs comes from a single

[[Page 44231]]

year's appropriations that can only be used to reimburse costs expended 
for that fiscal year. Therefore, costs incurred in one fiscal year 
cannot be rolled over to be paid in a subsequent fiscal year. 
Therefore, no change has been made.
    Comment: An agricultural association stated they do not know of any 
legislative history which indicates that Congress intended for a 
complicated rating system to be developed as is in Sec.  400.712(g) of 
the interim rule for determining the level of reimbursement.
    Response: Section 400.712(g) of the interim rule has been 
redesignated as section 400.712(f). Section 522(b)(6) of the Act 
states, ``The Corporation shall determine the amount of the payment 
under this paragraph for an approved policy based on the complexity of 
the policy and the size of the area in which the policy or material is 
expected to be sold.'' Therefore, Congress expressly directed FCIC to 
develop a rating structure to determine the complexity of the product 
and how much it will be reimbursed.
    Comment: An insurance company stated Sec.  400.712(g)(1) of the 
interim rule indicates a high degree of subjective judgement as to what 
degree a policy, plan of insurance, or various components thereof, may 
be based on, or similar to, existing policies. The commenter stated 
that given the requirement for adherence to industry standards and 
practices it is likely that a complex, original plan may score highly 
but be less likely to be approved, while proposals utilizing well-known 
concepts might not score well but stand a better chance for approval.
    Response: The scoring methodology in redesignated Sec.  400.712(f) 
is not used for approving new insurance products. It is used for 
computing an equitable amount of reimbursement for research and 
development costs. The research and development expenses associated 
with using well known concepts should be less because the development 
and testing of such concepts has already been done by someone else. The 
research and development expenses associated with complex, innovative 
concepts would likely be higher because of their originality. The 
scoring system assures that applicants with complex, innovative designs 
have a better likelihood of having their research and development 
expenses approved. Except for redesignation, no other change has been 
made.
    Comment: A university and an insurance company suggested emphasis 
should be placed on accuracy, not necessarily on novelty. The 
commenters also stated innovation is essential, but consistency and 
accuracy may need more emphasis. Just being new or different does not 
guarantee accuracy, program success, or fair and equitable programs for 
policyholders or taxpayers. Section 400.712(g)(2) of the interim rule 
states new methodologies will be eligible for higher reimbursement than 
existing price methodologies.
    Response: Section 400.712(g)(2) has been redesignated as Sec.  
400.712(f)(2). The applicant should always place emphasis on accuracy 
since the applicant is solely liable for any mistakes, errors, or flaws 
in the submitted policy, plan of insurance, related material, or the 
rates of premium that have been approved by the Board. It is also in 
the best interests of the applicant to present to the Board the most 
accurate information in order to be considered for approval since such 
information and methodologies will be reviewed by expert reviewers and 
any inaccuracies will result in delays in approval of the product. An 
agreement to pay the research and development expenses associated with 
complex products provides a greater incentive to applicants to ensure 
that there are no errors, mistakes or flaws in the product. Except for 
the redesignation, no other change has been made.
    Comment: An insurance company stated Sec.  400.712(g)(5)(i) of the 
interim rule should have descriptions of or definitions for what degree 
of originality or modification qualifies a submission for each scoring 
point.
    Response: Section 400.712(g)(5)(i) has been redesignated as Sec.  
400.712(f)(5)(i). It would be impractical to list definitions or degree 
of originality that would be appropriate for every unique situation 
that future innovative submissions may present. It is more appropriate 
to use the broader based language that can be applied to the numerous 
potential different innovative submissions. No other change has been 
made.
    Comment: Legal counsels and an agricultural association questioned 
the rules and expectations of the reimbursement procedure for 
submissions pending at the time of publication of the proposed rule. 
The commenters asked if a pending product is approved by the Board 
shortly after the regulation is a final rule would the applicant be 
given the same 60-day grace period to submit its reimbursement 
application as that provided for products approved prior to the rule's 
publication or would the applicant be required to amend its pending 
submission to include reimbursement material prior to final Board 
action. The commenter asked if it could wait until August 1 of the 
following year, the deadline for applications under Sec.  400.712(e), 
and if the Board acts on the submission after August 1 (the deadline 
for 2001 fiscal year applications) but prior to October 1, 2002, would 
it qualify for funding in fiscal 2002. It was suggested FCIC give 
applicants of products that have been pending before the FCIC Board, 
prior to the publication of the proposed rule, a choice to either amend 
their submissions to include a reimbursement request in accordance with 
Sec.  400.705(k) so that the Board can consider it at the time it votes 
on the product itself or to submit an application for reimbursement 
within 60 days of the rule's publication, which would be the same grace 
period applicable to products approved prior to the proposed rule. The 
regulation is unclear as to whether an applicant must request a 
projected or estimated level of maintenance costs in advance, when the 
product is approved, at the beginning of each fiscal year, or 
alternately whether an applicant may wait until the end of each fiscal 
year and account for the actual costs accrued, and then request 
reimbursement for such actual costs.
    Response: Revisions were made to Sec.  400.712 when the interim 
rule was completed to accommodate this situation. Submissions submitted 
to the Board prior to publication of the interim rule followed the same 
procedure as submissions approved by the Board prior to publication of 
the interim rule. This obsolete information has been removed in the 
final rule.
    Comment: A legal counsel questioned why costs will be examined for 
reasonableness and may be adjusted at the sole discretion of the Board 
because this appears to undermine the very objectivity achieved by the 
detailed criteria specified. If the Board, at its sole discretion, can 
replace the application of objective standards by its own subjective 
view of reasonableness, then the process becomes highly judgmental, 
inevitably inviting questions of favoritism, bias, or unequal 
treatment. The commenter stated, at a minimum Board judgments must be 
available for review and the standard of reasonableness must be spelled 
out with objective benchmarks.
    Response: The detailed criteria in Sec.  400.712 will be followed. 
However, there may be situations where costs for similar work among the 
submissions may be substantially different. The Board must determine 
what costs are reasonable. Further, since the Board is using 
appropriated funds, it must take such actions as necessary to ensure 
the funds are properly spent. Reimbursing exorbitant costs would be a 
violation of this fiduciary duty. In addition, the

[[Page 44232]]

knowledge that only reasonable costs will be reimbursed may place 
limitations on applicants so they do not incur excessive charges based 
on the knowledge that such costs will eventually be borne by the 
Government. Additional criteria has been added to redesignated 
Sec. Sec.  400.712(g)(1)(iii) and (iv) for clarification.
    Comment: An insurance company stated Sec.  400.712(i)(1) of the 
interim rule should include costs associated with building rents or 
space allocation paid for personnel directly involved in research and 
development.
    Response: There are no special building requirements for the 
development of insurance policies. Therefore, the applicant can either 
use the space in which normal business activities are currently 
accommodated to do the research and development for a new product or 
pay for additional space out of normal business funds. FCIC cannot 
allow the costs of business expansion to be borne by the Government. It 
is a normal business judgment of the applicant whether such costs will 
be incurred. Section 400.712(g)(2)(xiv) has been added to specifically 
state, costs associated with building rents or space allocation will 
not be eligible for reimbursement.
    Comment: An insurance company stated Sec.  400.712(k) does not 
specify the consequences if an applicant does not notify FCIC, no later 
than six months prior to the end of the last reinsurance year in which 
a maintenance reimbursement will be paid, whether they will continue to 
maintain the policy or plan of insurance and charge approved insurance 
providers a user fee to cover the maintenance expenses or transfer 
responsibility for maintenance to FCIC.
    Response: FCIC agrees and has added a new Sec.  400.712(j)(8) to 
specify that if the applicant fails to provide timely notice to FCIC, 
the policy or plan of insurance will transfer to FCIC.
    Comment: An insurance company stated they have concerns regarding 
the availability of future reimbursement funding for research and 
development costs, and maintenance costs if a significant increase in 
the number of approvals should develop.
    Response: The amount of funds available for reimbursement of 
research and development costs has increased from $10,000,000 for each 
of fiscal years 2001 and 2002 and not more than $15,000,000 for each of 
the 2003 and subsequent fiscal years. However, these funding limits 
cannot be exceeded so if the requested amounts exceed the available 
funding, the reimbursements will have to be prorated.
    Comment: An agricultural association stated since anyone can now 
submit a new product under section 508(h) of the Act there are new 
challenges faced by these applicants that are not addressed in the 
proposed rule. New policies involve traditional underwriting risk and 
market risk. Proper actuarial analysis, sound program rules, and 
reinsurance can address underwriting risk. The approved insurance 
provider must invest heavily in sales information, agent training, 
outreach, education, and management systems to address business risk. 
It may be argued that existing approved insurance providers should bear 
the market risk of offering new policies in the pilot stage. However, a 
new company will need a high potential rate of return in order to 
attract investment capital. The existing SRA and section 508(k) of the 
Federal Crop Insurance Act requires that approved insurance providers 
bear a sufficient share of a potential loss so as to ensure that they 
operate in a sound and prudent manner. The commenter stated the 
principle should not apply to the same extent to a 508(h) policy 
because Congress explicitly exempted 508(h) policies from such 
``limitations in the Act'' in recognition of the innovative nature of 
these products. The commenter stated if FCIC chooses not to provide 100 
percent reinsurance, FCIC should offer a choice of either including 
pilot insurance policies in the approved insurance provider's regular 
SRA risk pool because the administrative cost to them of establishing 
separate reinsurance systems under a separate SRA may outweigh 
potential gains or creating a new reinsurance fund, which would combine 
elements of both the current Commercial and Assigned Risk Funds (i.e., 
``Pilot Insurance Fund''). Approved insurance providers participating 
in this new ``Pilot Insurance Fund'' would retain the same percentages 
of ultimate net loss as are provided under the Assigned Risk Fund, 
which would assure confidence in the new product, make up for the lack 
of private reinsurance, but still require approved insurance providers 
to retain some minimum amount of risk to assure proper program 
performance. The reinsurance should be provided without regard to the 
limitations in the SRA on the amount of an approved insurance 
provider's portfolio that it can place in the Assigned Risk Fund. 
Participating approved insurance providers should retain the 
percentages of underwriting gain provided under the Commercial Fund. 
The current SRA provides that, under the Assigned Risk Fund, the 
approved insurance provider will retain 15 percent or less of 
underwriting gain, a reasonable approach for a mature program but not 
sufficient protection for a novel pilot program. The combination of 
risk protection and gain potential under a new fund, plus the choice of 
using current SRA pools for approved insurance providers so desiring, 
will build a strong foundation for wide participation by private 
insurance companies.
    Response: FCIC recognizes there may be additional risks associated 
with submissions approved under section 508(h) of the Act. To address 
these risks, unlike other plans of insurance which must be offered by 
all approved insurance providers in all states they write business, 
approved insurance providers have the choice whether to offer a policy 
or plan of insurance reinsured under section 508(h). Therefore, 
approved insurance providers can evaluate the product and determine 
whether they want to assume the risk. Because it is optional, approved 
insurance providers who sell and service the new submission will have a 
reinsurance agreement, which may simply be an amendment to the current 
SRA. It would not be consistent with sound insurance principles or 
FCIC's fiduciary duty to the taxpayer to allow approved insurance 
providers to assume none or minimal risk and receive an even greater 
share of the gains. Part of the process of offering these new products 
is an evaluation of whether they are actuarially sound and do not 
introduce program vulnerabilities. The approved insurance provider's 
assessment of the risk is an integral part of this process and that 
assessment could be skewed if the approved insurance provider did not 
bear any meaningful risk. Further, it should be the market that 
determines whether new policies or plans of insurance are sold and 
approved insurance providers are part of that market. Therefore, no 
change has been made.

