REMARKS BY ADMINISTRATOR ELDON GOULD
At the 2007 Crop Insurance Industry Annual Convention
Feb 21, 2007 -- continued

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Secondly, we are proposing again that if you receive program payments, you should have crop insurance. Crop insurance is already widely used by producers. Some states have 90 percent participation or more. But we want to get that last 10 percent enrolled. If a producer gets subsidies, we feel strongly that crop insurance should be used to help manage their risk. Higher participation and higher coverage will help obviate the need for costly supplemental assistance that undermines the crop insurance program.

Thirdly, the Farm Bill proposal would provide the authority for RMA to renegotiate the financial terms of the Standard Reinsurance Agreement (SRA) once every 3 years.

This authority will not only allow RMA to have the ability to adjust the Standard Reinsurance Agreement in response to the changing environment of the program, but it will also permit the renegotiation of the SRA if the reinsured companies experience an unexpected adverse impact.

As we all know, participation in the crop insurance program has grown significantly since the implementation of ARPA. Given this fact and the large number of changes taking place within agriculture today, it is in the best interest of all parties to have an SRA which is reflective of market conditions and dynamics.

Another key proposal would be to allow private crop insurance companies to have direct access to data mining information currently held by RMA.

Companies could use this information to reveal potential fraud and abuse. Companies would be allowed to query information related only to their respective clientele. To fund such activities, RMA would be required to charge a user fee for this service.

In the interest of time, I will summarize some of the other recommendations made by the Farm Bill proposal:

• Lowering the statutory loss ratio for the program from 1.075 to 1.00.
• Allocating up to $10 million in annual funding to strengthen crop insurance compliance efforts.
• Providing the FCIC broader authority to contract for research and development in order to improve existing crop insurance programs.

Finally, the Farm Bill proposals include a number of additional crop insurance reforms to increase program participation, reduce the need for ad hoc disaster assistance programs and control program costs.

Now, let me give you a brief overview of what’s happening within the crop insurance program.

As of January 15, the sales of the new Pasture, Rangeland and Forage Rainfall Index and Vegetation Index pilot programs have exceeded first year sales projections.

There have been 7,884 Rainfall Index policies sold covering over 23 million acres with over $321 million in total liability.

The Vegetation Index pilot program’s sales are at 1,675 policies sold covering over 3.9 million acres and $60.6 million in total liability.

This puts participation in the pilot program areas at approximately 16 percent, while the first year target goal was 10 percent.

As you know, the Prmium Reduction Plan (PRP) is not available for the 2007 reinsurance year due to language in the FY 2006 Appropriations Act.

Reinsurance Services Division (RSD) and Kansas City’s Financial and Overview staff are gearing up to evaluate up to eight requests from 2006 reinsurance year PRP-eligible approved insurance providers after the 2006 reinsurance year annual settlement in February 2007.

RSD is finalizing a Managers Bulletin that will provide clarification and guidance regarding PRP payment authorization requests for 2006.

Because the Agriculture Appropriations bill was not enacted for FY 2007, RMA and most Federal departments and agencies are now operating under a continuing resolution (CR).

Since Congress did not include language in the CR that restricts in some manner the administration of PRP for crop year 2008, RMA will administer PRP under the terms of the PRP regulations promulgated in July 2005.

With regard to regulatory activity, the Product Administration and Standards Division (PASD) is in the process of responding to all public comments and making appropriate changes to the final rule for the combination regulation, or as we call it, the “Combo Regulation.” The final rule is targeted for Office of General Counsel (OGC) review and approval in late February 2007. The final rule is to be effective for the 2009 crop year.

RMA has issued numerous additional price elections for the 2007 crop year as a result of generally higher prices in the grains complex that are due primarily to demand pull from ethanol production. As a result, RMA has issued additional price elections for barley, canola, corn, dry beans, grain sorghum, popcorn, processing sweet corn, rice, soybeans and wheat.

In the valleys, coast and desert counties of California and southern Arizona, freezing temperatures the week before and after January 15 caused damage to citrus, nursery, avocados, strawberries, alfalfa and sugar beets.

The extent of damage varies by area and county. Freeze damage can take place with temperatures dropping less than 28° degrees Fahrenheit and temperatures in both states fell below the threshold.

The Davis Regional Office is coordinating its efforts with the insurance companies to conduct large claim field visits and address questions by policyholders. Liability in both states for the affected crops is estimated at $914 million.

To improve access to crop insurance services and programs for persons with limited English proficiency, RMA and NCIS have developed plans to capture, disclose and increase awareness of agents who speak multiple languages, as well as reach out to the hearing-impaired and blind.

The Agent Locator on the RMA Web site will note the languages or services that the agent speaks or accommodations the agent is able to provide. Participation in the program by agents is voluntary.

It is anticipated that software modifications for the website will be completed by May, followed by notices to the companies and promotional pieces in NCIS publications and through the Regional Offices.

Section IV.f.4. of the Standard Reinsurance Agreement (SRA) outlines policies and procedures regarding conflict of interest with respect to loss adjustment. As part of these provisions, reinsured companies must disclose to FCIC any business, financial, legal or familial relationship between anyone in the company or its affiliates and a policyholder or anyone with a substantial interest in the policyholder.

On July 14, 2006, the Reinsurance Services Division (RSD) circulated a draft Managers Bulletin to provide guidance to approved insurance providers regarding Conflict of Interest disclosures by company employees, agents and loss adjusters.

RSD has received and evaluated comments from the industry and is finalizing a new draft based on industry feedback.

Section 508(b)(5)(B) of the Federal Crop Insurance Act authorizes benefits to be provided to producers through cooperatives and trade associations as an exception to the Standard Reinsurance Agreement’s (SRA) anti-rebating provisions.

The crop insurance industry has shown increasing interest in providing such benefits, especially in light of PRP developments.

On January 9, RMA sent a draft Manager’s Bulletin and procedures to all companies for review and comment by January 19. These procedures, when finalized, would be used by RMA to administer benefits provided to producers under the authority of the Act.

The Financial Review Staff enhanced and fostered a stronger ongoing reciprocal relationship with the National Association of Insurance Commissioners and State Insurance Regulators.

A significant tangible benefit from these efforts is NAIC agreement to provide data directly to RMA, thus alleviating companies from providing duplicate data to RMA already being provided to NAIC.

For example, companies will have eight less reports to provide RMA in their Plan of Operations as a result. Additionally, the enhanced working relationship has yielded benefits to both RMA and NAIC in communication, training and oversight of companies.

On a quarterly basis, NAIC provides vital and detailed regulatory information about approved insurance providers that is incorporated to RMA’s review protocol.

As we look ahead, there are several areas that RMA would like to improve upon. These include:

• Expanding participation in the Federal Crop Insurance Program;
• Working with companies to improve compliance efforts in the program;
• Improving Outreach and Education;
• Using technology to improve program performance and integrity;
• Simplifying and expanding risk management products and tools; and
• Simplifying Farm Service Agency/RMA reporting requirements

Let me just offer a few thoughts as I wrap up. Agriculture is the backbone of America. It keeps our nation strong, literally and figuratively. It is a very unique and demanding industry. For that reason, the Federal government is committed to helping farmers and ranchers reduce the risks they face while feeding our nation. We are committed to mitigating risks and reducing damages from unforeseen events.

The Bush Administration has made the Federal crop insurance program the cornerstone of a stronger farm safety net. We at the Risk Management Agency are committed to the continuing transformation of this important program into a broad-based safety net for farmers and ranchers.

Thank you for this opportunity to speak with you. I would be happy to take a few questions at this time.