81_FR_53814 81 FR 53658 - Submission of Policies, Provisions of Policies, Rates of Premium, and Non-Reinsured Supplemental Policies

81 FR 53658 - Submission of Policies, Provisions of Policies, Rates of Premium, and Non-Reinsured Supplemental Policies

DEPARTMENT OF AGRICULTURE
Federal Crop Insurance Corporation

Federal Register Volume 81, Issue 156 (August 12, 2016)

Page Range53658-53686
FR Document2016-18743

The Federal Crop Insurance Corporation (FCIC) finalizes the General Administrative Regulation--Subpart V--Submission of Policies, Provisions of Policies, Rates of Premium, and Non-Reinsured Supplemental Policies. The intended effect of this action is to incorporate legislative changes to the Federal Crop Insurance Act (Act) stemming from the Agricultural Act of 2014, clarify existing regulations, lessen the burden on submitters of crop insurance policies, provisions of policies, or rates of premium under section 508(h) of the Act, provide guidance on the submission and payment for concept proposals under section 522 of the Act, provide provisions for submission and approval of index-based weather plans of insurance as authorized by section 523(i) of the Act, and to incorporate changes that are consistent with those made in the Common Crop Insurance Policy Basic Provisions (Basic Provisions).

Federal Register, Volume 81 Issue 156 (Friday, August 12, 2016)
[Federal Register Volume 81, Number 156 (Friday, August 12, 2016)]
[Rules and Regulations]
[Pages 53658-53686]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-18743]



[[Page 53657]]

Vol. 81

Friday,

No. 156

August 12, 2016

Part III





Department of Agriculture





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Federal Crop Insurance Corporation





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7 CFR Part 400





Submission of Policies, Provisions of Policies, Rates of Premium, and 
Non-Reinsured Supplemental Policies; Final Rule

Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules 
and Regulations

[[Page 53658]]


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DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 400

[Docket No. FCIC-13-0006]
RIN 0563-AC46


Submission of Policies, Provisions of Policies, Rates of Premium, 
and Non-Reinsured Supplemental Policies

AGENCY: Federal Crop Insurance Corporation, USDA.

ACTION: Final rule.

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SUMMARY: The Federal Crop Insurance Corporation (FCIC) finalizes the 
General Administrative Regulation--Subpart V--Submission of Policies, 
Provisions of Policies, Rates of Premium, and Non-Reinsured 
Supplemental Policies. The intended effect of this action is to 
incorporate legislative changes to the Federal Crop Insurance Act (Act) 
stemming from the Agricultural Act of 2014, clarify existing 
regulations, lessen the burden on submitters of crop insurance 
policies, provisions of policies, or rates of premium under section 
508(h) of the Act, provide guidance on the submission and payment for 
concept proposals under section 522 of the Act, provide provisions for 
submission and approval of index-based weather plans of insurance as 
authorized by section 523(i) of the Act, and to incorporate changes 
that are consistent with those made in the Common Crop Insurance Policy 
Basic Provisions (Basic Provisions).

DATES: This rule is effective September 12, 2016.

FOR FURTHER INFORMATION CONTACT: Tim Hoffmann, Product Administration 
and Standards Division, Risk Management Agency, United States 
Department of Agriculture, Beacon Facility, Stop 0812, Room 421, P.O. 
Box 419205, Kansas City, MO 64141-6205, telephone (816) 926-7730.

SUPPLEMENTARY INFORMATION: 

Background

    This rule finalizes changes to the General Administrative 
Regulation--Subpart V--Submission of Policies, Provisions of Policies, 
Rates of Premium, and Non-Reinsured Supplemental Policies (7 CFR part 
400, subpart V), that were published by FCIC on February 25, 2015, as a 
notice of proposed rulemaking in the Federal Register at 80 FR 10008--
10022. The public was afforded 60 days to submit comments after the 
regulation was published in the Federal Register.
    A total of 80 comments were received from 10 commenters. The 
commenters were insurance providers, insurance organizations, grower 
organizations, crop insurance product developers, and a business 
council.
    The public comments received regarding the proposed rule and FCIC's 
responses to the comments are as follows:

General

    Comment: A commenter stated they believe the 508(h) process serves 
agriculture well. The commenter believes Congress intended the 508(h) 
process to protect the best interest of most growers through inclusion 
in the farm bill. As the size of government shrinks, the ability to 
engage the private sector in creating functional insurance products 
will grow. In serving the American farmer, and to be consistent with 
the farm bill, RMA should seek a vibrant and functional regulation that 
will encourage development of insurance products. A clear regulation 
would be a step in the right direction.
    Response: FCIC agrees with the commenter that the regulation should 
be written as clearly as possible. FCIC has made a number of changes in 
the final rule to clarify provisions in the regulation.
    Comment: A commenter offered support for the proposed rule. The 
commenter stated they believe that under the current rules, smaller 
farmers and organizations are placed at a competitive disadvantage 
compared to large corporate farms due to the current procedures 
favoring these bigger businesses. The commenter stated they believe 
that under the current proposal, these procedures would be simplified 
to facilitate increased access to FCIC's services by smaller farmers, 
commodity groups, and others to make it easier for these producers to 
develop brand new programs. In that light, the commenter also favors 
the expansion of FCIC's current programs in western Washington to 
include many crops which are classed as specialty crops and currently 
not covered by FCIC. The commenter stated they value their agricultural 
industry in western Washington and the working relationship they have 
with many of the local farmers. Moreover, the commenter stated they are 
committed to supporting the small agricultural industry and continuing 
to work with farmers, especially at the individual and small producer 
level, in addressing collective interests. The commenter sees the 
proposed simplification of the procedures and expansion of crops 
covered as positive and vital steps in a direction that encourages the 
smaller agricultural businesses in their region.
    Response: FCIC appreciates the commenter's support for the Federal 
crop insurance program.
    Comment: A commenter offered a general concern with the 508(h) 
process, which is that any individual or organization can submit a 
proposal following the guidelines in these regulations even if they do 
not plan to write or retain any of the risk for the proposed program. 
While the submitter must have a commitment in writing from at least one 
approved insurance provider (AIP) to sell and support the policy or 
plan of insurance, this is often very informal and the supporting AIP 
will generally have little or no involvement in the development process 
of such product. These developers establish all of the terms, 
conditions, and rates for the proposed program, but often have no 
exposure to the actual results that may occur from the product that is 
developed. The AIPs who choose to participate in these approved 508(h) 
submissions retain the risk for such coverages and suffer the 
consequences of any flaws or deficiencies that may exist with them. The 
commenter proposed that the FCIC should allow the opportunity for AIPs 
who choose to participate in writing these approved 508(h) submissions 
to reduce their risk exposure for these programs beyond what is 
currently allowed during the initial years until a credible number of 
years of experience have been developed to determine the adequacy of 
the program from both an underwriting and rating standpoint.
    Response: FCIC agrees that the current regulations do not contain 
enough involvement of the AIP in the development process or 
consideration of the impact of the submission on other AIPs and the 
delivery system. As a result, FCIC is adding provisions that require a 
more formal involvement by an AIP in the development process, requiring 
that an AIP be included as a submitter, and having that AIP and one 
other independent AIP provide an assessment of marketability, risks, 
and anticipated impacts on the delivery system. With respect to the 
risks, AIPs can independently assess the potential risk of a privately 
developed policy, and based on their own assessment, may choose whether 
or not to sell the product. AIPs have the option to reduce their risk 
exposure by assigning higher risk policies to the Assigned Risk Fund 
under the Standard Reinsurance Agreement (SRA), a fund that 
significantly limits risk exposure to the AIP and transfers that risk 
to FCIC.