Section 400.713

    Comment: A legal counsel stated FCIC does not have authority to 
make Sec.  400.713 effective without complying fully with the notice 
and comment provisions of the Administrative Procedures Act (APA). The 
preamble mistakenly refers to section 2108 of the 2001 Supplemental 
Appropriations Act when the reference should be to section 2103(a). The 
commenter stated the APA recognizes only one basis, good cause, for 
making a substantive regulation effective upon publication. The 
commenter stated this regulation does not have a ``good cause'' 
certification

[[Page 44233]]

and that such certification would be inappropriate anyway, since the 
current SRA deals with a portion of the subject matter of Sec.  400.713 
in section V.F. of the SRA, and there are no problems with respect to 
compliance with or abuse of that provision in the SRA. The commenter 
stated that Sec.  400.713 exceeds the contractual grounds in the SRA by 
adding two new grounds for denial of subsidy and reinsurance which are 
``any rights of the insured with respect to the underlying reinsured 
policy or plan of insurance'' or if that policy causes ``disruption in 
the marketplace for products reinsured by FCIC.'' The commenter also 
stated it was misleading to describe this section as guidelines since 
compliance with it is mandatory and failure to comply will result in 
financial penalties. The commenter stated that section 2103(a) 
explicitly concerns expediting effectiveness of regulations 
implementing Sec.  522(b) of the Act, 7 U.S.C. 1522(b), which only 
deals with reimbursement of research and development costs and 
maintenance costs with respect to 508(h) products. Section 400.713 
purports to cover all non-reinsured named peril coverage, except for 
hail coverage, for all commodities which an approved insurance provider 
may insure. This assertion of regulatory authority includes products 
even if they have been approved by the relevant state insurance 
departments. The definition of ``non-reinsured supplemental policy'' 
(NRS) may apply even if there is no federally approved reinsurance 
product available for the commodity in one or more of the counties 
where the non-reinsured policy is offered. If FCIC has approved any 
product for reinsurance for any commodity, a NRS product covering the 
same commodity is subject to its jurisdiction. It fails to take into 
account the fact that availability of reinsured products is determined 
on a county-by-county basis for any commodity with respect to which 
FCIC has approved reinsurance. This means that there may be counties in 
which an approved insurance provider wishes to offer a NRS product for 
a commodity grown in that county although FCIC has not approved a 
reinsurance product for sale in that same county for the commodity in 
question. This ambiguity in the definition establishes that Sec.  
400.713 is unduly broad because it seeks to extend review and approval 
jurisdiction of the FCIC to non-reinsured policies even when they are 
issued in counties where no underlying reinsured coverage for the same 
commodity is available. The commenter states there is no statutory or 
contractual authority permitting issuance of Sec.  400.713 of the 
Interim Rule. It does not identify any laws, rules, regulations, or 
contracts that are inconsistent and the preamble does not provide any 
rationale for preempting state regulations of non-reinsured policies. 
This section would allow FCIC to review and approve all insurance 
products providing any form of coverage for any commodity even though 
FCIC is not providing subsidy or reinsurance for that coverage. There 
is no relationship between Sec. Sec.  400.702-400.712 and Sec.  
400.713. The commenter also stated a contractual provision cannot be 
utilized as authority for a federal regulation.
    Response: FCIC agrees section 2108 of the 2001 Supplemental 
Appropriations Act as presented in the Summary of the interim rule was 
not correct. However, the correct section designation was in the 
Background section of the interim rule published on September 17, 2001. 
Further, FCIC acknowledges that section 2103 only applied to the 
implementation of section 522(b) of the Act and that Sec.  400.713 
exceeded the scope of that section. Therefore, the provisions of Sec.  
400.713 are not effective until the effective date of this final rule. 
However, with respect to the denial of reinsurance if the NRS shifts or 
increases the risk to the underlying FCIC reinsured policy, that 
requirement is contained in section V.F of the 2004 and previous SRAs 
and section IV.E of the 2005 SRA. Therefore, notwithstanding the 
effective date of Sec.  400.713, FCIC can deny reinsurance under the 
SRA if the conditions in the SRA have been met.
    The definition of a ``NRS'' specifically states that it includes 
products that offer coverage, except for hail, for commodities in 
addition to the coverage available under a policy or plan of insurance 
reinsured by FCIC. This means that if there is no FCIC reinsured policy 
for the commodity, the product is not considered a NRS. This would also 
apply if there is no FCIC reinsured policy for the commodity in the 
county. As the name implies, FCIC is seeking to examine those products 
that are supplemental to FCIC reinsured policies. Therefore, the 
provision is not overbroad. FCIC agrees that products with new coverage 
must be submitted even if FCIC reinsured policies do not offer the 
coverage. This is to ensure that the new coverage does not shift risk 
to the underlying FCIC reinsured policy. However, if there is not an 
underlying FCIC reinsured policy, Sec.  400.713 is not applicable. FCIC 
has revised the definition of NRS for clarification.
    Comment: An insurance company suggested Sec.  400.713 have a 60-day 
time frame requiring FCIC to respond to the approved insurance provider 
regarding the Non-Reinsured Supplemental policy submission.
    Response: FCIC agrees that a time frame should be incorporated into 
the regulation. FCIC is requesting that the NRS policy be submitted at 
least 120 days prior to the first sales closing date. FCIC will respond 
to the submitter not less than 60 days before the earliest sales 
closing date or provide notice why it is unable to respond within the 
time frame allotted.
    Comment: A legal counsel asked if related materials submitted for a 
NRS policy will be reviewed under the same standards as those employed 
to review proposed 508(h) products or policies developed by FCIC 
product development contractors. The commenter stated FCIC provides no 
subsidy or reinsurance for a NRS policy, like it does for 508(h) 
products and other policies approved for reinsurance so different 
standards should apply.
    Response: FCIC agrees different standards should apply, and do 
apply. The purpose for FCIC's review of a NRS policy is to determine if 
the NRS policy materially increases or shifts risk to the underlying 
policy or plan of insurance reinsured by FCIC, reduces or limits the 
rights of the insured with respect to the underlying reinsured policy 
or plan of insurance, or causes disruption in the marketplace for 
products reinsured by FCIC. FCIC will not be reviewing whether the NRS 
policy is actuarially sound or protects the interest of producers. 
Section 400.713 has been revised to define the basis of FCIC approval 
of an NRS policy and for clarification.
    Comment: A legal counsel stated Sec.  400.713 establishes no 
meaningful criteria or standards for the reviews or determinations to 
be made. It would penalize the issuer of a non-reinsured policy if it 
affects ``any rights of the insured with respect to the underlying 
reinsured policy or plan of insurance.'' It does not deal with the 
issues such as whether the effect on rights is adverse or beneficial or 
whether or not the effect is material or immaterial. The regulation 
purports to define the ``marketplace disruption'' test for denying 
subsidy and reinsurance, however they are not adequate. For instance, 
the commenter asked how FCIC will evaluate and then implement (1) a 
standard based on a test of ``adversely affecting sales'' of reinsured 
products; or (2) evaluate and then implement a test on ``undermining 
producers'' confidence'' in Federal crop insurance, relying on 
decreased

