[Federal Register Volume 72, Number 108 (Wednesday, June 6, 2007)]
[Proposed Rules]
[Pages 31199-31202]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-10825]


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DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 457

RIN 0563-AC01


Common Crop Insurance Regulations; Coverage Enhancement Option

AGENCY: Federal Crop Insurance Corporation, USDA.

ACTION: Proposed rule with request for comments.

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SUMMARY: The Federal Crop Insurance Corporation (FCIC) proposes to add 
to 7 CFR part 457 a new Sec.  457.172 Coverage Enhancement Option (CEO) 
that provides additional coverage to applicable crop provisions. The 
CEO will be used in conjunction with the Common Crop Insurance Policy 
Basic Provisions, which contain standard terms and conditions common to 
most crops and with the crop provisions for which it is approved. At 
this time, RMA has no plans to expand CEO to crops other than Texas 
Citrus Trees. The intended effect of this action is to convert the 
pilot CEO to a permanent option for the 2008 and subsequent crop years.

DATES: Written comments and opinions on this proposed rule will be 
accepted until close of business August 6, 2007 and will be considered 
when the rule is to be made final.

ADDRESSES: Interested persons are invited to submit comments, titled 
``Coverage Enhancement Option Insurance Provisions'', by any of the 
following methods:
     By Mail to: Director, Product Administration and Standards 
Division, Risk Management Agency, United States Department of 
Agriculture, 6501 Beacon Drive, Stop 0812, Room 421, Kansas City, MO 
64133-4676.
     E-mail: [email protected].
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    A copy of each response will be available for public inspection 
from 7 a.m. to 4:30 p.m., CDT, Monday through Friday except holidays at 
the above address.

FOR FURTHER INFORMATION CONTACT: William Klein, Risk Management 
Specialist, Product Management, Product Administration and Standards 
Division, Risk Management Agency, at the Kansas City, MO, address 
listed above, telephone (816) 926-7730.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    The Office of Management and Budget (OMB) has determined that this 
rule is non-significant for the purpose of Executive Order 12866 and, 
therefore, it has not been reviewed by OMB.

Paperwork Reduction Act of 1995

    Pursuant to the provisions of the Paperwork Reduction Act of 1995 
(44 U.S.C. chapter 35), the collections of information in this rule 
have been previously approved by OMB under control number 0563-0053 
through November 30, 2007.

E-Government Act Compliance

    FCIC is committed to complying with the E-Government Act, to 
promote the use of the Internet and other information technologies to 
provide increased opportunities for citizen access to Government 
information and services, and for other purposes.

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

[[Page 31200]]

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, or 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. Program 
requirements for the Federal crop insurance program are the same for 
all producers regardless of the size of their farming operation. For 
instance, all producers are required to submit an application and 
acreage report to establish their insurance guarantees, and compute 
premium amounts, and all producers are required to submit a notice of 
loss and production information to determine an indemnity payment in 
the event of an insured cause of crop loss. Whether a producer has 10 
acres or 1000 acres, there is no difference in the kind of information 
collected. To ensure crop insurance is available to small entities, the 
Federal Crop Insurance Act authorizes FCIC to waive collection of 
administrative fees from limited resource farmers. FCIC believes this 
waiver helps to ensure small entities are given the same opportunities 
to manage their risks through the use of crop insurance. 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 proposed 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 insurance provider to take specific action under the 
terms of the crop insurance policy, the administrative appeal 
provisions published at 7 CFR part 11 or 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 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