[[Page 53659]]

    Comment: A commenter stated that this regulation incorporates 
language to address the index-based weather plans of insurance, which 
were authorized by the Agricultural Act of 2014 (2014 Farm Bill). One 
of the requirements for these products is that they must first be 
approved by the applicable regulatory authority for the state in which 
the AIP intends to offer the product. The commenter stated their 
understanding is that there are currently no states that will approve 
these type of products as they are considered to be derivative products 
whereby the product may allow a loss payment to be made even though no 
physical damage to the crop has occurred. If no states will approve 
such products, this effectively makes the additional language 
addressing such index-based weather plans of insurance meaningless. The 
commenter recommended that the RMA consider not including any reference 
to index-based weather plans of insurance until such time that a state 
regulatory authority will approve a product of this nature. Otherwise, 
the portion of the regulation related to index-based weather products 
is not implementable.
    Response: The proposed rule required that index-based weather plans 
of insurance must first be approved by the state in which they will be 
sold prior to FCIC approval. This provision is necessary because these 
products are not reinsured by FCIC, so the provisions regarding Federal 
preemption do not apply. Each state will be required to regulate the 
sale and service of these index-based weather plans of insurance. 
Regardless of whether any states have previously approved any index-
based weather plans of insurance, FCIC is obligated to implement the 
process for submitting, reviewing, approving, and implementing these 
products in accordance with the Federal Crop Insurance Act because 
states may elect to approve such plans of insurance in the future. In 
such case, for any index-based weather plan of insurance that may be 
approved by a state, the process to submit, review, approve, and 
implement such plans of insurance will timely be in place.

Sec.  400.701--Definitions

    Comment: A commenter stated that the definition of ``advanced 
payment'' as proposed, could be read to allow 50 percent of the 
development cost after the applicant has begun research and development 
activities. The commenter contends the intent of the definition is to 
allow an additional 25 percent advance payment after research and 
development activities are underway. The phrase ``after the applicant 
has begun research and development'' should be moved to the end of the 
definition to eliminate any possible confusion.
    Response: FCIC agrees with the commenter and moved the phrase to 
prevent possible confusion. In addition, FCIC added the 25 percent 
advance payment requirements from the Federal Crop Insurance Act. These 
requirements are as follows: (1) The concept proposal will provide 
coverage for a region or crop that is underserved, including specialty 
crops; and (2) the submitter is making satisfactory progress towards 
developing a viable and marketable 508(h) submission. FCIC intended to 
include these requirements in the Procedures Handbook 17030--Approved 
Procedures for Submission of Concept Proposals Seeking Advance Payment 
of Research and Development Costs, but determined it more appropriate 
to include these in this regulation. However, the evidence necessary to 
show satisfactory progress, or to determine if the crop or region is 
underserved, may be included in the Procedures Handbook 17030--Approved 
Procedures for Submission of Concept Proposals Seeking Advance Payment 
of Research and Development Costs.
    Comment: A commenter stated that the definition of the term 
``complete'' is confusing or subjective. The commenter stated the 
definition of complete in Sec.  400.701 attempts to redefine the word 
to include unrelated subjects. This can be very confusing, especially 
because the word complete is hardly a term of art. A better definition 
of complete would be found in any dictionary. The commenter suggested a 
508(h) submission be considered either complete or not complete 
(although the commenter suggested materiality should be considered) if 
it contains the required elements in Sec.  400.705. The term 
``sufficient quality'' is included within the definition of complete, 
but is a performance standard. Performance standards are better placed 
within Sec.  400.705. The inclusion of performance standards within a 
definition is suspect. Significant effort will be expended to develop 
concept proposals and 508(h) submissions. In fact, it is a very 
reasonable assumption that the submitting public will invest tens of 
thousands of hours (if not hundreds of thousands of hours) in efforts 
to improve the crop insurance system under this rule. FCIC can support 
the improvements certain to come out of the private sector by expending 
relatively small efforts to clearly codify its notion as to what is 
sufficient quality. The term ``meaningful'' is subjective and should 
also be removed from the definition. Meaningful should also be 
described within Sec.  400.705. The commenter suggested the following 
revised definition of complete: ``a submission, concept proposal, or 
index-based weather plan of insurance that contains all required 
documentation shown at Sec.  400.705.''
    Response: FCIC disagrees with the commenter that the definition of 
``complete'' is subjective. The definition relies on submitters meeting 
the requirements in Sec.  400.705 and the submission must be of 
``sufficient quality'' as defined in Sec.  400.701. Sufficient quality 
is not a performance standard so much as it is a determination of 
whether there is adequate information to consider the submission 
comprehensive enough and complete to allow for a meaningful external 
reviewer to provide their assessment of the product submitted. The main 
purpose of a determination of completeness is to determine whether to 
send the submission for external expert review. Therefore, in addition 
to providing the required information, it is also necessary that the 
information provided is of sufficient quality in order for external 
expert reviewers to conduct a meaningful review and be able to 
determine if the 508(h) submission meets the standards for approval by 
the Board. There is a cost for external reviews so sufficient quality 
of a 508(h) submission is an important consideration for quality 
external expert reviews that provide the Board with meaningful feedback 
and analysis, and make prudent use of public funds. The definition in 
the dictionary would be insufficient to evaluate the information 
necessary to determine completeness. No change has been made.
    Comment: A commenter stated that the definition of ``complexity'' 
should be eliminated from the final rule. A developer's notion of 
complexity has little to do with any of the factors considered in the 
proposed rule. Underwriting complexity arises from the identification 
and treatment of risk. Tying complexity to the format of existing crop 
insurance policy materials is na[iuml]ve. Actuarial complexity resides 
with the types, quantity and quality of available price and yield data. 
Crops with significant recorded histories are significantly easier to 
work with than crops with sparse or scattered data. The proposed 
methodology has little to do with a complexity determination. In 
addition, the complexity determination seems to be a discriminatory 
tool placed against grower organizations needing crop insurance 
programs. The complexity determination can and will

