Published Rebating Violations and Sanctions
August 16, 2018
Rebating is strictly prohibited by the Federal Crop Insurance Act (Act) and the Standard Reinsurance Agreement (SRA), with limited exceptions authorized by the Act. The Risk Management Agency (RMA) takes the rebating prohibition seriously and enforces it stringently. RMA has released numerous guidance documents regarding rebating which are listed below under “References”. This FAQ summarizes the rebating prohibition guidance and provides examples so that approved insurance providers (AIPs), agents, and insureds understand how broad the prohibition extends.
Section 508(a)(9) of the Act states:
(9) PREMIUM ADJUSTMENTS.—
(A) PROHIBITION.—Except as provided in subparagraph (B), no person shall pay, allow, or give, or offer to pay, allow, or give, directly or indirectly, either as an inducement to procure insurance or after insurance has been procured, any rebate, discount, abatement, credit, or reduction of the premium named in an insurance policy or any other valuable consideration or inducement not specified in the policy.
(B) EXCEPTIONS.—Subparagraph (A) does not apply with respect to—
(i) a payment authorized under subsection (b)(5)(B);
(ii) a performance-based discount authorized under subsection (d)(3); or
(iii) a patronage dividend, or similar payment, that is paid—
(I) by an entity that was approved by the Corporation to make such payments for the 2005, 2006, or 2007 reinsurance year, in accordance with subsection (b)(5)(B) as in effect on the day before the date of enactment of this paragraph; and
(II) in a manner consistent with the payment plan approved in accordance with that subsection for the entity by the Corporation for the applicable reinsurance year.
(C) PUBLICATION OF VIOLATIONS. –
(i) PUBLICATION REQUIRED. – Subject to clause(ii), the Corporation shall publish in a timely manner on the website of the Risk Management Agency information regarding each violation of this paragraph, including any sanctions imposed in response to the violation, in sufficient detail so that the information may serve as effective guidance to the approved insurance providers, agents, and producers.
(ii) PROTECTION OF PRIVACY. – In providing information under clause (i) regarding violations of this paragraph, the Corporation shall redact the identity of the persons and entities committing the violations in order to protect the privacy of those persons and entities.
Additional information on RMA’s rebating enforcement efforts:
- Violations and Sanctions web page
- Rebating Prohibition
- Private Product Sales
- Enforcement Initiative, Federal letter, State letter
- “Anti-Rebating Certification Statement” in the Document and Supplemental Standards Handbook
It is not possible or practical to attempt to list every possible rebating scenario, but as a general rule, if you are offering an insured or prospective insured something that you are not offering to everybody else, including all existing insureds as well as prospective insureds, regardless of whether they have or are seeking Federal crop insurance, it is likely a rebate.
Under “EXCEPTIONS” in section 508(a)(9) of the Act it references subsections (b)(5)(B) and (d)(3). What do they allow?
Subsection (b)(5)(B) states:
(B) PAYMENT OF CATASTROPHIC RISK PROTECTION FEE ON BEHALF OF PRODUCERS.—
(i) PAYMENT AUTHORIZED.—If State law permits a licensing fee to be paid by an insurance provider to a cooperative association or trade association and re- bated to a producer through the payment of catastrophic risk protection administrative fees, a cooperative association or trade association located in that State may pay, on behalf of a member of the association in that State or a contiguous State who consents to be insured under such an arrangement, all or a portion of the administrative fee required by this paragraph for catastrophic risk protection.
(ii) SELECTION OF PROVIDER.—Nothing in this sub- paragraph limits the option of a producer to select the licensed insurance agent or other approved insurance provider from whom the producer will purchase a policy or plan of insurance or to refuse coverage for which a payment is offered to be made under clause (i).
(iii) DELIVERY OF INSURANCE.—Catastrophic risk protection coverage for which a payment is made under clause (i) shall be delivered by a licensed insurance agent or other approved insurance provider.
(iv) ADDITIONAL COVERAGE ENCOURAGED.—A cooperative association or trade association, and any approved insurance provider with whom a licensing fee is made, shall encourage producer members to purchase appropriate levels of coverage in order to meet the risk management needs of the member producers.
Subsection (d)(3) states:
(3) PERFORMANCE-BASED DISCOUNT.—The Corporation may provide a performance-based premium discount for a producer of an agricultural commodity who has good insurance or production experience relative to other producers of that agricultural commodity in the same area, as determined by the Corporation.
NOTE: Regarding subsection (d)(3), there are currently no “Performance-Based Discounts” authorized.
Who is authorized to provide a patronage dividend referenced in section 508(a)(9)(B)(iii) of the Act?
While rebating was not addressed by statute prior to the 2008 Farm Bill, section 508(b)(5)(B) of the Act authorized an approved insurance provider (AIP) to make a licensing fee or other payment to a “cooperative association” or “trade association,” which could, in turn, be rebated to a producer with CAT coverage or buy-up coverage. The following cooperatives are “grandfathered” by this section of the Act and approved in only the listed states.
Cooperative Approved States California Grape and Tree Fruit League California Nisei Farmers League California Allied Grape Growers California Paramount Citrus Exchange of CA California Livingston Farmers Association California Minturn Huller Cooperative, Inc. California Cortez Growers Association California Northern Merced Hulling Association California Westside Hulling Association California Salida Hulling Association, Inc. California North State Hulling Cooperative, Inc. California ArborOne, ACA (formerly Pee Dee Farm Credit) South Carolina Farm Credit of Florida, ACA Florida Farm Credit of Central Florida, ACA Florida AgSouth Farm Credit, ACA Georgia, South Carolina Sunrise Cooperative Ohio, Michigan
The above listed cooperatives may pay patronage dividends to all members who reside in the approved state, even when membership has grown through acquisitions and mergers. However, the above listed cooperatives may not pay a patronage dividend to any member who resides outside of the approved states. No other cooperative association or trade association is authorized to pay a patronage dividend based upon MPCI sales except those listed above.