[[Page 44234]]

``willingness or ability to use Federally reinsured risk management 
products'' or based on harm to ``public perception of the Federal crop 
insurance program?''
    Response: NRS policies generally attach to or are written with an 
underlying FCIC reinsured policy. However, NRS policies are not 
reinsured by FCIC. NRS policies are not standardized so each could have 
a unique impact on the underlying FCIC reinsured policy. It is 
imperative provisions of the NRS be compatible and consistent with the 
underlying policy in terms of coverage references, policy dates, and 
generally accepted policy rules of administration to avoid coverage 
ambiguities. The policyholder's perception of the underlying FCIC 
reinsured policy and the NRS are indivisible parts of the entire risk 
management package. The package must perform as expected to maintain 
consumer confidence in Federal risk management programs. With respect 
to whether the policy affects the rights of producers, FCIC will focus 
on whether the NRS policy prevents the producer from receiving coverage 
or changes such coverage so the producer does not receive the full 
benefit under the underlying FCIC reinsured policy. FCIC will also 
examine whether the NRS policy will result in over-insurance. With 
respect to marketplace disruption, FCIC will generally consider 
producer perceptions, comments, and market conduct. For example, if 
producers then state they will not purchase FCIC reinsured policies 
because of their performance in conjunction with the NRS policy or the 
volume of sales of the FCIC reinsured policy decreases suddenly after 
the release of a NRS policy.
    Comment: A reinsurance company stated Sec.  400.702 addresses the 
confidentiality of submissions submitted under section 508(h) of the 
Act. The commenter suggested Sec.  400.713 should also address the 
confidentiality of nonreinsured supplemental policies.
    Response: Submissions under section 508(h) of the Act are 
confidential because there is a specific requirement in section 
508(h)(4)(A) of the Act. This confidentiality provision does not extend 
to NRS policies. However, the release of information provided with the 
NRS policy would be subject to the Freedom of Information Act, which 
offers protection against the release of certain information. 
Therefore, no change has been made.
    In addition to the changes described above and minor editorial 
changes, FCIC has made the following changes:
    1. Removed the definition of ``revenue insurance'' because it is 
not needed to clarify the provisions and the defined term is not used 
in the provisions;
    2. Amended Sec.  400.705 to designate it as paragraph (a) and 
redesignate paragraphs (a) through (m) as paragraphs (b) through (n), 
and amend redesignated (a) to specify that the submission must have a 
table of contents and page numbers, and that when the electronic format 
of the submission is printed it will be an exact duplicate of the 
information that would have been found in the 3-ring binder, with the 
exception of section dividers. This will ensure that the information is 
the same and in the same order.
    3. Amended redesignated Sec.  400.705(b)(6) to specify if a sales 
closing date is not applicable, the applicant must give the earliest 
date the applicant expects to release the product to the public to 
cover those situations where the policy or plan of insurance does not 
have a sales closing date but allows for continuous sales.
    4. Amended redesignated Sec.  400.705(h) to specify the evaluation 
and certification from an accredited associate or fellow of the 
Casualty Actuarial Society or other similarly qualified professional 
must be a disinterested third party to avoid any potential conflicts of 
interest. A definition of ``disinterested party'' has also been added.
    5. Amended redesignated Sec.  400.705(j)(1) to specify the 
applicant will submit a statement specifying sales will not commence 
for any new or revised submission until at least 60 days after all 
policy provisions and related material are released to the public by 
RMA, unless otherwise specified by RMA. This provision is necessary to 
protect the program by allowing other approved insurance providers the 
time needed to release materials to their agents and adequately train 
agents and loss adjusters so that producers are properly informed of 
the attributes and benefits of the new policy or plan of insurance and 
losses are adjusted correctly.
    6. Amended redesignated Sec.  400.705(k) to specify that 
submissions must not only be in compliance with Appendix III, it must 
contain any system(s) and software necessary to implement the 
submission and such systems or software must be compatible with RMA's 
systems.
    7. Amended Sec. Sec.  400.706(a) and (b) to better clarify the 
roles of RMA and the Board and to better structure the provisions to 
better reflect the current practices of the Board.
    8. Amended redesignated Sec.  400.706(h) to specify the Board may 
disapprove a submission if it determines coverage would be similar to 
another policy or plan of insurance and the producer would not further 
benefit from the submission. It does not protect the interests of 
producers if the new policy or plan of insurance offers the same or 
similar coverage to existing policies or plans of insurance. It leads 
to confusion in the marketplace and increases litigative risk.
    9. Amended Sec.  400.706(j) to specify the Board will send the 
applicant a letter stating the submission has been disapproved if the 
applicant does not respond within the 30 day time period after the 
Board provides written notice of intent to disapprove a submission, and 
to specify the Board will send the applicant a letter stating the 
submission has been disapproved if the applicant does not present a 
modification of the submission to the Board on the date the applicant 
anticipated presenting the modification or does not request an 
additional time delay.
    10. Amended Sec.  400.709 by adding a new paragraph (b)(2) to allow 
the Board to limit the availability of coverage for a submission based 
on the risks as authorized in sections 508(b)(8) and (c)(9) of the Act.
    11. Amended redesignated Sec.  400.712(g)(1)(i) to allow for 
compensation amounts to be compared to other substantiated wage 
information, as deemed appropriate by the Board, in addition to the 
Occupational Employment Statistics Survey, when computing reimbursement 
for research and development costs, and maintenance costs.
    12. Amended redesignated Sec.  400.712 by adding a paragraph (i) to 
allow the product to be withdrawn at the discretion of the Board if the 
applicant does not reasonably demonstrate that the submission meets the 
marketing plan or does not comply with the requirements in this rule 
and no further maintenance reimbursement will be paid.
    13. Added a new Sec.  400.712(n) to specify that applicants 
requesting reimbursement for research and development costs, 
maintenance costs or user fees may present their request in person to 
the Board prior to consideration for approval.

List of Subjects in 7 CFR Part 400

    Administrative practice and procedure, Crop insurance.

Final Rule

0
Accordingly, as set forth in the preamble, the interim rule amending 7

[[Page 44235]]

CFR part 400, Subpart V, published in the Federal Register on September 
17, 2001, at 66 FR 47949-47959 is adopted as final with the following 
changes:

PART 400--GENERAL ADMINISTRATIVE REGULATIONS

0
1. The authority citation for 7 CFR part 400 continues to read as 
follows:

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

Subpart V--Submission of Policies, Provisions of Policies, Rates of 
Premium, and Premium Reduction Plans

0
2-3. Revise Sec.  400.700(a), to read as follows:


Sec.  400.700  Basis, purpose, and applicability.

    (a) This subpart establishes guidelines for the submission of 
policies, plans of insurance, and rates of premium to the Board as 
authorized under section 508(h) of the Act and for nonreinsured 
supplemental policies in accordance with the SRA, and the roles and 
responsibilities of FCIC and the applicant. It also specifies the 
procedures for requesting reimbursement for research and development 
costs, and maintenance costs for products and the approval process.
* * * * *

0
4. Amend Sec.  400.701 by adding definitions for ``complete 
submission'' and ``disinterested third party'', revising the 
definitions of ``actuarial documents'', ``actuarially appropriate'', 
``applicant'', ``development'', ``endorsement'', ``maintenance'' 
``marketable'', ``marketing plan'', ``multiple peril crop insurance 
(MPCI)'', ``non-reinsured supplemental policy (NRS),'' ``non-
significant changes'', ``plan of insurance'', ``policy'', ``related 
materials'', ``research'', ``research and development costs,'' and 
``Special Provisions'', placing the revised definition of ``policy'' in 
alphabetical order, and removing the definition of ``revenue 
insurance'' to read as follows:


Sec.  400.701  Definitions.