[[Page 53660]]

discourage developers from treating specialty crop insurable risks. 
Whereas the generally accepted notion of a professional risk manager is 
to reduce risk, the complexity determination is certain to increase 
risk for developers precisely where an insurance treatment of risk is 
often needed. The commenter concludes that the discriminatory 
complexity determination should be eliminated from the final rule so 
that all grower groups have equal access to the benefits of crop 
insurance.
    Response: FCIC disagrees with the commenter that the definition of 
``complexity'' should be removed. First, the Board is required to 
consider complexity when assessing the reimbursement of costs under 
section 522(b)(6) of the Act. Therefore, a standard for determining 
complexity is required. Second, this provision is neither intended nor 
expected to discourage development of products for specialty crops. 
However, the use of the term ``processes'' is unclear and the term has 
been removed in the final rule and replaced with the phrase ``all other 
steps required.'' FCIC recognizes the complexity of a product should be 
reflected in the level of effort it takes to complete a particular 
submission requirement. The purpose of these provisions is to protect 
taxpayer dollars by reimbursing developers appropriate amounts to 
reflect the level of effort and work performed. This allows 
distinctions to be made between submissions that may simply add a new 
coverage to an existing policy without changing the policy terms, 
underwriting, or premium rating and submissions that create whole new 
plans of insurance that measure risk differently than the yield or 
revenue based policies available under the Common Crop Insurance Policy 
(7 CFR part 457) and the Area Risk Protection Policy (7 CFR part 407). 
Completely new plans of insurance may require new underwriting and loss 
adjustment handbooks or premium rating methodology and that will be 
reflected in the research and development for the submission. 
Presently, regardless of the type of submission, most requests are 
generally near the same dollar amount, even though the level of work 
required may not be the same. This gives the Board the discretion to 
reduce payments to submissions where the costs seem excessive for the 
amount of work needed. FCIC is revising the provisions in Sec.  
400.712(e) by removing the percentage reductions for complexity and 
scope and giving the Board discretion to make adjustments as required 
by the Federal Crop Insurance Act based on type of submission and 
amount of work required and the size of the area proposed to be 
covered.
    Comment: A commenter stated that the definition of ``concept 
proposal'' stretches into evaluative criteria. The definition 
introduces a new concept, ``enough information.'' This section of the 
proposed rule should be limited to the section title, ``Definitions.'' 
A more accurate definition would be: ``A written proposal for the 
funding of research and development of a crop insurance plan that will 
comply with the provisions of this rule and authorized by section 522 
of the Act.'' Whether the concept proposal is complete or of sufficient 
quality are evaluative criteria best managed in their proper location 
(Sec.  400.705) and not within the definitions section.
    Response: FCIC agrees with the commenter that the proposed use of 
the phrase ``enough information'' in the definition of ``concept 
proposal'' is vague and subjective. A better approach would be to 
reference where the required information is contained. FCIC has revised 
the definition by removing the phrase ``enough information'' and 
replacing it with a reference to this regulation and the Procedures 
Handbook 17030--Approved Procedures for Submission of Concept Proposals 
Seeking Advance Payment of Research and Development Costs, which can be 
found on the RMA Web site at www.rma.usda.gov.
    Comment: A few commenters stated that the definition of ``delivery 
system'' should be modified. One commenter stated that the phrase ``but 
is not limited to'' is not a necessary component of the definition and 
recommended that the phrase be removed from the definition of 
``delivery system.'' Several commenters stated that this definition 
would undermine the private-public partnership that has been the 
cornerstone of Federal Crop Insurance for 35 years. One of the 
commenters suggested this definition be stricken from the proposed 
rule. The commenter stated that when the United States Congress and 
American agriculture have placed so much responsibility and confidence 
in Federal Crop Insurance and just recently emphasized and renewed 
their trust in the context of the 2014 Farm Bill, this provision of the 
rule, which could very well be used to undermine the entire system, is 
both perplexing and especially ill-timed.
    Response: Congress expressly requires the Board to consider the 
potential impact on the delivery system. Therefore, a definition of 
``delivery system'' is necessary. Consistent with section 508(a)(4)(C) 
of the Act, the delivery system includes the AIPs. However, there are 
numerous other entities that are necessary to sell and service policies 
to producers. Therefore, FCIC agrees with the commenter that the second 
sentence containing the phrase ``includes but is not limited to'' is 
not necessary. Therefore, the definition has been retained in the final 
rule, but the second sentence has been removed.
    Comment: A commenter stated that portions of the definition of 
``maintenance,'' regarding the addition of a new commodity and concept 
proposals that are similar to a previously approved 508(h) submission, 
should be removed. The commenter stated that it seems new insured crops 
and new concept proposals should be eligible for advance payments and a 
full four reinsurance years of maintenance expenses in accordance with 
the Act. The portion of the definition that considers expanding a 
508(h) program maintenance, restricts the ability of farmers to receive 
the benefits of crop insurance. The result is discriminatory because it 
prevents developers from expanding a program into a new area if the 
program is successful. For example, developers manage their risk by 
limiting the scope of the program. USDA rules, rather than encouraging 
the expansion of crop insurance, in fact cause developers to cautiously 
approach the development problem. For a developer, risk management may 
involve limiting the scope of the program to avoid the potential 
financial losses from having the current arbitrary standards, and the 
increasingly arbitrary standards shown in this proposed rule, reducing 
their operating capital. This is particularly a problem given the 
Board's resistance to expanding approved 508(h) products into other 
territories due to an over-cautious approach on the part of the Board 
and a failure to understand the substantive risk the 508(h) process 
presents to developers. Unfortunately, with this regulation, including 
this definition of maintenance, the FCIC continues to pressure 
developers, with the result being fewer growers served by the insurance 
program.
    Response: FCIC disagrees with the commenter that the language in 
the definition of ``maintenance'' regarding the addition of a new 
commodity and concept proposals should be removed. FCIC disagrees this 
language is discriminatory and arbitrary. The language does not prevent 
the expansion or reimbursement for expanding approved products, but 
rather it prevents the inappropriate use of limited funds for 
activities that require little additional effort, work, or