    The Pilot Coverage Enhancement Option (CEO) was implemented 
beginning with the 2000 crop year for all counties for apples and 
grapes in Pennsylvania and Washington; canola in North Dakota; citrus 
Trees in Texas; cranberries in Massachusetts; potatoes in Idaho, Maine 
and Pennsylvania; rice in Arkansas, Louisiana, and Mississippi; 
stonefruit in California; and walnuts in California. For the 2001 crop 
year, CEO was expanded to citrus fruit in Florida and Texas. Citrus and 
stonefruit policies define additional ``crops'' by fruit type, for 
example, stonefruit includes fresh apricots, fresh peaches etc., so for 
insurance purposes, CEO was approved for 25 crops.
    CEO was developed because producers expressed concern that the crop 
insurance program does not, in some cases, provide an adequate amount 
of coverage. The 75 percent coverage level, for many crops, is the 
highest coverage level offered, and some producers believed the cost 
for that coverage level was too expensive. They expressed a desire for 
higher amounts of coverage, without proportional premium rate increases 
affiliated with higher coverage levels. The CEO premium rate is set at 
the same rate as that of the underlying multiple peril crop insurance 
(MPCI) policy. CEO coverage levels available are from 55 percent 
through 85 percent, in 5 percent increments.
    To be eligible for the program, producers must have an additional 
coverage level MPCI policy in force, with a price election of 100 
percent for the insured crop and select the CEO by the sales closing 
date. They must choose a CEO coverage level of at least 5 percent 
higher than the MPCI base coverage level up to the maximum available 
CEO coverage level of 85 percent.
    An indemnity does not trigger under CEO until the deductible of the 
underlying MPCI policy is met. For example, if the MPCI coverage level 
is 50 percent and the CEO option coverage level is 85 percent, the 
insured would have to sustain damage on the crop in excess of 50 
percent before an indemnity would be paid under CEO.
    RMA contracted for a review of CEO three years after it was 
implemented, and the contractor's final evaluation report was submitted 
on December 10, 2003. There were 25 crops approved for CEO, more than 
two-thirds of which were citrus tree and fruit crops insured in 
California, Florida, and Texas. Seven crops, most with minimal 
participation, had no losses since CEO was a pilot program, sixteen 
crops had minimal CEO participation and losses, and two crops had no 
CEO participation.
    Nationwide, the percentage of acreage insured under CEO between 
2000 and 2003 was low, except for Texas citrus trees, which had a high 
participation rate but no losses. The contractor determined apples, 
canola, grapes, potatoes, and rice had sufficient CEO participation and 
loss experience for a meaningful analysis. A comparison of the CEO 
losses relative to the non-CEO losses for these crops analyzed 
indicated a possible increase of poor or high-risk producers using CEO 
to obtain a higher amount of coverage, especially for apples and rice. 
The final report indicated further review was needed in order to draw a 
conclusion as to whether or not CEO is a greater insurance risk.
    The contractor's recommendation was to terminate CEO for all crops 
except Texas citrus trees, due in part to the high level of CEO 
participation in the Texas citrus tree crop insurance program. The 
contractor found that CEO for Texas Citrus Trees provides additional 
coverage at a reasonable cost for a crop where the opportunity for 
adverse selection is limited by the design of the underlying policy. 
The contractor's recommendation was supported by the Federal Crop 
Insurance Corporation Board of

[[Page 31201]]