* * * * *
    Actuarial documents. The material for the crop or insurance year 
which is available for public inspection in your agent's office and 
published on RMA's website at http://www.rma.usda.gov/, or a successor 
website, and which shows available coverage levels, information needed 
to determine premium rates, premium adjustment percentages, practices, 
particular types or varieties of the insurable crop or agricultural 
commodity, insurable acreage or commodities, and other related 
information regarding crop insurance or other risk management plans of 
insurance in the county or state.
    Actuarially appropriate. Premium rates expected to cover 
anticipated losses and a reasonable reserve based on valid reasoning, 
an examination of available risk data, which for new products may be 
scarce but must still be of sufficient quality and quantity to 
reasonably determine the anticipated losses, or thorough knowledge or 
experience of the expected value of future costs associated with the 
risk to be transferred.
* * * * *
    Applicant. Any person or entity that submits a policy, plan of 
insurance, provisions of a policy or plan of insurance, or rates of 
premium to the Board for approval under section 508(h) of the Act.
* * * * *
    Complete submission. A submission determined by the Board to 
contain all necessary and appropriate documentation in accordance with 
Sec.  400.705 and is of sufficient quality to conduct a meaningful 
review.
* * * * *
    Development. The process of drafting rules, new policy provisions, 
pricing and rating methodologies, administrative and operating 
procedures, systems and software, supporting materials, and 
documentation necessary to create and implement a proposed policy or 
coverage.
    Disinterested third party. A person who does not have any familial 
relationship (parents, brothers, sisters, children, spouse, 
grandchildren, aunts, uncles, nieces, nephews, first cousins, or 
grandparents, related by blood, adoption or marriage, are considered to 
have a familial relationship) with anyone employed or contracted by the 
applicant or who will not benefit financially from the approval of the 
submission.
    Endorsement. A document that amends a policy reinsured under the 
Act in a manner that supplements or amends the insurance coverage 
provided by that policy.
* * * * *
    Maintenance. For the purposes of this subpart only, the process of 
continual support and improvement, as needed, for a policy or plan of 
insurance, including the periodic review of setting prices, updating 
premium rates or the rating methodology, updating or modifying policy 
terms and conditions, and any other actions necessary to provide 
adequate and meaningful protection for producers, ensure actuarial 
soundness, or to respond to statutory or regulatory changes.
* * * * *
    Marketable. A determination by the Board that a sufficient number 
of producers will purchase the product and approved insurance providers 
will sell the product to make it economical, based on credible evidence 
provided by the applicant and any other relevant information.
    Marketing plan. A detailed, written plan that identifies, at a 
minimum, the expected number of potential buyers, premium, liability, a 
prescribed insurance year cycle, the data upon which such information 
is based, such data may include, but is not limited to, focus group 
results, market research studies, qualitative market estimates, effects 
upon the delivery system or ancillary participants, correspondence from 
producers expressing the need for such policy or plan of insurance, 
responses from a reasonable representative cross-section of producers 
to be effected by the policy or plan of insurance demonstrating the 
number of producers likely interested in purchasing the product, and a 
commitment from at least one approved insurance provider to sell and 
support such a policy or plan of insurance.
    Multiple peril crop insurance (MPCI). All insurance policies 
reinsured by FCIC that offers coverage for loss of production, loss of 
revenue, or both.
* * * * *
    Nonreinsured supplemental policy (NRS). A policy, endorsement or 
other risk management tool that is not reinsured under the Act, or has 
not been submitted to FCIC under section 508(h) of the Act, that offers 
additional coverage, other than loss related to hail, to a policy or 
plan of insurance that is reinsured by FCIC.
    Non-significant changes. Minor changes to the policy or plan of 
insurance, such as technical corrections, that do not affect the rating 
or pricing methodologies, the amount of subsidy owed, the amount or 
type of coverage, the interests of producers, FCIC's reinsurance risk, 
or any condition that does not affect liability or the amount of loss 
to be paid under the policy. Statutory or regulatory requirements are 
included in this category regardless of impact.
    Plan of insurance. A class of policies, such as MPCI or Group Risk 
Plan of Insurance, that offers a specific type of coverage to one or 
more agricultural commodities.

[[Page 44236]]

    Policy. A contract for insurance that includes an accepted 
application, Basic Provisions, applicable Commodity Provisions, other 
applicable options and endorsements, the Special Provisions, related 
materials, and the applicable regulations published in 7 CFR chapter 
IV.
* * * * *
    Related material. The actuarial documents for the insured 
agricultural commodity and any underwriting or loss adjustment manual, 
handbook, form or other information needed to administer the policy.
    Research. For the purposes of development, the gathering of 
information related to: Producer needs and interests; the marketability 
of the policy or plan of insurance; the appropriate policy terms, 
premium rates, price elections, administrative and operating 
procedures, supporting materials, and the documentation, systems and 
software necessary to implement a policy or plan of insurance. 
Gathering of information to determine whether it is feasible to expand 
a policy or plan of insurance to a new area or to cover a new commodity 
under the same policy terms and conditions, price, and premium rates is 
not considered research.
    Research and development costs. Specific expenses incurred and 
directly related to the research and development of a submission, as 
initially approved by the Board.
* * * * *
    Special Provisions. The part of the policy that contains specific 
provisions of insurance for each insured commodity that may vary by 
geographic area.
* * * * *

0
5. Amend Sec.  400.702 by adding a new paragraph (d) to read as 
follows:


Sec.  400.702  Confidentiality of submission and duration of 
confidentiality.

* * * * *
    (d) In the submission, the applicant must state if the name of the 
submission may be used in Board documents including but not limited to 
the agenda, minutes, and Board memoranda. The applicant cannot use 
false names to mislead the public regarding the nature of the 
submission. If permission is not given to use the name of the 
submission, the submission will simply be referred to as a ``Section 
508(h) submission.''

0
6. Revise Sec.  400.703 to read as follows:


Sec.  400.703  Timing of submission.

    (a) A submission may only be provided to FCIC, in either a hard 
copy or electronic format, during the first 5 business days of January, 
April, July, and October.
    (b) Any submission not provided within the first 5 business days of 
a month stated in paragraph (a) of this section, will be considered to 
have been provided the next month stated in paragraph (a). For example, 
if an applicant provides a submission on January 10, it will be 
considered to have been received on April 1.
    (c) Any submission must be provided to the Deputy Administrator, 
Research and Development (or any successor), Risk Management Agency, 
6501 Beacon Drive, Stop 0812, Kansas City, MO 64133-4676, not later 
than 240 days prior to the earliest proposed sales closing date to be 
considered for sale in the requested crop year.
    (d) The Board, or RMA if authorized by the Board, shall determine 
when sales can begin for a submission approved by the Board.

0
7. Revise Sec.  400.705 to read as follows:


Sec.  400.705  Contents required for a new submission or changes to a 
previously approved submission.

    (a) A complete submission must contain the following material, as 
applicable, in the order given, in a three ring binder, with a table of 
contents, page numbers, and section dividers clearly labeling each 
section or in an electronic format that when printed will be an exact 
duplicate of the information that would have been found in the three-
ring binder with the exception of section dividers.
    (1) If a hard copy of the submission is provided, it must include 
six identical copies provided to the Deputy Administrator, Research and 
Development (or successor), Risk Management Agency, 6501 Beacon Drive, 
Stop 0812, Kansas City, MO 64133-4676, and one identical copy of the 
submission provided to the Administrator, Risk Management Agency, 1400 
Independence Ave., Stop 0801, Room 3053 South Building, Washington, DC 
20250-0801.
    (2) Electronic submissions must be sent to the Deputy 
Administrator, Research and Development (or successor) at 
Deputy[email protected] and the Administrator at 
[email protected].
    (b) The first section will contain general information, including, 
as applicable:
    (1) The applicant's name, address or primary business location, 
phone number, and e-mail address;
    (2) The type of submission (see Sec.  400.704);
    (3) A statement of whether the applicant is requesting:
    (i) Reinsurance, which includes risk subsidy and A&O subsidy;
    (ii) Reimbursement for research and development costs, as 
applicable; or
    (iii) Reimbursement for maintenance costs, as applicable;
    (4) The proposed agricultural commodities, including types, 
varieties, and practices covered by the submission;
    (5) The crop and reinsurance years in which the submission is 
proposed to be available for purchase by producers;
    (6) The proposed sales closing date, if applicable, or if not 
applicable, the earliest date the applicant expects to release the 
product to the public;
    (7) The proposed duration and scope of the plan of insurance;
    (8) A marketing plan;
    (9) Any known or anticipated future expansion plans;
    (10) Identification, including names, addresses, telephone numbers, 
and e-mail addresses, of the persons responsible for:
    (i) Addressing questions regarding the policy, underwriting rules, 
loss adjustment procedures, rate and price methodologies, data 
processing and record-keeping requirements, and any other questions 
that may arise in administering the program after it is approved; and
    (ii) Annual reviews to ensure compliance with all requirements of 
the Act, this subpart, and any agreements executed between the 
applicant and FCIC; and
    (11) A statement of whether the submission will be filed with the 
applicable office responsible for regulating insurance in each state 
proposed for insurance coverage, and if not, reasons why the submission 
will not be filed for review.
    (c) The second section must contain the benefits of the plan, 
including, as applicable, a statement about the plan that demonstrates:
    (1) How the submission offers coverage or other benefits not 
currently available from existing public and private programs;
    (2) The projected demand for the submission, which must be 
supported by information from market research, producers or producer 
groups, agents, lending institutions, and other interested parties that 
provide verifiable evidence of demand; and
    (3) How the submission meets public policy goals and objectives 
consistent with the Act and other laws, as well as policy goals 
supported by USDA and the Federal Government.