[[Page 53661]]

development on the part of the submitter to add additional commodities 
similar in nature and scope. To the extent that added costs are 
incurred during an expansion, the submitter is able to request 
reimbursement of such costs in the maintenance reimbursement. No change 
made in the final rule.
    Comment: A commenter stated the definition of ``marketing plan'' is 
unnecessary and only serves to confuse reviewers and submitters. A 
marketing plan is a submission requirement listed in Sec.  400.705. The 
definition of a marketing plan is redundant and should be struck from 
the final rule. All requirements for a marketing plan, including a 
standard for sufficient quality, should be shown in the regulatory 
language requiring the marketing plan.
    Response: FCIC agrees the definition of ``marketing plan'' is 
somewhat repetitive because much of the information is contained in 
Sec.  400.705(e) and does not really capture the information that is 
required to assess the potential marketability of a submission. Since 
the enactment of the 2014 Farm Bill, marketability is a standard used 
by the Board in determining whether to approve a submission. 
Previously, marketability was only considered in the reimbursement of 
research and development costs. Therefore, FCIC has changed the term to 
``marketability assessment'' to more accurately reflect the information 
necessary. FCIC has also removed the definition and moved the 
substantive provisions to Sec.  400.705(e).
    Comment: Several commenters were concerned the definition of the 
term ``sufficient quality'' could be interpreted as subjective, 
confusing, and contains performance standards. The commenters stated 
that the definition should be transparent, concrete and reasonable. The 
commenters proposed FCIC revisit the terminology and publish in the 
final rule definitions that provide clear and measurable standards that 
can be met by a submitter. One commenter suggested the definition of 
``sufficient quality'' should be stricken from the final rule and an 
actual standard placed with the requirement in Sec.  400.705. A 
commenter stated the requirement that ``The material book must be 
presented in Microsoft Office format . . .'' is a submission 
requirement that belongs in Sec.  400.703--Timing and Format. A 
commenter stated the phrase ``must contain adequate information for 
determination to be made whether RMA has the resources to implement, 
administer and deliver'' is a performance standard that should be 
contained in Sec.  400.705--Contents for New and Changed Submissions. 
The commenter stated it seems unlikely that any submitter should be 
placed in the position of attempting to determine whether FCIC can 
implement any particular product. Although it seems logical that 
confusing regulations should be interpreted against the author, when a 
regulation is confusing, it is likely to be held against the submitter. 
Under this proposed rule, even if a submitter complies with a 
reasonable interpretation of the submission requirement and its 
evaluative standard, the 508(h) submission could be judged as being of 
insufficient quality. To complicate a regulation with confusing, 
arbitrary and subjective language is a disservice to the farmers and 
ranchers whose financial well-being provides purpose for the crop 
insurance program. The expectation of the FCIC should be described 
using objective standards so submitters' efforts can match the 
standard. The lack of a clear definition for sufficient quality allows 
for arbitrary and possibly even discriminatory decisions. Because there 
is no clear standard and many of the decisions of the Board are made 
``at the sole discretion of the Board or RMA,'' the proposed rule 
invites disparate treatment of submitters. The final rule should be 
drafted with clear standards to create a level playing field for all 
submitters. Because there are only about 12 places where sufficient 
quality needs to be defined, the commenter strongly encouraged FCIC to 
expend effort to place its concept of sufficient quality into Sec.  
400.705.
    Response: FCIC agrees the performance standards included in the 
proposed definition of ``sufficient quality'' should be located in 
Sec.  400.705 so that the submitter is aware of the standards by which 
the product will be measured. FCIC disagrees that the definition of 
``sufficient quality'' should be removed because it is confusing or 
subjective. The definition of ``sufficient quality'' is necessarily 
subjective because each submission is different, and an objective one-
size-fits-all definition would do a disservice to unique submissions 
that may differ substantially from others. Further, the purpose of the 
term ``sufficient quality'' is to ensure that there is sufficient data 
and analysis to support the provisions in the concept or submission, 
and that the submission is clear, so the Board, RMA, and external 
expert reviewers can evaluate the submission to determine whether it 
meets the qualifications for approval. Therefore, the Board, RMA, and 
external expert reviewers must be able to understand what the submitter 
has done and why and draw conclusions based on the data, analysis and 
information provided by the submitter. The definition has been 
simplified to reflect this, and FCIC removed the reference to, and 
definition of ``disinterested third party'' because it is really the 
external expert reviewers, RMA and the Board who have to evaluate 
concept proposals and submissions. FCIC has also revised the definition 
of ``sufficient quality'' to clarify the determination is made by RMA 
and the Board. FCIC agrees the requirement in the definition of 
``sufficient quality'' for the material to be presented in Microsoft 
Office format can be removed because this requirement is contained in 
Sec.  400.705. FCIC has also added a reference to the Plain Writing Act 
of 2010 in order to clarify the ``clearly written'' requirement.
    Comment: A few commenters stated that the definition of ``viable 
and marketable'' should be clearer and contain the qualities and 
standards to be applied. One commenter states the definition of viable 
and marketable provides for a determination by the Board. The commenter 
suggested that the determination of viable and marketable should be 
clear enough so a submitter is able to arrive at the same conclusion as 
the Board or external expert reviewers regarding the marketability of 
the proposed product. The lack of a standard is certain to provide 
divergent views between submitters, the Board, RMA, and the external 
expert reviewers. Given the number of entities involved in this process 
and the difficulties and costs involved in producing a 508(h) 
submission, FCIC should include a clear definition of viable and 
marketable in the final rule. A commenter stated that the proposed 
definition of viable and marketable addresses neither viable nor 
marketable and should be removed in the final rule.
    Response: Consideration of whether a submission is ``viable and 
marketable'' is required by the Act. The requirements of the Act cannot 
be waived by this regulation. However, to be clearer, separate 
definitions are provided for ``viable'' and ``marketable'' to reflect 
the different concepts embodied in each. With respect to marketability, 
the Board is specifically tasked with making the determination of 
whether or not a sufficient number of producers will purchase the 
product to justify the resources and expenses required to offer the 
product for sale and maintain the product for subsequent years. There 
is no specific number of producers or dollar amount that could be 
included in