Directors on July 29, 2004. At that time, continuance of the CEO was 
approved for Texas citrus trees through the 2008 crop year. In order 
for CEO to be available for to Texas citrus tree producers for the 2009 
crop year, it needs to be made permanent before the August 31, 2008, 
contract change date for Texas citrus trees. While the latest date RMA 
must convert CEO to a permanent program is August 31, 2008, RMA has 
targeted August 31, 2007, for conversion to a permanent program.
    For the 2006 crop year, there were a total of 809 policies under 
the Texas Citrus Tree Crop Insurance Provisions, 714 buy-up and 95 
Catastrophic Risk Protection (CAT) policies. There were 333 producers 
with CEO options, accounting for $45.2 million in liability and $2.4 
million in premium. Forty-one percent of all Texas citrus tree insureds 
opted for CEO, accounting for 68 percent of the insured acreage for 
Texas citrus trees, 74 percent of the liability, and 75 percent of the 
premium.
    FCIC is proposing to make changes to the pilot CEO policy. In 
section 1, FCIC is proposing to revise the definitions of ``MPCI dollar 
amount of insurance,'' ``MPCI indemnity factor,'' ``option dollar 
amount of insurance,'' and ``option coverage level.'' Previously, the 
definition of ``MPCI dollar amount of insurance'' did not explain how 
the value was determined for policies that are based on the actual 
production history so this will be clarified in the proposed 
definition. Further, the definition of ``MPCI indemnity factor'' did 
not explain that such factor is necessary to prorate losses in those 
cases where the producer does not suffer a total loss to the crop. The 
definition of ``option dollar amount of insurance'' did not accurately 
reflect how such amounts are calculated. FCIC is proposing to revise 
the provision to specify that such amount is determined by multiplying 
the option coverage level by the total value of the crop and 
subtracting the MPCI dollar amount of insurance (for example, if the 
coverage option selected is 80 percent and the MPCI dollar amount of 
insurance is $10,000 at the 50 percent coverage level, the option 
dollar coverage level would be $6,000 ($10,000 x 2 = $20,000 total 
value of the crop x .80 option coverage level = $16,000 combined MPCI 
and option dollar amounts of insurance--$10,000 MPCI dollar amount of 
insurance). In addition, the definition of ``option coverage level'' 
failed to discuss the relationship between the MPCI coverage level and 
the option coverage level. FCIC is proposing to revise the definition 
to specify that the effect of the option coverage level is to increase 
the coverage level under the MPCI policy from the MPCI coverage level 
to the option coverage level once a loss has been triggered under the 
MPCI policy.
    FCIC is also proposing to add a definition of ``total value of the 
insured crop,'' which states that the total value is the MPCI dollar 
amount of insurance divided by the MPCI coverage level. This will 
determine what is the actual potential value of an undamaged crop and 
measure the total amount the producer will lose if there is a total 
loss.
    FCIC is proposing to add a new section 2 to clarify that the option 
is only available for those insured crops that contain option coverage 
levels on the actuarial documents. This change is needed because the 
option will not be available in all areas where it was available as a 
pilot program. Therefore, producers must check the actuarial documents 
to see if the option is available in their area. The subsequent 
sections are redesignated as sections 3 through 7.
    FCIC is proposing to revise redesignated section 4 to clarify that 
the option is now continuous and will remain in effect for as long as 
the producer continues to have a MPCI policy in effect for the insured 
crop, an option coverage level percent is contained in the actuarial 
documents, or it is cancelled by the producer or terminated by the 
approved insurance provider on or before the cancellation or 
termination date, as applicable.
    FCIC is proposing to revise redesignated section 6 to clarify the 
coverage provided under the option. It effectively offers coverage that 
causes a portion of the deductible to disappear under the MPCI portion 
of the policy once the deductible has been met. However, the deductible 
disappears proportional to the amount of the loss, less the deductible 
required for the option coverage level (cannot exceed 85 percent, which 
creates a secondary deductible to 15 percent). This means that if the 
loss were 100 percent, the producer would receive an indemnity under 
the MPCI policy and option equal to the option coverage level times the 
total value of the crop (In the above stated example, this would equate 
to $16,000, a complete loss) but if the losses were less than 100 
percent, less of the deductible is covered.
    FCIC is proposing to add a new section 6(c) that clarifies that an 
indemnity is not payable under this option until after the underlying 
MPCI deductible (1--MPCI coverage level) is met, triggering an MPCI 
indemnity. The previous redesignated sections 6(c) and (d) are now 
designated as sections 6(d) and (e).
    FCIC is proposing to revise the indemnity formula in section 7 to 
remove the references to determining the option dollar amount of 
insurance and the option coverage factor because FCIC is proposing to 
revise the definition of option dollar amount of insurance to include a 
means to calculate the amount.
    FCIC also made technical changes for clarity but such changes do 
not change the coverage provided under the option.
    FCIC proposes to amend the Common Crop Insurance Regulations (7 CFR 
part 457) by adding 7 CFR 457.172 (Coverage Enhancement Option) to make 
the CEO a permanent option, thus remaining available for Texas Citrus 
Tree policyholders and to allow for use in other appropriate crop 
programs as determined by FCIC. The proposed changes are as follows:

List of Subjects in 7 CFR Part 457

    Crop insurance, Coverage enhancement option.

Proposed Rule

    Accordingly, as set forth in the preamble, the Federal Crop 
Insurance Corporation proposes to amend 7 CFR part 457, Common Crop 
Insurance Regulations effective for the 2008 and succeeding crop years, 
to read as follows:

PART 457--COMMON CROP INSURANCE REGULATIONS

    1. The authority citation for 7 CFR part 457 continues to read as 
follows:

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

    2. Section 457.172 is added to read as follows:


Sec.  457.172  Coverage enhancement option insurance provisions.

    This option is available for the 2008 and succeeding years.
    The Coverage Enhancement Option insurance provisions for the 2008 
and succeeding crop years are as follows:
    FCIC policies:
United States Department of Agriculture
Federal Crop Insurance Corporation
    Reinsured policies:
(Appropriate Title for Insurance Provider)
    Both FCIC and reinsured policies:
Coverage Enhancement Option Insurance Provisions

1. Definitions

    MPCI--Multiple Peril Crop Insurance, the plan of insurance offered 
by the Federal Crop Insurance Corporation as published at 7 CFR part 
457.