[[Page 44237]]

    (d) Except as provided in this section, the third section must 
contain the policy, including, as applicable:
    (1) If the submission involves a new insurance policy or plan of 
insurance:
    (i) All applicable policy provisions; and
    (ii) A list and description of any additional coverage that may be 
elected by the insured, including how such coverage may be obtained; 
and
    (2) If the submission involves a change to a previously approved 
policy, plan of insurance, or rates of premium, the proposed revisions, 
rationale for each change, data and analysis supporting each change, 
the impact of each change, and the impact of all changes in aggregate.
    (e) The fourth section must contain the information related to the 
marketing of the policy or plan of insurance, including, as applicable:
    (1) A list of counties and states where the submission is proposed 
to be offered;
    (2) The amount of commodity (acres, head, board feet, etc.), the 
amount of production, and the value of each agricultural commodity 
proposed to be covered in each proposed county and state;
    (3) The expected liability and premium for each proposed county and 
state;
    (4) If available, any insurance experience for each year and in 
each proposed county and state in which the policy has been previously 
offered for sale including an evaluation of the policy's performance 
and, if data are available, a comparison with other similar insurance 
policies reinsured under the Act;
    (5) Focus group results;
    (6) Market research studies;
    (7) Qualitative market estimates;
    (8) Affects upon the delivery system or ancillary participants;
    (9) Correspondence from producers expressing the need for such 
policy or plan of insurance;
    (10) Responses from a reasonable representative cross-section of 
producers to be affected by the policy or plan of insurance; and
    (11) Commitment in writing from at least one approved insurance 
provider to sell and support the policy or plan of insurance.
    (f) The fifth section must contain the information related to the 
underwriting and loss adjustment of the submission, including as 
applicable:
    (1) Detailed rules for determining insurance eligibility, including 
all producer reporting requirements;
    (2) Relevant dates, if not included in the proposed policy;
    (3) Detailed examples of the data and calculations needed to 
establish the insurance guarantee, liability, and premium per acre or 
other unit of measure, including worksheets that provide the 
calculations in sufficient detail and in the same order as presented in 
the policy to allow verification that the premiums charged for the 
coverage are consistent with policy provisions;
    (4) Detailed examples of calculations used to determine indemnity 
payments for all probable situations where a partial or total loss may 
occur;
    (5) A detailed description of the causes of loss covered by the 
policy or plan of insurance and any causes of loss excluded;
    (6) Any statements to be included in the actuarial documents; and
    (7) The loss adjustment standards handbook for the policy or plan 
of insurance that includes:
    (i) A table of contents and introduction;
    (ii) A section containing abbreviations, acronyms, and definitions;
    (iii) A section containing insurance contract information 
(insurability requirements; crop provisions not applicable to 
catastrophic risk protection; specific unit division guidelines, if 
applicable; notice of damage or loss provisions; quality adjustment 
provisions; etc);
    (iv) A section that thoroughly explains appraisal methods, if 
applicable;
    (v) Illustrative samples of all the applicable forms needed for 
insuring and adjusting losses in regards to the product plus detailed 
instructions for their use and completion;
    (vi) Instructions, examples of calculations, and loss adjustment 
procedures that are necessary to establish the amounts of coverage and 
loss;
    (vii) A section containing any special coverage information (i.e., 
replanting, tree replacement or rehabilitation, prevented planting, 
etc.), as applicable; and
    (viii) A section containing all applicable reference material 
(i.e., minimum sample requirements, row width factors, etc.).
    (g) The sixth section must contain information related to prices 
and rates of premium, including, as applicable:
    (1) A list of all assumptions made in the premium rating and 
commodity pricing methodologies, and the basis for these assumptions;
    (2) A detailed description of the pricing and rating methodologies, 
including supporting documentation, all mathematical formulas, 
equations, and data sources used in determining rates and prices and an 
explanation of premium components that detail how rates were determined 
for each component, that demonstrate the rate is appropriate;
    (3) An example of both a rate calculation and a price calculation;
    (4) A discussion of the applicant's objective evaluation of the 
reliability of the data;
    (5) An analysis of the results of simulations or modeling showing 
the performance of proposed rates and commodity prices, as applicable, 
based on one or more of the following (Such simulations must use all 
years of experience available to the applicant);
    (i) A recalculation of total premium and losses compared to a 
similar or comparable insurance plan offered under the authority of the 
Act with modifications, as needed, to represent the components of the 
submission;
    (ii) A simulation based on the probability distributions used to 
develop the rates and commodity prices, as applicable, including 
sensitivity tests that demonstrate price or yield extremes, and the 
impact of inappropriate assumptions; or
    (iii) Any other comparable simulation that provides results 
indicating both aggregate and individual performance of the submission 
under various scenarios depicting good and poor actuarial experience; 
and
    (6) A simulation of expected losses capturing both a probable loss 
and a total loss.
    (h) The seventh section must contain an evaluation and 
certification from a disinterested third party who is an accredited 
associate or fellow of the Casualty Actuarial Society, or other 
similarly qualified professional, who certifies the submission is 
actuarially appropriate and consistent with appropriate insurance 
principles and practices.
    (i) The eighth section must contain all forms applicable to the 
submission, including:
    (1) An application for insurance and procedures for accepting the 
application; and
    (2) All applicable policy forms, instructions and procedures that 
are necessary to establish the amounts of coverage or loss.
    (j) The ninth section must contain the following:
    (1) A statement specifying sales will not commence for any new or 
revised submission until at least 60 days after all policy provisions 
and related material are released to the public by

[[Page 44238]]

RMA, unless otherwise specified by the Board;
    (2) An explanation of any provision of the policy not authorized 
under the Act and identification of the portion of the rate of premium 
due to these provisions;
    (3) Agent and loss adjuster training plans; and
    (4) A certification from the applicant's legal counsel that the 
submission meets and complies with all requirements of the Act, 
applicable regulations, and any reinsurance agreement.
    (k) The tenth section must contain a written plan, including 
specifications and details for the systems and software development 
necessary for the implementation of the submission, if applicable, and 
the documents that demonstrate the submitter has the capability and 
resources to develop systems that comply in all respects with the 
standards established for processing and acceptance of data by the FCIC 
Data Acceptance System, or successor system, unless otherwise 
authorized by FCIC. Unless otherwise determined by FCIC, the applicant 
must consult with FCIC to determine whether their submission can be 
implemented and administered through the current system;
    (1) If FCIC approves the submission and determines that its system 
has the capacity to implement and administer the submission, the 
applicant must provide acceptable computer requirements, code and 
software, consistent with that used by FCIC, to facilitate the 
acceptance of producer applications and all related data;
    (2) If FCIC approves the submission and determines that its system 
lacks the capacity to implement and administer the submission, the 
applicant must provide acceptable computer systems, requirements, code 
and software necessary to implement and administer the policy or plan 
of insurance;
    (3) Any computer systems, requirements, code and software must be 
consistent with that used by FCIC and comply with the standards 
established in Appendix III, or any successor document, of the Standard 
Reinsurance Agreement or other reinsurance agreement as specified by 
FCIC; and
    (4) These requirements are available from the Risk Management 
Agency, 6501 Beacon Drive, Stop 0812, Kansas City, MO, 64133-4676 or on 
RMA's Web site at http://www.rma.usda.gov/data/#m13, or a successor 
website.
    (l) The eleventh section must contain a training package. The 
training package must include a thorough discussion, explanations, 
written exercises, and examples covering the following topics:
    (1) Basic and catastrophic risk protection policy provisions;
    (2) The commodity provisions and any endorsements;
    (3) Underwriting under the underwriting guide;
    (4) Eligibility requirements;
    (5) Guarantee, indemnity, and premium calculations;
    (6) Special Provisions of Insurance;
    (7) Actuarial documents;
    (8) Loss adjustment under the loss adjustment standards handbook;
    (9) Applicable additions to the Crop Insurance Handbook (CIH); and
    (10) Applicable additions to the Loss Adjustment Manual (LAM).
    (m) The twelfth section submitted on separate pages and in 
accordance with Sec.  400.712 must specify:
    (1) On one page, the total estimated amount that will be requested 
for reimbursement of research and development costs (for new products 
only) or the estimated amount for maintenance costs for the year for 
which the submission will be effective (for products that are within 
the maintenance period); and
    (2) On another page, a comprehensive estimate of maintenance costs 
for each future year of the maintenance period and the basis for which 
such maintenance costs will be incurred, including, but not limited to:
    (i) Any anticipated expansion;
    (ii) The generation of rates, Special Provisions, underwriting 
rules, etc;
    (iii) The determination of prices; and
    (iv) Any other costs that the applicant anticipates will be 
requested for reimbursement.
    (n) The thirteenth section must contain executed certification 
statements in accordance with the following:
    (1) ``{Applicant's Name{time}  hereby claim that the amounts set 
forth in this section and Sec.  400.712 are correct and due and owing 
to {Applicant's Name{time}  by FCIC under the Federal Crop Insurance 
Act''; and
    (2) ``{Applicant's Name{time}  understands that, in addition to 
criminal fines and imprisonment, the submission of false or fraudulent 
statements or claims may result in civil and administrative 
sanctions.''
    8. Revise Sec.  400.706 to read as follows:


Sec.  400.706  Review of submission.

