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    Crop Insurance News and Analysis – March 6, 2020 – Large Claims

    March 16, 2020 By //  by Kim Arrigo

    On March 6, 2020, the Risk Management Agency (RMA) issued an Informational Memorandum: IS-20-001 regarding large claims notification. https://www.rma.usda.gov/en/Policy-and-Procedure/Bulletins-and-Memos/2020/IS-20-001. RMA states that section IV of Appendix I to the Standard Reinsurance Agreement requires that all approved insurance providers (AIPs) comply with all provisions of the large claims procedures as a condition of reinsurance. RMA states that it has contracted for a review of the large claims process and will be transitioning to a new process for the 2021 reinsurance year. RMA states effective immediately the 2017 Large Claims Handbook is no longer applicable to the 2020 and subsequent reinsurance years and that AIPs no longer have to submit large claims notifications to RMA.

    ANALYSIS – The large claims process was developed as a tool to allow RMA to get involved in claims over a certain dollar threshold to ensure that these claims were properly adjusted. RMA had the choice to conduct a paper review and check all claims documents to ensure all policy and procedures were followed, actually conduct its own loss adjustment, or a hybrid of the two. In significant loss years, this has imposed a burden on RMA to get involved in these claims. It is understandable in times of a shrinking workforce, RMA would somehow like to streamline the process. However, according to RMA, their involvement in these large claims has mitigated losses, saving taxpayer dollars.

    IS-20-001 appears that to avoid the need to amend the SRA to waive the obligation to follow large claims procedures by making the Large Claims Handbook inapplicable to the 2020 reinsurance year. There may be uncertainty whether this is sufficient to eliminate the obligation since the Large Claims Handbook still exists, it was just made inapplicable. It may have been better to make the Large Claims Handbook no longer in effect. This may appear as semantics but there could be legal implications if there are any challenges or questions by oversight bodies. Further, only the Large Claims Handbook has been made inapplicable to the 2020 reinsurance year. If here are other procedures in bulletins, memoranda or other documents related to large claims, these procedures may still be applicable.

    There may also be concern regarding the void that has been created for the 2020 reinsurance year. RMA will not only not be involved in large claims, it will not be informed of them. This could create a program vulnerability for 2020.

    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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