On February 10, 2020, the Risk Management Agency (RMA) announced a new endorsement to the Common Crop Insurance Policy Basic Provisions (Basic Provisions) for both catastrophic risk protection (CAT) and additional coverage when provided in the actuarial documents called the Hurricane Insurance Protection – Wind Index Endorsement (Endorsement). https://www.rma.usda.gov/en/Fact-Sheets/National-Fact-Sheets/Hurricane-Insurance-Protection. RMA states that the Endorsement covers a portion of the deductible of the underlying policy and the coverage can be combined with the Supplemental Coverage Option (SCO) and the Stacked Income Protection Plan (STAX). On February 27, 2020, RMA issued the additional documents related to the Endorsement, including Product Management Bulletin, policy provisions, Frequently Asked Questions, Hurricane Data Provisions, and a National Press Release. https://www.rma.usda.gov/en/Policy-and-Procedure/Bulletins-and-Memos/2020/PM-20-014; https://www.rma.usda.gov/-/media/RMAweb/Policies/Hurricane-Insurance-Wind-Index/2020/Hurricane-Insurance-Protection-Wind-Index-Endorsement-20-HIP-WI.ashx; https://www.rma.usda.gov/en/News-Room/Frequently-Asked-Questions/Hurricane-Insurance-Protection—Wind-Index-Endorsement; https://www.rma.usda.gov/-/media/RMAweb/Policies/Hurricane-Insurance-Wind-Index/2020/Hurricane-Insurance-Protection-Wind-Index-Endorsement-20-HIP-WI/Hurricane-Data-Provisions.ashx; https://www.rma.usda.gov/en/News-Room/Press/Press-Releases/2020-News/USDA-Offers-New-Hurricane-Insurance-Endorsement-for-Crop-Year-2020.
The fact sheet contains information regarding eligible crops and location, eligibility requirements, available counties, the insurance period, the waiting period, acreage reporting requirements, causes of loss, settlement of claims, administrative fees and premium, important dates and where to buy insurance. Generally, to receive a payment, the producer must live in a county, or adjacent county, if the area has sustained hurricane force winds from a named hurricane based on data published by the National Hurricane Center. RMA states the counties where payments occur will be listed in the actuarial documents. RMA states an indemnity is due when the county loss trigger is identified for the insured county.
ANALYSIS – In general this seems to be a valuable risk management tool for a cause of loss, though infrequent, tends to cause devastating and often complete losses. Originally, it was unclear from the Fact Sheet how SCO and STAX would interact with the Endorsement but RMA has cleared that up in the new releases. Based on the new information provided by RMA, it appears that this Endorsement covers that portion of the deductible not covered by the underlying MPCI policy up to at total coverage of 95 percent (for example, 75 percent MPCI coverage and up to 20 percent coverage under the Endorsement). For producers with STAX and SCO, the Endorsement would provide coverage for that portion of the deductible not covered by the underlying MPCI policy plus SCO or STAX coverage, to a maximum of 95 percent coverage (for example, 70 MPCI coverage, 16 percent SCO coverage and up to 9 percent coverage under the Endorsement).
Another concern in the Fact Sheet was allowing this Endorsement to be purchased by producers with CAT coverage. The Endorsement only mentions CAT in its loss examples and none of the other above referenced documents. However, since it is in the Endorsement itself, presumably this Endorsement is still available for CAT policies. CAT premium is 100 percent subsidized by RMA so RMA has never permitted any endorsements or additional coverages to attach to a CAT policy. It is unclear whether RMA intends to set a precedent here but it could have far reaches because there are numerous additional coverages that are not available to CAT where producers can now argue should be available. This appears to be a fundamental change to the program.
In addition, another concern is with the proposes subsidy. In the Fact Sheet, RMA states that the premium subsidy will be 65 percent. However, it is not mentioned in any of the above referenced documents. Therefore, it is unclear whether this subsidy is still in effect. If it is in effect, it is unclear what is the basis for this amount. Section 508(d)(2)(H) of the Federal Crop Insurance Act (FCIA) contains a provision that authorizes a 65 percent subsidy but it is limited to the supplemental coverage option authorized in subsection (c)(4)(C) of the FCIA. The Stacked Income Protection Plan has its own authorization for subsidy in section 508B(d) of the FCIA. A 65 percent premium subsidy is not contained anywhere else in the FCIA.
Further, from the Fact Sheet, it was unclear how the counties eligible for payments will be determined. RMA has since clarified this with the Hurricane Data Provisions, which explains the methodology to be used to determine eligible counties. It also appears that RMA will be collecting the hurricane data and then making the determinations of eligible counties.
The additional documents certainly clarified some original concerns with the Fact Sheet but a few concerns remain. This is another example where Fact Sheet may be in conflict with the policy provisions, causing confusion in the program and adversely affecting program integrity.
All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.