[[Page 53662]]

the definition that would be appropriate for all scenarios. Therefore, 
it is necessary to give discretion to the Board to make this 
determination. With respect to viability, the Board needs to make a 
judgment regarding whether a policy or plan of insurance can be 
developed into an insurance product meeting actuarial and underwriting 
standards, and that the new product can be implemented into the market 
by the delivery system. However, because submissions and markets vary, 
FCIC is reluctant to create set standards or goals that may not be 
appropriate in all situations. In addition, no matter what standards 
are created, external expert reviewers, RMA and the Board may still 
differ because they may be emphasizing one aspect over the other. For 
example, actuaries may believe the rates are not viable because they do 
not reflect the risk but underwriters may believe the policy is viable 
because it can be developed into a product that can provide meaningful 
coverage to producers. It is the Board's responsibility to consider all 
comments and use its best judgment. Costs of development and 
implementation can be a consideration of the potential to develop the 
concept proposal or submission into a policy or plan of insurance that 
can be offered for sale to producers. The Board has received numerous 
submissions and concept proposals where the original cost estimates are 
substantially less than the amount of research and development 
reimbursement actually requested. In some cases, actual costs were more 
than double the original estimates. Excessive costs may be an 
indication that a concept or submission may not be viable or 
marketable.
    Given the inaccuracy of the estimates received by the Board, FCIC 
is revising the provisions to require that submitters provide more 
accurate estimates of costs, and since this is a consideration of 
viability, reimbursement may be limited to the estimated amount unless 
the submitter can justify the additional costs.

