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The Risk Management Safety Net: Market Penetration and Potential

IX. Influencing Change: Stakeholder's Voice and How Products are Developed

New products or product improvements are developed either by RMA directly, sometimes through the contracting process, or by private entities who submit new products to the Federal Crop Insurance Corporation.

Influencing Changes to Availability of Federal Crop Insurance

Producers, insurance companies, and others may contact RMA’s Regional Offices or Headquarters to request expansion of products or to discuss the need for coverage of a commodity. RMA welcomes requests and communication with stakeholders. Requesters should be aware of the actuarial soundness requirements of Federal crop insurance and the fact that sound underwriting must be possible for the crop policy prior to any expansion being approved.

Actuarial Soundness is Required by Law for Federal Crop Insurance Products

Federal crop insurance is required by the Federal Crop Insurance Act to be actuarially sound, which means that, like any private market insurance, the premium dollar amounts will cover the loss amounts paid over time. Crop insurance is delivered by private insurance companies who are paid administrative and operating subsidy to sell and service crop insurance to all producers nationwide, regardless of the size of the operation. These private insurance companies share the risk of the crop insurance with the government and buy reinsurance in private markets to cover the risk that their company retains, the same as all insurance companies do for private market insurance.

Lack of Data Can Prevent Development of New Products

Generally, data from a credible source representing both historical yields and prices must be available for a series of years to support the premium rating of an insurance product. Occasionally, data from a similar crop with similar risks may be used to determine a premium rate for a new product. In addition to data required to establish a premium rate, historical price data must also be available to value the commodity. These data must be available not only for development of the insurance product, but also for future years after a new product is put into place so it can be adequately maintained and remain current and viable for future changing conditions of risk. Adequate and credible data is one of the biggest barriers to the creation of new crop insurance products.

RMA Developed Products

RMA continually communicates with producers, producer groups, crop insurance companies, and other stakeholders to identify emerging issues and needs to maintain and improve Federal crop insurance products. This communication helps RMA to determine the need for new products or revisions to existing products. RMA conducts feasibility studies to determine if new products are possible to develop, and works with the farm and ranch industry to develop products, or direct development through the use of contracts in reaching solutions to the issues identified.

As stakeholders request insurance for commodities that are not currently insured, RMA often contracts for data gathering or feasibility evaluations to determine if it is possible to provide insurance for the commodity. Exhibit 1 shows the list of commodities that have been evaluated and the status of the work completed. For example, RMA recently evaluated the feasibility of an insurance program for Vegetable Seeds and Garlic. There was little producer interest in the vegetable seed policy. The garlic study identified an issue where producers may not always have an insurable interest, which precludes offering insurance, so no further product development is being pursued at this time.

Privately Developed Products

The Act allows private entities to submit new products or additions/improvements to existing products for consideration by the Federal Crop Insurance Corporation Board of Directors (Board). Over the years, many innovative products have been created by private submitters including the most popular Federal crop insurance product, Revenue Protection. Examples of some other successful privately developed products are the livestock price and margin policies, trend yield, and hybrid seed corn revenue. Private submitters can submit either a Concept Proposal or a fully developed product. If a Concept Proposal is the choice of the private submitter, once Board approval is received, the private submitter must develop a fully developed product. Advance research and development funds are available for private submitters who start with a Concept Proposal. All private product submissions are required to go through a rigorous review process as they are considered for approval.

There have been 59 new private products submitted since 1995. Of the 59 new products:

  • 10 were innovative new insurance products like Revenue Protection, Margin coverage, Livestock Gross Revenue, or Livestock Risk Protection;
  • 28 were new individual crop programs added to insurance plans. Examples of these crop programs are cottonseed, olive coverage, and camelina coverage;
  • 9 were new types/practices or processes, including specialty type corn and soybeans and trend yield
  • 6 were price related such as the Hybrid Seed Price Endorsement and Adjusted Gross Revenue-Lite expansion; and,
  • 6 were other types of submissions such as the High Risk Land Exclusion and Trend Adjustment.

The Board has also reviewed 47 modifications to those new products that included expansion, changes to actuarial methods, modifications to policies, or expanded kinds of coverage.

Contact Information

For more information, contact RMA Public Affairs.