Do state rebating laws apply to an agent/agency (agent) who sell federal crop insurance?While section 506(1) of the Act preempts State law that is in conflict with the Act, it does not prohibit the States from enforcing their rebating statutes on agents who sell federal multi-peril crop insurance (MPCI) if such laws are not in conflict. RMA and the States work together and share information regarding rebating violations. Given the broad scope of section 508(a)(9) of the Act, it is unlikely that there would be a violation of State rebating laws that would not be a violation of section 508(a)(9). RMA and the States are both enforcing rebating prohibitions.
What are some examples of rebating?Scenario A
An agent is affiliated with another business and they provide other goods or services at a lower cost to producers that purchase their MPCI from them. The same lower cost is not provided to producers who do not purchase their MPCI from them.
Examples of these other goods and services include, but are not limited to: other insurance; loan rates; commodity bushel price; accounting, financial, grain marketing, or farm management services; land appraisal or loan origination services; seed and inputs sales; and equipment sales and maintenance.
An agent also sells other insurance policies but you have to purchase your MPCI from them in order to buy the other policies.
Example: Another agent offers a crop hail policy that costs less than the coverage offered by your MPCI agent. In order to purchase the less expensive crop hail policy from the other agent you have to purchase your MPCI from them. Reference 3) “Private Product Sales” above is the RMA Managers Bulletin that addresses this prohibition.
Providing gifts to a current or potential MPCI customer or their family.
Examples: trips (to anywhere); fishing, hunting, or sporting event outings; equipment or tools; vehicles; club memberships; contributions toward a customer’s debt; customer appreciation dinners; basically anything exceeding a minimal value. An example of what would not be considered a gift would be promotional and marketing items or activities of minimal value that are provided to all persons in the normal course of business, including calendars, pens, and meals, are not regarded a valuable consideration or inducement to procure or retain insurance.
Purchasing items/services from a MPCI customer at a price above market value.
Examples: Paying $5000 for a car with a blue book value of $4000, or paying more than the current selling price for any goods or services.
Structuring a business entity for the purpose of transferring MPCI sales revenue back to the MPCI customer.
Example: Establishing a Limited Liability Corporation (LLC) or other entity comprised of producer owners, having an owner or another individual become the MPCI agent for the LLC members, and the agent write policies for the owners of the LLC. The commissions earned on the policies are then paid to the LLC, and the agent is compensated from part of the commissions. The LLC then dividends the remaining commission income back to the customer members in cash; or buys seed, fertilizer, equipment, etc. for the customer members; or distributes the commission income benefit back to the customer members through some other means.
Providing an MPCI customer an ownership or similar opportunity with the agent/agency.
Example: Selling shares in an agency to MPCI customers as an incentive to purchase insurance from the agency. As with Example E, this provides a benefit back to the customer directly related to their purchasing their insurance from the specific agent/agency.
What if a lending institution or cooperative has a patronage program or provides their members a dividend. Is this a rebate?Lending institutions may offer a patronage dividend program calculated based upon loan interest paid or other product purchases. Cooperatives may provide their members a dividend calculated based upon the business they conducted with the cooperative. If MPCI premium is not part of the calculation to determine the dividend a producer receives, it is not a rebate. If MPCI premium is included in the calculation, it is a rebate. A producer participating in a dividend program should be eligible and receive the same amount regardless of whether they purchased their MPCI from the entity providing the dividend. The only exceptions are the “grandfathered” cooperatives listed above.
What is the “Anti-Rebating Certification Statement"?Reference 5) above contains guidance on the Anti-Rebating Certification Statement. The following certification statements are included on a form executed by the insured and their crop insurance agent.
―I certify, for the crop year indicated, that I have not directly or indirectly received, accepted, or been paid, offered, promised, or given any benefit, including money, goods, or services for which payment is usually made, rebate, discount, abatement, credit, or reduction of premium, or any other valuable consideration, as an inducement to procure insurance or in exchange for purchasing this insurance policy after it has been procured. I understand that this prohibition does not include payment of administrative fees, performance based discounts, and any other payment approved by FCIC that are authorized under sections 508(a)(9)(B) and 508(d)(3) of the Federal Crop Insurance Act (Act) (7 U.S.C. §§ 1508(a)(9)(B) and 1508(d)(3)). I understand that a false certification or failure to completely and accurately report any information on this form may subject me, and any person with a substantial beneficial interest in me, to sanctions, including but not limited to, criminal and civil penalties and administrative sanctions in accordance with section 515(h) of the Act (7 U.S.C. §1515(h)) and all other applicable federal statutes.
―I certify, for the crop year indicated, that I have neither offered nor promised, directly or indirectly, any benefit, including money, goods, or services for which payment is usually made, rebate, discount, credit, reduction of premium, or any other valuable consideration to this person either as an inducement to procure insurance or in exchange for obtaining insurance after it has been procured. I understand that this prohibition does not include payment of administrative fees, performance based discounts, and any other payment approved by FCIC that are authorized under sections 508(a)(9)(B) and 508(d)(3) of the Federal Crop Insurance Act (Act) (7 U.S.C. §§ 1508(a)(9)(B) and 1508(d)(3)). I understand that a false certification or failure to completely and accurately report any violation may subject me, and all agencies/companies I represent, to sanctions, including but not limited, to criminal and civil penalties and administrative sanctions in accordance with section 515(h) of the Act (7 USC §1515(h)) and all other applicable federal statutes.
Every MPCI customer and agent is certifying that they have not received or given a rebate. If you are unsure whether the rebating prohibition applies to your situation, contact your AIP.