    (a) Prior to providing the submission to the Board to determine 
whether it is a complete submission, RMA will:
    (1) Review the submission to determine if all necessary and 
appropriate documentation is included in accordance with Sec.  400.705;
    (2) Review the submission to determine whether the submission is of 
sufficient quality to conduct a meaningful review;
    (3) Inform the applicant of the information RMA deems necessary for 
the submission to comply with paragraphs (a)(1) and (2) of this 
section; and
    (4) Forward the submission and the results of RMA's initial review 
to the Board.
    (b) Upon the Board's receipt of the submission, the Board will:
    (1) Determine if the submission is a complete submission (The date 
the Board votes to contract with independent reviewers is the date the 
submission is deemed to be a complete submission for the start of the 
120 day time-period for approval);
    (2) Forward the complete submission to at least five independent 
persons with underwriting or actuarial experience to review the 
submission:
    (i) Of the five reviewers, no more than one will be employed by the 
Federal Government, and none may be employed by any approved insurance 
provider or their representative; and
    (ii) The reviewers will each provide their assessment of whether 
the submission protects the interest of agricultural producers and 
taxpayers, is actuarially appropriate, follows appropriate insurance 
principles, meets the requirements of the Act, does not contain 
excessive risks, follows sound, reasonable, and appropriate 
underwriting principles, as well as other items the Board may deem 
necessary;
    (3) Return to the applicant any submission the Board determines is 
not a complete submission, and provide documentation to the applicant 
explaining such. If the submission is resubmitted at a later date, it 
will be considered a new submission;
    (4) For all complete submissions:
    (i) Request review of the submission by RMA to provide its 
assessment of whether:
    (A) The submission protects the interests of agricultural producers 
and taxpayers, is actuarially appropriate, follows appropriate 
insurance principles, meets the requirements of the Act, does not 
contain excessive risks, is consistent with USDA's public policy goals, 
does not increase or shift risk to any other FCIC reinsured policy, 
offers coverage that is similar to another policy or plan of insurance 
and if the producer would further benefit from the submission and can 
be administered and delivered efficiently and effectively;
    (B) The marketing plan is reasonable;
    (C) RMA has the resources to consider, implement, and administer 
the submission; and

[[Page 44239]]

    (D) The requested amount of government reinsurance, risk subsidy, 
and administrative and operating subsidies is reasonable and 
appropriate for the type of coverage provided by the policy submission; 
and
    (ii) Seek review from the Office of the General Counsel (OGC) to 
determine if the submission conforms to the requirements of the Act and 
all applicable Federal regulations.
    (c) All comments and evaluations will be provided to the Board by a 
date determined by the Board to allow the Board adequate time for 
review.
    (d) The Board will consider all comments, evaluations, and 
recommendations in its review process. Prior to making a decision, the 
Board may request additional information from RMA, OGC, the independent 
reviewers, or the applicant.
    (e) An applicant may request, at any time, a time delay before the 
Board provides a notice of intent to disapprove the submission. The 
Board is not required to agree to such an extension.
    (1) Any requested time delay will not be limited in the length of 
time or the number of delays. However, delays may make implementation 
of the submission for the targeted crop year impractical or impossible.
    (2) The time period during which the Board must make a decision to 
approve or disapprove shall be extended commensurately with any time 
delay requested by the applicant.
    (3) If the Board agrees to an extension of time, the Board and the 
applicant must agree to a time period in which the Board must make its 
decision to approve or disapprove after the expiration of any requested 
time delay.
    (f) The applicant may withdraw a submission or a portion of a 
submission at any time by written request to the Board. A withdrawn 
submission that is resubmitted will result in the submission being 
deemed a new submission for the purpose of determining the amount of 
time that the Board must act on such submission.
    (g) The Board will render a decision to approve the submission with 
or without revision or give notice of intent to disapprove within 90 
days after the date the submission is considered complete by the Board 
in accordance with paragraph (b)(1) of this section, unless the 
applicant and Board agree to a time delay in accordance with paragraph 
(e) of this section.
    (h) The Board may disapprove a submission if it determines that:
    (1) The interests of producers and taxpayers are not protected, 
including but not limited to:
    (i) The submission does not provide adequate coverage or treats 
producers disparately;
    (ii) The applicant has not presented sufficient documentation that 
the submission is marketable;
    (iii) Coverage would be similar to another policy or plan of 
insurance and the producer would not further benefit from the 
submission; or
    (iv) The resources of FCIC or RMA are not sufficient to support the 
review and implementation of the product;
    (2) The premium rates are not actuarially appropriate;
    (3) The submission does not conform to sound insurance and 
underwriting principles;
    (4) The risks associated with the submission are excessive or it 
increases or shifts risk to any other FCIC reinsured policy;
    (5) The submission does not meet the requirements of the Act or is 
not in accordance with USDA's public policy goals; or
    (6) There is insufficient time before the submission would become 
effective under section 508(h) of the Act for the Board to make an 
informed decision with respect to whether the interests of producers 
are protected, the premium rates are actuarially appropriate, or the 
risks associated with the submission are excessive;
    (i) If the Board intends to disapprove the submission, the 
applicant will be notified in writing at least 30 days prior to the 
Board taking such action. The Board will provide the applicant with a 
written explanation for the intent to disapprove the submission.
    (j) After written notice of intent to disapprove all or part of a 
submission has been provided by the Board, the applicant must provide 
written notice to the Board not later than 30 days after the Board 
provided such notice, if the submission will be modified. Except as 
provided in paragraph (j)(3) of this section, the applicant must also 
include an anticipated date that the modification will be provided to 
the Board. If the applicant does not respond within the 30-day period, 
the Board will send the applicant a letter stating the submission is 
disapproved.
    (1) If the modification is in direct response to reviewer comments, 
the Board may act on the modification immediately or seek further 
review within the 30-day time period allowed.
    (2) The Board will approve or disapprove a modified submission not 
later than 30 days after receiving a modified submission from the 
applicant, unless the applicant and the Board agree to a time delay. If 
a time delay is agreed upon, the time period during which the Board 
must act on the modified submission will not be in effect during the 
delay.
    (3) The Board will disapprove a modified submission if:
    (i) All causes for disapproval stated by the Board in its 
notification of intent to disapprove the submission are not 
satisfactorily addressed;
    (ii) Insufficient time is available for review of the modified 
submission to determine whether all causes for disapproval have been 
satisfactorily addressed; or
    (iii) Modification is so substantial that the Board determines that 
additional independent review is required and a time delay can not be 
agreed upon to allow for such review.
    (k) A submission will be disapproved if the applicant does not 
present a modification of the submission to the Board on the date the 
applicant anticipated presenting the modification or does not request 
an additional time delay.
    (l) If the Board fails to take action on a new submission within 
the prescribed 90-day period in paragraph (g) of this section, or 
within the time period in accordance with paragraph (e)(3) of this 
section after receiving the revised submission, such submission will be 
deemed approved by the Board for the initial reinsurance year 
designated for the submission. The Board must approve the submission 
for it to be available for any subsequent reinsurance year.


Sec.  400.707  [Amended]

0
9. Amend Sec.  400.707(c) by removing the words ``Sec.  400.706(c)'' 
and adding in its place the words ``Sec.  400.706(b)''.
0
10. Revise Sec.  400.708(a)(1) to read as follows:


Sec.  400.708  Approved Submission.

    (a) * * *
    (1) If FCIC requires, an agreement between the applicant and FCIC 
that specifies:
    (i) The responsibilities of each with respect to the 
implementation, delivery and oversight of the submission; and
    (ii) That the property rights to the submission automatically 
transfers to FCIC if the applicant elects not to maintain the 
submission and FCIC has paid any amounts under Sec.  400.712.
* * * * *


Sec.  400.708  [Amended]

0
11. Amend Sec.  400.708(a)(2) by removing the phrase ``Standard 
Reinsurance Agreement'' and adding the phrase ``available existing 
reinsurance agreements'' in its place;

0
12. Revise Sec.  400.709 to read as follows:

[[Page 44240]]

Sec.  400.709  Roles and responsibilities.