Sec.  400.703--Timing and Format

    Comment: A commenter stated that the proposed rule in Sec.  
400.703(b)(1) requires 508(h) submissions, concept proposals or index-
based weather plans of insurance to be provided in electronic format. 
The electronic format is required to be in a single document. The 
commenter stated they appreciate the desire for single documents, but 
FCIC must recognize that some of the requirements it places on 
submitters and materials that may be submitted to FCIC with a concept 
paper, 508(h) submission etc., may include PDF files, Excel files, 
databases and other forms of documentation that do not fit neatly into 
a requirement for a single document. The commenter states that as 
written, the requirement for electronic format in Sec.  400.703 will be 
difficult to impossible to meet. For example, further within this 
regulation the agency asks for letters demonstrating support. Those 
letters are likely to be in PDF format and they will not fit neatly 
inside a Microsoft word document. Additionally, the commenter asked, 
how a submitter would place an Excel workbook inside a word document if 
a submitter wishes to include an Excel workbook. While the commenter 
stated they appreciate the concern FCIC may have with multiple 
documents, the proposed solution falls short of solving the problem for 
all parties involved in the submission process. A different solution, 
such as a zip file with a control document, seems more appropriate.
    Response: FCIC agrees with the commenter that the required 
information may not conveniently fit into a single document. The 
purpose of this proposed provision is to assure information is in the 
correct order and easily locatable by the reviewers. Because PDF files 
can be converted to Microsoft Word files and Excel files can be 
embedded in a Microsoft word document, FCIC believes it is possible to 
provide the required information in a single document. However, FCIC 
agrees it may not always be practical to embed such files in a single 
document. For example, an Excel file may have more columns than what 
will easily fit within the margins of a Word document. Therefore, FCIC 
has revised the provision by removing the requirement that all required 
information must be included in a single document. FCIC has replaced 
this requirement with a requirement to provide a document that contains 
a detailed index that, in sequential order, references the location of 
the required information that may either be contained within the 
document or in a separate file. The detailed index must clearly 
identify each required section and include the page number if the 
information is contained in the document or file name if the 
information is contained in a separate file.
    Comment: A commenter stated that the requirement to provide two 
hard copies in Sec.  400.703(b)(2) directly conflicts with the FCIC 
stated intention of easing the burden on submitters. This requirement 
increases the burden on submitters to no benefit for the FCIC. 
Electronic communication should be preferred and the requirement for 
hard copies should be eliminated from the final rule. By requiring two 
hard copies from the submitters, submitters must now keep a store of 
the appropriate materials necessary to submit the hard copies that are 
required only by FCIC, allow time for the production of hard copies 
that provide minor benefit to the FCIC, proceed to the post office or 
mail store to put the hard copies in the mail, incur the risk of not 
having the hard copies exactly match the electronic copy, etc. Because 
FCIC very clearly stated in the preamble to the rule that its intention 
was to ease the burden on submitters, FCIC should recognize requirement 
for hard copies increases the burden on submitters and the requirement 
for hard copies should be eliminated from the final rule. The 
background material for the regulation indicates that the rule was 
drafted in part to lessen the burden on submitters by reducing the 
number of printed copies required. However, what the drafters of the 
regulation have done increases the effort of submitters. The 
requirement for materials to be submitted in a three ring binder in 
subsection (a) with page numbers in section dividers is not at all 
helpful and does not lessen the burden. The requirement substantially 
increases the paperwork difficulty for submitters and in so doing 
contradicts the stated objective of reducing the burden on submitters. 
This will increase the burden for submitters at no foreseeable benefit 
for the RMA. A single copy of the electronic document is insufficient 
for review purposes, therefore the FCIC will need additional copies of 
the 508(h) submission, presumably from the electronic version, for 
reviewers. So the gain to FCIC appears to be nil, while the burden on 
submitters increases. FCIC should drop the requirement for a hard copy 
altogether and accept electronic copies only because FCIC has already 
proposed a system whereby it agrees to make copies for its review 
process.
    Response: FCIC proposed to reduce the number of hard copies 
required to be submitted from six down to two. Therefore, FCIC 
disagrees with the commenter that the proposal to provide two hard 
copies increases the burden on submitters. However, FCIC recognizes 
that removing the requirement for a hard copy to be submitted would 
further reduce the burden. Therefore, FCIC has revised the final rule 
to eliminate the requirement for the submitter to provide hard copies. 
Submitters will be required to submit an electronic copy either by 
email or on a removable storage device (including CD or USB drive) by 
mail,

[[Page 53663]]

but not both. FCIC has also provided a single email address and a 
single postal address to avoid duplicative work by submitters and to 
prevent confusion for FCIC.
    Comment: A commenter referenced Sec.  400.703(g), which states that 
the Board, or RMA if authorized by the Board, shall determine when 
sales can begin for a 508(h) submission approved by the Board. The 
commenter recommends that either RMA be given more authority by the 
Board or that RMA is always authorized by the Board to make 
determinations when sales can begin for an approved 508(h) submission. 
A recent example of the problems created by not taking all of the above 
into consideration is the Livestock Risk Protection (LRP) program for 
lambs. The insurance year for LRP Lamb starts on July 1 and ends on 
June 30 of the following year. The LRP program rules require that 
agents be trained for three hours annually before they are authorized 
to write a livestock policy. The AIPs generally plan their livestock 
training for late May and June in order to have their agents properly 
trained by the time the insurance period begins on July 1. The LRP lamb 
program was previously developed and written for several years, but was 
suspended due to some problems with the program. The developers made 
significant revisions to the program and RMA recently announced that 
sales would resume on May 4, 2015. The AIPs already scheduled livestock 
training sessions for their agents for late May and June in preparation 
for the beginning of the livestock insurance period, which begins on 
July 1. The commenter notes that submitters have to hold additional 
training sessions for those agents who wish to write LRP lambs to 
assure they are aware of all the revisions made to this program. This 
could have easily been included with the normal training cycle if 
program sales would have resumed on July 1 instead of May 4. This is a 
perfect example of problems that occur with releasing a program and not 
considering the time cycle of the program along with the administrative 
issues the release causes to the AIPs who will be administering this 
program. The ideal release date for the revised LRP lamb program would 
be July 1, which coincides with the start of the insurance period and 
allows the AIPs to properly train their agents about the LRP lamb 
revisions made during the normal scheduled time frame for livestock 
training sessions. In summary, the commenter stated the Board needs to 
provide RMA with more authority to make the determinations when sales 
should begin for an approved 508(h) submission. RMA should take into 
consideration the time cycle of the approved product and the 
administrative functions AIPs must complete when making the decision of 
when sales will begin for the approved 508(h) submission. AIPs who 
choose to participate in these approved 508(h) submissions are the ones 
responsible for all administrative tasks involved with writing new 
programs from agent training, computer programming, form development 
etc. The decision to determine when sales begin should include the 
administrative tasks completed by the AIPs and the time cycle of the 
approved 508(h) submission.
    Response: While the comment is relevant to the referenced 
provision, FCIC does not believe changing the provision to give RMA 
more authority to determine when a 508(h) submission can be implemented 
will solve the issues identified by the commenter. The problem is that 
RMA and the Board may not be aware of the types of issues raised by the 
commenter and submitters are asking for implementation as quickly as 
possible. In response to this and other comments, FCIC has revised the 
rule to require applicants to include a marketability assessment from 
an AIP supporting the submission and that the AIP be more involved in 
the submission process. FCIC is also revising the rule to require that 
at least one other AIP be consulted and provide analysis of potential 
implementation issues. If a marketability assessment by another AIP is 
not provided as part of the submission, the applicant must provide 
information regarding the names of the persons and AIPs contacted and 
the basis for their refusal to provide the marketability assessment. If 
the applicant cannot obtain a marketability assessment by another AIP, 
the Board will presume that the submission is unmarketable and it will 
be a very heavy burden on the submitter to overcome the presumption. By 
requiring involvement of at least two AIPs, RMA and the Board can be 
made aware of implementation and other issues before the issues become 
problems and take appropriate actions.

