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    Crop Insurance News and Analysis – March 14, 2019

    March 14, 2019 By //  by Kim Arrigo

    The Risk Management Agency (RMA) was busy today. RMA issued Managers Bulletin: MGR-19-005, which revises the Actual Production History (APH) review procedures under Appendix IV of the Standard Reinsurance Agreement. RMA states that the Common Crop Insurance Policy Basic Provisions (Basic Provisions), published at 7 C.F.R. 457.8, requires the producer to have written verifiable records to support the information on the production worksheet of the producer will receive an assigned yield in the APH. RMA states that since the APH establishes the insured’s guarantee and subsequent premium and liability, the annual yield certified must be accurate.

    Section 3(g) of the Basic Provisions provide consequences if the producer does not report accurately. Apparently the approved insurance providers expressed concerns with these consequences when minor variances are discovered between the actual yield and the certified yield and in December 2017, RMA revised its Crop Insurance Handbook (CIH) to authorize tolerances when minor differences occurred. RMA states that the CIH was revised to define support, as provided in the Basic Provisions, as a tolerance between the certified yield and what was actually supported by acceptable records. The industry wanted additional clarification.

    RMA provided additional procedures to administer the APH reviews that were effective for all crops with a November 30, 2017 or later contract change date. RMA authorized these procedures to apply to previous crop years or ongoing reviews at the discretion of the approved insurance provider. However, recertifying production reports to replace an assigned yield takes effect for any crop year reviews subsequent to the issuance of the bulletin.

    ANALYSIS – In December 2017, RMA revised the procedures to allow for a tolerance between actual and certified yields. One presumes the basis for this tolerance is the definition of “production report” that states that “This report must be supported by written verifiable records from a warehouseman or buyer of the insured crop, by measurement of farm-stored production, or by other records of production approved by us on an individual case basis in accordance with FCIC approved procedures.” RMA is apparently using the procedures to revise the term “written verifiable records” to allow some sort of tolerance. However, the text suggests that the procedures are to identify the types of records that are acceptable, not whether the records must support the reported yield. That appears to be a certification issue and tolerances with certified information seems to contraindicate the purpose of a certification to the accuracy of the information. However, to RMA’s credit, this door was opened by Congress in the 2014 Farm Bill when it allowed the correction of information.

    While RMA revised the procedures to allow a tolerance, it has not done so in the policy. The preamble to the policy states that if there is a conflict between the policy provisions and the procedures, the policy provisions control. There may be sufficient ambiguity to make this change subject to legal challenge. In any case, producers do not receive the procedures so they may be unaware of the change. Changes to the policy, which impact guarantees and premiums, are best made in the policy so they are transparent.

    RMA also took another action to implement the 2018 Farm Bill. In section 11110 of the 2018 Farm Bill, Congress increased the administrative fee for catastrophic risk protection (CAT) coverage from $300 per crop per county to $655 per crop per county. In response, RMA issued Managers Bulletin: MGR-19-006. Section 6(b)(1) of the Catastrophic Risk Protection Endorsement, published at 7 C.F.R. 402.4, states that the administrative fee can be revised by Special Provision. RMA issued MGR-19-006, which states that the administrative fee will be increased through a Special Provision statement for policies that offer CAT coverage with a contract change date after April 30, 2019.

    ANALYSIS – One presumes that April 30, 2019 is the first contract change date for policies with CAT coverage after the date of enactment of the 2018 Farm Bill. For a majority of the crops, the contract change dates are April 30th, June 30th, or November 30th.  However, there are outliers, such as Whole Farm Revenue Protection with an August 31th contract change date. To determine if the administrative fee has been increased, producers should check the actuarial information browser, published at https://webapp.rma.usda.gov/apps/actuarialinformationbrowser/, to find the Special Provisions for their state, crop, and county.

    All statements made are opinions of the author and are not intended to provide legal opinions or legal advice.

    Filed Under: Blog

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