    (a) With respect to the applicant:
    (1) The applicant is responsible for:
    (i) Preparing and ensuring that all policy documents, rates of 
premium, and supporting materials, including actuarial documents, are 
submitted to FCIC in the form approved by the Board;
    (ii) Annually updating and providing maintenance changes no later 
than 180 days prior to the earliest contract change date for the 
commodity in all counties or states in which the policy or plan of 
insurance is sold, unless FCIC assumes maintenance of the product;
    (iii) Addressing responses to procedural issues, questions, 
problems or clarifications in regard to a policy or plan of insurance 
(all such resolutions will be communicated to all approved insurance 
providers through FCIC's official issuance system); and
    (iv) Annually reviewing the policy's performance and providing a 
report on the policy's performance to the Board by each anniversary 
date of when the product was first available to be purchased by the 
public;
    (2) Only the applicant may make changes to the policy, plan of 
insurance, or rates of premium approved by the Board (Any changes, both 
non-significant and significant, must be submitted to FCIC no later 
than 180 days prior to the earliest contract change date for the 
commodity in all counties or states in which the policy of plan of 
insurance is sold. Significant changes must be submitted to the Board 
for review in accordance with this subpart and will be considered as a 
new submission);
    (3) Except as provided in paragraph (a)(4) of this section, the 
applicant is solely liable for any mistakes, errors, or flaws in the 
submitted policy, plan of insurance, their related materials, or the 
rates of premium that have been approved by the Board unless the policy 
or plan of insurance is transferred to FCIC. The applicant remains 
liable for any mistakes, errors, or flaws that occurred prior to 
transfer of the policy or plan of insurance to FCIC;
    (4) If the mistake, error, or flaw in the policy, plan of 
insurance, their related materials, or the rates of premium is 
discovered not less than 45 days prior to the cancellation or 
termination date for the policy or plan of insurance, the applicant may 
request in writing that FCIC withdraw the approved policy, plan of 
insurance, or rates of premium:
    (i) Such request must state the discovered mistake, error, or flaw 
in the policy, plan of insurance, or rates of premium, and the expected 
impact on the program; and
    (ii) For all timely received requests for withdrawal, no liability 
will attach to such policies, plans of insurance, or rates of premium 
that have been withdrawn and no producer, approved insurance provider 
or any other person will have a right of action against the applicant; 
and
    (5) Notwithstanding the policy provisions regarding cancellation, 
any policy, plan of insurance, or rates of premium that have been 
withdrawn by the applicant in accordance with paragraph (a)(4) of this 
section is deemed canceled and applications deemed not accepted as of 
the date that FCIC publishes the notice of withdrawal on its website at 
www.rma.usda.gov; and
    (i) Approved insurance providers will be notified in writing by 
FCIC that the policy, plan of insurance, or premium rates have been 
withdrawn; and
    (ii) Producers will have the option of selecting any other policy 
or plan of insurance authorized under the Act that is available in the 
area by the sales closing date for such policy or plan of insurance; 
and
    (6) Failure of the applicant to perform the applicant's 
responsibilities may result in the denial of reinsurance for the policy 
or plan of insurance.
    (b) With respect to FCIC:
    (1) FCIC is responsible for:
    (i) Conducting the best review of the submission possible in the 
time allowed;
    (ii) Ensuring that all approved insurance providers receive the 
approved policy or plan of insurance, and related material, for sale to 
producers in a timely manner (All such information shall be 
communicated to all approved insurance providers through FCIC's 
official issuance system);
    (iii) Ensuring that all approved insurance providers receive 
reinsurance under the same terms and conditions as the applicant 
(approved insurance providers should contact FCIC to obtain and execute 
a copy of the reinsurance agreement) if required; and
    (iv) Reviewing the activities of approved insurance providers, 
agents, loss adjusters, and producers to ensure that they are in 
accordance with the terms of the policy or plan of insurance, the 
reinsurance agreement, and all applicable procedures;
    (2) The Board may limit the availability of coverage, for any 
product developed under the authority of the Act and this regulation, 
on any farm or in any county or area;
    (3) FCIC will not be liable for any mistakes, errors, or flaws in 
the policy, plan of insurance, their related materials, or the rates of 
premium and no cause of action will exist against FCIC as a result of 
such mistake, error, or flaw in a submission submitted under this 
subpart;
    (4) If at any time prior to the cancellation date, FCIC discovers 
there is a mistake, error, or flaw in the policy, plan of insurance, 
their related materials, or the rates of premium, or any other reason 
for denial of reinsurance contained in Sec.  400.706(h) exists, FCIC 
will deny reinsurance to such policy or plan of insurance. If 
reinsurance is denied, a written notice of the denial of reinsurance 
will be provided to the approved insurance providers;
    (5) If reinsurance is denied under paragraph (b)(4) of this 
section, the approved insurance provider will have the option of:
    (i) Selling and servicing the policy or plan of insurance at its 
own risk and without any subsidy; or
    (ii) Canceling the policy or plan of insurance in accordance with 
its terms; and
    (6) After maintenance of the policy or plan of insurance is 
transferred to FCIC, FCIC will be liable for any mistakes, errors, or 
flaws that occur after the date the policy or plan of insurance was 
transferred.

0
13. Revise Sec.  400.711 to read as follows:


Sec.  400.711  Right of review, modification, and the withdrawal of 
reinsurance.

    At any time after approval, the Board may review any policy, plan 
of insurance, related material, and rates of premium approved under 
this subpart and request additional information to determine whether 
the policy, plan of insurance, related material, and rates of premium 
comply with statutory or regulatory changes or court orders, are still 
actuarially appropriate, and protect program integrity and the 
interests of producers. The Board will notify the applicant of any 
problem or issue that may arise and allow the applicant an opportunity 
to make any needed change. The Board may deny reinsurance for the 
applicable policy, plan of insurance or rate of premium if the 
applicant:
    (a) Fails to perform the responsibilities stated under Sec.  
400.709(a); or
    (b) Does not satisfactorily provide materials or resolve any issue 
so that necessary changes can be made prior to the earliest contract 
change date.

0
14. Amend Sec.  400.712 as follows:
0
a. Revise paragraphs (a), (b), (c), (d), (e), (h), (i), (l), and (m);
0
b. Remove paragraph (f) and redesignate paragraph (g) as (f);

[[Page 44241]]

0
c. Remove paragraph (j) and redesignate paragraph (k) as (j);
0
d. Add new paragraphs (g), (k), and (n);
0
e. Amend redesignated paragraph (f) introductory text by removing the 
phrase ``and maintenance costs, as applicable'', and by removing the 
phrase ``paragraph (f)'' and adding the phrase ``paragraph (e)'' in its 
place;
0
f. Amend redesignated paragraphs (f)(5)(i)(A)(3), (B)(3), (C)(3), 
(D)(3), and (E)(3) by removing the phrase ``(g)(3)'' and adding the 
phrase ``(f)(3)'' in its place;
0
g. Amend redesignated paragraph (f)(5)(i)(B) by removing the word 
``Crop'' and adding the word ``Commodity'' in its place;
0
h. Amend redesignated paragraph (f)(5)(ii)(B) by revising the phrase 
``regional, state or county'' to read ``county, state or regional'';
0
i. Amend redesignated paragraph (f)(6) introductory text by removing 
the phrase ``In accordance with paragraph (e) of this section, those'';
0
j. Amend redesignated paragraphs (f)(6)(i), (ii), and (iii) by removing 
the phrase ``paragraphs (h), (i), or (j)'' and adding ``paragraph (g)'' 
in its place;
0
k. Amend the first sentence of redesignated paragraph (j)(1)(i) by 
removing the phrase ``a user fee, as approved by the Board, to approved 
insurance providers for all policies earning premium to cover 
maintenance expenses'' and adding in its place the phrase ``approved 
insurance providers a user fee to cover maintenance expenses for all 
policies earning premium'', and in the last sentence by revising the 
words ``which ever'' to read ``whichever''; and
0
l. Revise redesignated paragraph (j)(2);
0
m. Add paragraph (j)(8).
    The revised and added text reads as follows:


Sec.  400.712  Research and development reimbursement, maintenance 
reimbursement, and user fees.

    (a) For submissions approved by the Board for reinsurance under 
section 508(h) of the Act:
    (1) If it is determined to be marketable by the Board, the 
submission may be eligible for a one-time payment of research and 
development costs and reimbursement of maintenance costs for up to four 
reinsurance years, as determined by the Board, after the date such 
costs have been approved by the Board.
    (2) Reimbursement of research and development costs or maintenance 
costs will be considered as payment in full by FCIC for the submission.
    (3) If the applicant elects at any time not to continue to maintain 
the submission, it will automatically become the property of FCIC and 
the applicant will no longer have any property rights to the 
submission.
    (b) For submissions submitted to the Board for reinsurance after 
publication of the interim rule on September 17, 2001, an estimated 
amount of the total cost for reimbursement of research and development 
costs and maintenance costs must be included with the original 
submission to the Board in accordance with this section. These 
estimates will be used by FCIC to evaluate if the interests of 
producers are protected and to track potential expenditures and will 
not provide a basis for making any reimbursements under this section. 
Documentation of actual costs allowed under this section will be used 
to determine any reimbursement.
    (c) To be eligible for any reimbursement under this section, FCIC 
must determine that a submission is marketable.
    (d) To be considered for reimbursement of:
    (1) Research and development costs, the total of the amount 
requested, and all supporting documentation, must be submitted to FCIC 
by electronic method or by hard copy and received by FCIC by August 1 
immediately following the date the submission was first available to be 
purchased by producers;
    (2) Maintenance costs, the total of the amount requested, and all 
supporting documentation, must be submitted to FCIC by electronic 
method or by hard copy and received by FCIC by August 1 of each year of 
the maintenance period;
    (3) The procedure and time-frame in paragraphs (d)(1) or (2) of 
this section, as applicable, must be followed or research and 
development costs and maintenance costs may not be reimbursed; and
    (4) Given the limitation on funds, regardless of when the request 
is received, no payment will be made prior to September 15 of the 
applicable fiscal year.
    (e) There are limited funds available on an annual fiscal year 
basis as contained in the Act. Therefore, requests for reimbursement 
will not be considered in the order in which they are received. 
Consistent with paragraphs (f), (g), (h), and (k) of this section, if 
all applicants' requests for reimbursement of research and development 
costs and maintenance costs in any fiscal year:
    (1) Do not exceed the maximum amount authorized by law, the 
applicants may receive the full amount of reimbursement authorized 
under these paragraphs; and
    (2) Exceed the amount authorized by law, each applicant's 
reimbursement will be determined by dividing the total amount of each 
individual applicants' reimbursable costs authorized in paragraphs (f), 
(g), (h), and (k) of this section by the total amount of the aggregate 
of all applicants' reimbursable costs authorized in paragraphs (f), 
(g), (h), and (k) of this section for that year and multiplying the 
result by the amount of reimbursement authorized under the Act.
* * * * *
    (g) For those submissions submitted to the Board for approval after 
September 17, 2001, research and development costs must be supported by 
itemized statements and supporting documentation (copies of contracts, 
billing statements, time sheets, travel vouchers, accounting ledgers, 
etc.). Actual costs submitted will be examined for reasonableness and 
may be adjusted at the sole discretion of the Board.
    (1) Allowable research and development expense items (directly 
related to research and development of the submission only) may include 
the following:
    (i) Straight-time hourly wage, exclusive of bonuses, overtime pay, 
or shift differentials (One line per employee, include job title, total 
hours, and total dollars. Compensation amounts will be compared with 
the Occupational Employment Statistics Survey (published each January 
by the U.S. Department of Labor, Bureau of Labor Statistics) or other 
substantial wage information as deemed appropriate by the Board);
    (ii) Benefit cost per employee (Benefit costs are considered 
overhead and will be compared with the Employment Cost Index Annual 
Employer Cost Survey published each March by the U.S. Department of 
Labor, Bureau of Labor Statistics); and
    (iii) Contracted expenses if fully disclosed, documented, and:
    (A) The applicant provides a copy of the contract, billing 
statements, accounting records, etc;
    (B) The applicant provides the relationship, if any, between the 
applicant and the contractor, such as parent company, subsidiary, etc. 
(Reimbursement may be limited or denied if the contractor is closely 
associated to the applicant so that they could be considered as one and 
the same, such as a separate entity being created by the applicant to 
conduct research and development);
    (C) The applicant provides any and all other involvement of the 
contractor with the applicant, such as being a director, officer, 
employee, etc., or having common directors, officers, employers,