Sec.  400.704--Covered by This Subpart

    Comment: A commenter offered support of the provision in Sec.  
400.704 that allows an applicant to submit a concept proposal to the 
Board prior to developing a full 508(h) submission. The commenter 
believes this will expedite and streamline the process by enabling the 
applicant to develop a better initial product with feedback from the 
Board.
    Response: FCIC appreciates the comment and the support for concept 
proposals.

Sec.  400.705--Contents for New and Changed 508(h) Submissions, Concept 
Proposals, and Index-Based Weather Plans of Insurance

    Comment: A commenter stated that new requirements in Sec.  
400.705(a) disallowing appended items or requiring a single software to 
be used may also result in important information being excluded.
    Response: FCIC agrees the requirement for information to be 
included in single document and disallowing appended items could result 
in important information being excluded. Therefore, FCIC has removed 
the provision in Sec.  400.705(a) restricting items from being appended 
to the end of the document. FCIC has also removed the requirement in 
Sec.  400.703(b) that requires information to be included in a single 
document and replaced it with a requirement to provide a document that 
contains a detailed index that, in sequential order, references the 
location of the required information that may either be contained 
within the document or in a separate file.
    Comment: A commenter stated they believe the revisions made in 
Sec.  400.705 are problematic due to the fact that the ability of a 
concept proposal or complete 508(h) submission to move forward will be 
reliant on standards that are not easily measured. It will be very 
difficult for a submitter to know whether a proposal meets RMA and the 
Board's sole view that the concept proposal or 508(h) submission is 
both ``complete'' and of ``sufficient quality.'' The determination 
leaves a submitter with no opportunity for appeal of the decision if 
rejected. The commenter recommends FCIC incorporate language that 
provides submitters clear and measurable standards and a fair appeal 
process when the Board deems a 508(h) submission fails to meet those 
standards. The commenter continues to offer that Sec.  400.705 is the 
heart of the 508(h) submission itself. RMA has been accepting 508(h) 
submissions for over 10 years. With over a decade of experience, RMA 
should have a clear notion of sufficient quality for the finite number 
of requirements contained in this paragraph. The commenter stated they 
believe this paragraph requires approximately 12 standards for clear 
communication with submitters. In particular, clear and transparent 
standards should be provided for Sec.  400.705(d), the policy 
provisions,

[[Page 53664]]

Sec.  400.705(e), the marketing plan, Sec.  400.705(g), the prices and 
rates of premium. The three paragraphs require the creation of 
standards that describe a successful set of Crop Provisions, 
approximately six standards for the marketing plan and standards for 
the prices and rates of premium that include standards for acceptable 
data (although this can be a little dangerous).
    Response: FCIC believes the requirements contained in Sec.  400.705 
are clear and transparent, but simply providing an item on a list does 
not mean that the submission is complete. Unfortunately, over the years 
the Board has experienced a number of submissions that contained all 
the required items in Sec.  400.705 but the contents were of such poor 
quality that it cost the Board, RMA and ultimately taxpayer's 
unnecessary funds to review the submission numerous times before the 
submission morphed into a level of quality that could be sent to expert 
review or be considered for approval. For this reason, and the reasons 
stated above, RMA is revising the definition of ``sufficient quality'' 
to make it clear that the submission must contain the data, analysis, 
and conclusions to support the information provided in the submission. 
In many instances where the Board concluded the submission or concept 
proposal was not complete was because it lacked the data or analysis 
needed for external expert reviewers, RMA and the Board to determine 
that the information provided was reasonable and would meet the 
standards necessary for approval. For example, some submissions 
identified a proxy crop without providing any agronomic or risk 
information to show that the proxy crop would correlate with the crop 
to be insured. In some cases, adjustments are made to rates without 
explaining why such adjustments are necessary and the basis for the 
amount of the adjustment. In other cases, assumptions are made without 
stating the basis for the assumptions. In those cases, external expert 
review would be meaningless because there is not enough information to 
make any judgments on whether the standards for approval have been met. 
Instead of a formal appeals process, section 508(h) of the Federal Crop 
Insurance Act provides a process whereby the Board provides notice of 
intent to disapprove a 508(h) submission outlining its concerns and 
reasons, and the submitter has the opportunity to address the Board's 
concerns with additional information or making changes as needed. In 
addition, the submitter can request a time delay to address issues 
raised by the Board.
    Comment: A commenter stated that the request in Sec.  400.705(c)(2) 
is redundant. It is the same request found in Sec.  400.705(e)(4) 
rephrased. The commenter stated that redundancy is always problematic 
because it tends to precipitate questions if there is not precise 
agreement in the responses to the redundant requests. The commenter 
urges FCIC to list a requirement one time and especially that the RMA 
not repeat any requirement in the final rule.
    Response: FCIC agrees with the commenter that these sections are 
somewhat redundant. Section 400.705(c)(2) requests similar information 
to what is required under Sec.  400.705(e). FCIC has revised the final 
rule by consolidating the requirement in Sec.  400.705(c)(2) under 
Sec.  400.705(e).
    Comment: A commenter states that the requirement in Sec.  
400.705(c)(3) seems better placed within Sec.  400.705(e).
    Response: FCIC agrees with the commenter that Sec.  400.705(c)(3) 
would be better placed within Sec.  400.705(e). FCIC has revised the 
final rule by moving the requirements in Sec.  400.705(c)(3) to section 
Sec.  400.705(e).
    Comment: A commenter stated that the requirement in Sec.  
400.705(c)(5) seems better placed in Sec.  400.705(d). Section 
400.705(d) contains the Crop Provisions. It seems far more logical to 
describe the coverage in the section containing the very language 
creating the coverage, the Crop Provisions.
    Response: FCIC disagrees with the commenter. Section 400.705(c) is 
related to clearly understanding the benefits the plan provides to 
producers and asks for a summary of such benefits. Section 
400.705(c)(5) requests a detailed description of the coverage provided 
and its applicability to all producers, including targeted producers. 
Section 400.705(d) contains the actual policy. Although the information 
requested in Sec.  400.705(c)(5) is relevant to policy referenced in 
Sec.  400.705(d), it more appropriately resides in Sec.  400.705(c) to 
allow the Board to assess the benefits provided.
    Comment: A commenter stated that the language in Sec.  400.705(d) 
suggests the 508(h) submission must be clearly written so that the 
producers are able to understand the coverage being offered and that 
the policy language permits actuaries to form a clear understanding of 
payment contingencies. The commenter stated that this is a good and 
reasonable standard and suggests that RMA apply the same standard to 
this proposed rule. The commenter states that the proposed rule is too 
vague for a submitter to form a clear understanding regarding what the 
FCIC considers sufficient quality. In approximately 12 locations within 
Sec.  400.705 are 508(h) submission requirements lacking a definition 
that is either clear or understandable. Worse, the proposed rule 
resolves the problem by incorporating a statement regarding sufficient 
quality and then allows that determination to be arbitrary and 
capricious. And yet, here is a standard imposed on the submitter to be 
clear.
    Response: FCIC understands the commenter's desire for clear 
standards. In Sec.  400.705, FCIC attempted to clearly state the 
requirements for 508(h) submissions, as appropriate. Sufficient quality 
is a measurement of how well the submitters have supported the 
information provided in the 12 categories. FCIC has attempted to do 
this by revising the definition of ``sufficient quality'' to make it 
clear that all information provided and assertions made in Sec.  
400.705 must be supported by data or analysis. Bare assertions without 
establishing the basis for the assertions are no longer sufficient. 
This provides a more concrete standard and one submitters should be 
able to meet. However, because submissions vary so greatly, it is 
impossible to show standards for sufficiency in each subsection in 
Sec.  400.705.
    Comment: A commenter questioned whether the development of the 
proposed marketing plan, as required in Sec.  400.705(e), is really in 
the best interest of taxpayers since it will significantly increase the 
cost of developing a 508(h) submission. The commenter would understand 
the need for a marketing plan if there was limited interest in a 
proposed insurance program. However, this seems to be largely 
unnecessary if there is an obvious and broad-based demand for the crop 
insurance program by the potential insureds. If the marketing plan 
requirement is ultimately included in the final rule, RMA should 
publish standards that a submitter can follow in order to meet the 
requirements and for the external expert reviewers to use in evaluating 
the marketing plan for the proposed program.
    Response: As stated above, a ``marketing plan'' is a misnomer 
because the name suggests how a product will be marketed to producers. 
However, the purpose of Sec.  400.705(e) is to provide information 
regarding the marketability of the policy or other coverage because now 
this is one of the criteria for approval of concept proposals and 
submissions. Concept proposals and submissions must be deemed 
marketable to be approved for reinsurance by the Board. The commenter 
claims that the marketing plan is unnecessary when there is an

