RMA ADDRESSES KEY ISSUES
Apr 28, 2004
6. Question: Does the second draft impose greater regulatory requirements on agents to deliver the program?
Answer: Insurance companies sell and service crop insurance through agents and loss adjusters. Companies are responsible for the actions of their contractors. RMA has the responsibility to ensure that companies exercise appropriate control and oversight over their contractors so that crop insurance is fairly and accurately delivered to farmers. The second draft of the SRA requires that companies ensure that their contracted service providers including agents and loss adjusters will allow RMA access to their records to facilitate verification that they are adhering to program requirements.
Agents are participants in the Federal crop insurance program and have always been required to comply with certain requirements. The proposed changes to the SRA were only intended to clarify those requirements. In the second draft, RMA made a distinction between agents and other entities that provide services for the insurance company. Such service providers are critical because in many instances they direct functions such as loss adjustment. RMA revised the SRA to have many of the requirements previously applicable to affiliates (and therefore agents) only applicable to service providers, which does not include individual agents.
7. Question: Will the new reporting requirements that RMA proposes result in significant additional costs to the insurance companies and agents to deliver the program? How do these comply with congressional mandates to match any reduction in the reimbursement rate required with reductions in administrative costs?
Answer: The additional information requested of companies is to allow RMA to monitor the financial soundness and operational effectiveness of the insurance companies based on their obligations to serve farmers under the SRA. The Agriculture Risk Protection Act (ARPA) shifted certain contracting functions (actuarial services, loss adjustment, rating plans of insurance) to enable the Corporation to concentrate on regulating the Federal crop insurance program. Congressional and Administration inquiries into the American Growers failure and initiatives to identify and control improper payments have reiterated the expectation that RMA increase the extent and effectiveness of its delivery system oversight and the accountability of companies for their role in delivering crop insurance.
In farmer listening sessions throughout the country, RMA has received an overwhelming number of requests to ensure that agents and loss adjusters are knowledgeable and well trained. The proposed SRA requires insurance companies to verify that agents and loss adjusters are trained in accordance with RMA standards and are delivering the best and most complete and accurate information possible to farmers. As the designated regulator of the program, RMA continues to monitor the health of specific insurance providers and the compliance and capability of companies and their service providers to fulfill their responsibilities under federal law and regulation as reflected in the SRA.
8. Question: Under what conditions does the SRA allow RMA to take over agent or company business?
Answer: The SRA has always allowed RMA the ability under limited circumstances (such as the failure of an insurer or the failure of an agent to meet federal standards of service) to take actions that ensure continued coverage and service to farmers. RMA exercised this authority to ensure continued service to producers in the wake of the American Growers failure.
RMA has no intent to take over an agent or company's business that delivers the program in compliance with federal law and regulation. However, RMA is responsible for ensuring that the program is administered in compliance with federal law and program requirements. If any insurance company or service provider violates those requirements RMA will hold the SRA holder responsible for serving farmers in accordance with federal requirement as reflected in the SRA. If an insurer fails, RMA must take action to safeguard farmers continued coverage and service.
9. Question: Will this proposal make it more difficult for companies and agents to deliver insurance in high-risk areas of the country? What actions is RMA taking to help high-risk areas?
RMA is proposing to increase the state limit that companies have to assign unprofitable policies to RMA. This is being done for 23 states that have had higher loss experience and greater use of the assigned risk fund in recent years. In the proposed SRA, the federal government will allow companies to shift the risk of a greater number of policies to the federal government in many areas that have experienced recent higher losses.
RMA is also taking on more risk for claims in which it participates and is allowing companies to place all pilot program policies in the assigned risk fund. The 5 percent quota share will transfer to RMA 5 percent of the losses and gains, premiums and capital requirement related to a company's business. As such, it will actually provide relief for companies that serve unprofitable states because RMA will now absorb those losses and be responsible for the capital to support that unprofitable business.
10. Question: Why does the second draft make it clear that RMA will provide no financial support for litigation of crop insurance policy provisions promulgated by RMA?
Answer:: Federal law and the existing SRA are already clear that the government expense reimbursement is intended to provide for litigation support. Financial support for litigation beyond the expense reimbursement will be addressed on a case-by-case basis consistent with the statutory constraints on the program.