[[Page 31202]]

    MPCI coverage level--The coverage level percentage you selected in 
the underlying MPCI policy to which this option is attached.
    MPCI dollar amount of insurance--The value of the insurance 
coverage for the unit provided under the MPCI policy (the amount of 
insurance selected by you for dollar or similar plans of insurance or 
the amount determined by multiplying the production guarantee (per 
acre) times the price election, times the number of acres in the unit, 
times the MPCI coverage level you selected).
    MPCI indemnity--The indemnity determined for each unit under the 
MPCI policy to which this option is attached, not including replant and 
prevented planting indemnities or any indemnity payable under this 
option.
    MPCI indemnity factor--A factor determined by dividing the MPCI 
indemnity by the MPCI dollar amount of insurance for a unit. This 
factor is used to ensure that the indemnity paid under this option is 
proportional to the amount of loss and indemnity paid under the MPCI 
policy.
    Option Dollar Amount of Insurance--The value of the additional 
insurance coverage for the unit provided by this option, which is 
determined by multiplying the option coverage level by the total value 
of the crop and subtracting the MPCI dollar amount of insurance.
    Option Coverage Level--The coverage level percentage selected under 
this option. This percentage effectively becomes the coverage level 
under the MPCI policy when the losses under such policy exceed the 
deductible and an indemnity is owed.
    Total value of the insured crop--The value of the crop that is 
determined by dividing the MPCI dollar amount of insurance by the MPCI 
coverage level.
    2. This option is only available for insured crops that contain an 
option coverage level percent in the actuarial documents.
    3. To be eligible for this coverage, you must have an MPCI policy 
in force for the insured crop (or for citrus fruit, citrus trees, and 
stone fruit, as applicable, the insured type) in accordance with the 
applicable Crop Provisions for the insured crop. You must choose an 
option coverage level percentage that is shown in the actuarial 
documents, by the sales closing date.
    4. You must elect this option in writing on or before the crop 
sales closing date for the crop insured. This option is continuous and 
will remain in effect for as long as you continue to have a MPCI policy 
in effect for the insured crop, an option coverage level percent is 
contained in the actuarial documents, or it is cancelled by you or 
terminated by us on or before the cancellation or termination date, as 
applicable.
    5. This option is not available if you have chosen the Catastrophic 
Risk Protection (CAT) level of coverage or a price election less than 
100 percent.
    6. If you elect this option and a MPCI indemnity is paid on any 
unit, your deductible will disappear in proportion to the amount of 
such loss and indemnity paid. For example, if you selected a 50 percent 
MPCI coverage level, select an 85 percent option coverage level, and 
had a total loss, the amount of indemnity paid under both the MPCI 
policy and this option would be equal to 85 percent of the total value 
of the insured crop. The amount of the additional indemnity and related 
terms and conditions are described below:
    (a) All acreage of the insured crop insured under your MPCI policy 
will be covered under this option;
    (b) The amount of any replant or prevented planting payment that is 
payable under the MPCI policy will not be affected by this option.
    (c) An indemnity will be payable under this option only after the 
underlying MPCI deductible is met and an MPCI indemnity is paid.
    (d) The total indemnity for each unit (MPCI coverage plus this 
option) cannot exceed the combination of both the MPCI and option 
dollar amounts of insurance.
    (e) Your premium will be determined by:
    (i) Totaling the MPCI dollar amount of insurance and the option 
dollar amount of insurance; and
    (ii) Multiplying the result of section 6(e)(i) by the premium rate 
for the insured crop applicable to your MPCI coverage level.
    7. In addition to the settlement of claim section for the 
applicable Crop Provisions, your indemnity will be computed on a unit 
basis as follows:
    (a) Determine the MPCI indemnity factor;
    (b) Multiply the MPCI indemnity factor times the Option Dollar 
Amount of Insurance to determine the indemnity under this option.

    Example: Assume a policy with one unit; an MPCI coverage level 
of 50 percent and an option coverage level of 85 percent; 100% 
share; a $120,000 MPCI dollar amount of insurance; and a $40,000 
payable indemnity under the MPCI portion of the policy.

    Your indemnity would be calculated for each unit as follows:
    (a) $40,000 loss / by $120,000 MPCI dollar amount of insurance = 
.33333 MPCI indemnity factor.
    (b) .33333 MPCI indemnity factor x $84,000 option dollar amount of 
insurance = $28,000 indemnity under this option.

    Note: The total unit indemnity is $68,000 ($40,000 MPCI 
indemnity plus $28,000 option indemnity)


    .Signed in Washington, DC, on May 30, 2007.
Eldon Gould,
Manager, Federal Crop Insurance Corporation.
[FR Doc. E7-10825 Filed 6-5-07; 8:45 am]
BILLING CODE 3410-08-P