RH News | Archive
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Proposed Alternative Approach
The alternative proposal would limit any premium reduction payments to policyholders until after the completion of the year, and premium reduction amounts would be based on actual, proven efficiencies rather than estimated efficiencies. This alternative proposal would appear to operate much like a dividend. If PRP plans are to be authorized, we believe this approach will cause less harm to the program as a whole.
While in theory the after-the-fact premium reduction process would be based on proven, documented efficiencies, in reality it is likely that there will still be difficulty in determining the actual efficiencies. As noted earlier, company recordkeeping systems and methodologies vary, and it will simply not always be possible to exactly quantify or allocate expenses and costs in the manner needed to determine efficiencies on an equitable basis from company to company.
The alternative approach would raise numerous questions that would need resolution. These include, but would not be limited to, what is acceptable in marketing “promises” of a future (after year end) premium reduction; a blurring of the line between operational efficiencies and underwriting gains/losses (is a premium reduction still payable if there are operational efficiencies but an underwriting loss?); how do “owed” discounts affect unpaid premiums and the ineligible tracking system process.
Given these and likely other questions and issues, we suggest that, if the alternative approach is to be considered, additional rulemaking is necessary. A separate and more specific proposal should be advanced by RMA for comment.
The alternative approach, while fraught with many potential problems and questions, by being based, at least in theory, on real versus estimated efficiencies, does seem more likely to lessen the uncertainties that surround equitable administration of PRP plans, and thus, it may be the better of two bad alternatives.
Final Comments
Since the legislation that allows for premium reduction plans was enacted in 1994, the crop insurance program has achieved remarkable successes in program participation, the program coverage choices available to farmers and the amount of financial security being provided to America’s agricultural community. Put simply, the crop insurance program is working. Farmers are participating due to the successful efforts of the private sector delivery system and to government premium subsidies levels that were not available in 1994, and farmers’ portion of the premium cost is not hindering their participation levels. Given these facts, we suggest that it is simply bad government policy to now implement the proposed premium reduction plan rule, as the program’s availability to all growers, the relative stability in the delivery system and the benefits the crop insurance program is providing to America’s agriculture are likely to be disrupted.
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