[[Page 44242]]

employees, etc. (Reimbursement may be reduced or denied if the 
contractor is paid a salary or other compensation from the applicant 
based on this other involvement); and
    (D) The contracted expenses are broken out by line item (including 
all persons who make up the contracted party who had a substantive 
involvement in the development of the submission), such as:
    (1) Individual names;
    (2) Rate of pay;
    (3) Hours allocated to the submission;
    (4) Benefit rate; and
    (5) Overhead;
    (iv) Professional fees if fully disclosed, documented, and:
    (A) The applicant provides the job title, straight-time hourly 
wage, total hours, and total dollars;
    (B) The applicant provides the relationship, if any, between the 
applicant and the professional, such as parent company, subsidiary, 
etc. (Reimbursement may be limited or denied if the contractor is 
closely associated to the applicant so that they could be considered as 
one and the same, such as a separate entity being created by the 
applicant to conduct research and development);
    (C) The applicant provides any other involvement of the 
professional with the applicant, such as being a director, officer, 
employee, etc., or having common directors, officers, employers, 
employees, etc. (Reimbursement may be reduced or denied if the 
contractor is paid a salary or other compensation from the applicant 
based on this other involvement); and
    (D) The professional fees are broken out by line item (including 
all persons who make up the professional party who had a substantive 
involvement in the development of the submission), such as;
    (1) Individual names;
    (2) Rate of pay;
    (3) Hours allocated to the submission;
    (4) Benefit rate; and
    (5) Overhead;
    (v) Travel and transportation (One line per event, include the job 
title, destination, purpose of travel, lodging cost, mileage, air or 
other identified transportation costs, food and miscellaneous expenses, 
other costs, and the total cost);
    (vi) Software and computer programming developed specifically to 
determine appropriate rates, prices, or coverage amounts (Identify the 
item, include the purpose, and provide receipts or contract or 
straight-time hourly wage, hours, and total cost.) Software developed 
to send or receive data between the producer, agent, approved insurance 
provider or RMA or such other similar software may not be included as 
an allowable cost); and
    (vii) Miscellaneous expenses such as postage, telephone, express 
mail, and printing (Identify the item, cost per unit, number of items, 
and total dollars); and
    (2) The following expenses are specifically not eligible for 
research and development and maintenance cost reimbursement:
    (i) Copyright or patent fees;
    (ii) Training costs;
    (iii) State filing fees and expenses;
    (iv) Normal ongoing administrative expenses;
    (v) Paid or incurred losses;
    (vi) Loss adjustment expenses;
    (vii) Sales commission;
    (viii) Marketing costs;
    (ix) Indirect overhead costs;
    (x) Lobbying costs;
    (xi) Product or applicant liability resulting from the research, 
development, preparation or marketing of the policy;
    (xii) Copyright infringement claims resulting from the research, 
development, preparation or marketing of the policy;
    (xiii) Costs of making program changes as a result of any mistakes, 
errors or flaws in the policy or plan of insurance; and
    (xiv) Costs associated with building rents or space allocation.
    (h) Requests for reimbursement of maintenance costs for submissions 
approved after September 17, 2001, must be supported by itemized 
statements and supporting documentary evidence for each reinsurance 
year in the maintenance period. Actual costs submitted will be examined 
for reasonableness and may be adjusted at the sole discretion of the 
Board. Maintenance costs for the following activities may be 
reimbursed:
    (1) Expansion of the original submission into additional counties 
or states;
    (2) Non-significant changes to the policy and any related material;
    (3) Non-significant or significant changes to the policy as 
necessary to protect program integrity or as required by Congress; and
    (4) Any other activity that qualifies as maintenance.
    (i) If the applicant does not reasonably demonstrate that the 
submission meets the marketing plan or does not follow the criteria set 
forth in this regulation, the product may be withdrawn at the 
discretion of the Board and no further maintenance reimbursement will 
be paid.
    (j) * * *
    (2) If the applicant elects to:
    (i) Continue to maintain the policy or plan of insurance, the 
applicant must submit a request for approval of the user fee by the 
Board at the time of the election; or
    (ii) Transfer the policy or plan of insurance to FCIC, FCIC may at 
its sole discretion, continue to maintain the policy or plan or 
insurance or elect to withdraw the availability of the policy or plan 
of insurance.
* * * * *
    (8) If the applicant does not notify FCIC at least six months prior 
to the last day of the last reinsurance year in which a maintenance 
reimbursement will be paid, as approved by the Board, ownership of the 
policy or plan of insurance will be automatically transferred to FCIC 
beginning with the next reinsurance year.
    (k) The Board may consider information from the Equal Access to 
Justice Act, 5 U.S.C. 504, the Bureau of Labor Statistic's Occupational 
Employment Statistics Survey, the Bureau of Labor Statistic's 
Employment Cost Index, and any other information determined applicable 
by the Board, in making a determination whether to approve a submission 
for reimbursement of research and development costs, or maintenance 
costs under this section or the amount of reimbursement.
    (l) For the purposes of this section, rights to, or obligations of, 
research and development cost reimbursement, maintenance cost 
reimbursement, or user fees cannot be transferred from any individual 
or entity unless specifically approved in writing by the Board.
    (m) Notwithstanding the definition in Sec.  400.701, the 
maintenance period ends for an approved submission once the applicant 
no longer performs the maintenance responsibilities, as determined by 
FCIC, or the applicant gives FCIC notice they no longer wish to 
maintain the submission.
    (n) Applicants requesting reimbursement for research and 
development costs, maintenance costs, or user fees, may present their 
request in person to the Board prior to consideration for approval.

0
15. Revise Sec.  400.713 to read as follows:


Sec.  400.713  Nonreinsured supplemental (NRS) policy.

    (a) Unless notified by FCIC, three hard copies, or an electronic 
copy in a format approved by RMA, of the new or revised NRS policy and 
related materials must be submitted to the Deputy Administrator, 
Research and Development (or successor), Risk Management Agency, 6501 
Beacon Drive, Stop 0812, Kansas City, MO

[[Page 44243]]

64133-4676, at least 120 days prior to the first sales closing date 
applicable to the policy.
    (b) FCIC will review the NRS policy to determine that it does not 
materially increase or shift risk to the underlying policy or plan of 
insurance reinsured by FCIC, reduce or limit the rights of the insured 
with respect to the underlying policy or plan of insurance, or cause 
disruption in the marketplace for products reinsured by FCIC.
    (1) An NRS policy will be considered to disrupt the marketplace if 
it adversely affects the sales or administration of reinsured policies, 
undermines producers' confidence in the Federal crop insurance program, 
decreases the producer's willingness or ability to use Federally 
reinsured risk management products, or harms public perception of the 
Federal crop insurance program.
    (2) The applicant, at a minimum, must provide worksheets and 
examples that establish liability and determine indemnities that 
demonstrate the performance of the NRS policy under differing 
scenarios. When the review is complete, FCIC will forward their 
findings to the applicant.
    (c) If the approved insurance provider sells an NRS policy that RMA 
determines materially increases or shifts risk to the underlying FCIC 
reinsured policy, reduces or limits the rights of the insured with 
respect to the underlying policy, or causes disruption in the 
marketplace for products reinsured by FCIC, reinsurance, A&O subsidy 
and risk subsidy will be denied on the underlying FCIC reinsured policy 
for which such NRS policy was sold.
    (d) FCIC will respond to the submitter not less than 60 days before 
the first sales closing date or provide notice why FCIC is unable to 
respond within the time frame allotted.

    Signed in Washington, DC on July 26, 2005.
Ross J. Davidson, Jr.,
Manager, Federal Crop Insurance Corporation.
[FR Doc. 05-15102 Filed 8-1-05; 8:45 am]
BILLING CODE 3410-08-P