[[Page 53665]]

obvious and broad-based demand for the product, but history has shown a 
substantial percentage of submissions where submitters provided letters 
stating there was great interest and demand for the product but only a 
very small percentage of producers actually bought the policy or 
coverage when it was available for sale. Therefore, Sec.  400.705(e) is 
necessary to provide information to the Board to allow it to better 
make an assessment of marketability. Further, FCIC has revised the 
standards to allow a more meaningful assessment by looking at actual 
indicators of producer interest and marketability, such as the amount 
of data producers are willing to provide, their participation in the 
development process, etc. FCIC has made revisions in the final rule to 
Sec.  400.705(e) in an attempt to clarify the marketability 
requirements. FCIC believes the standards published in the final rule 
are clearly defined and achievable.
    Comment: A commenter stated that the requirement in Sec.  
400.705(e)(3) has two problems. First, the vague term ``reasonable 
estimate'' begs the question reasonable to whom. Rather than using 
vague terms, the commenter suggested FCIC describe reasonable in 
objective terms. Furthermore, the commenter finds the use of other 
similar products for comparison purposes likely to lead reviewers down 
the wrong path. Market acceptance increases with grower involvement and 
participation in the development process and decreases when growers' 
confidence in the product is diminished. For example, the fresh market 
bean insurance program began strong. Most acres were insured at the 
buy-up level. However, after growers made a request to correct a 
program feature they considered disadvantageous and the correction was 
not implemented, grower confidence in the program wavered and sales 
declined. One would not want to use the fresh market bean product for 
comparison purposes given that the wound is self-inflicted.
    Response: ``Reasonable estimate'' means in the best judgment of the 
submitter based on all the information available to the submitter, and 
provided with the submission. RMA has revised the rule to require that 
submitters provide the information upon which they judge the 
reasonableness of the projected participation estimate, including the 
level of participation of producers in the development of the product, 
their type of participation, and whether they have provided the 
available data to assist the submitter in the development of the 
product. Although ``reasonable estimate'' is not an objective term, 
FCIC believes this is an appropriate standard to describe what is 
expected of the submitter. With respect to the requirement to estimate 
the market penetration of other similar products, FCIC agrees with the 
commenter that simply estimating the market penetration of other 
similar products may not adequately convey expected producer interest 
and participation. Therefore, FCIC has revised the final rule to 
require the submitter compare other similar products with the 508(h) 
submission and identify potential differences between the 508(h) 
submission and the similar products that might make the participation 
and level of coverage of the proposed product different.
    Comment: A commenter stated that it seems unlikely the requirement 
in Sec.  400.705(e)(5) provides real value within the 508(h) submission 
process and Sec.  400.705(e)(5) should not be in the final rule. Given 
the requirement shown at Sec.  400.705(e)(6), the commenter questioned 
what the vague requirement at Sec.  400.705(e)(5) can add. In fact, the 
vagueness of this requirement indicates the drafters of the proposed 
rule are not entirely clear regarding what this requirement should 
contain.
    Response: FCIC disagrees with the commenter that the focus group 
results requirement in Sec.  400.705(e)(5) should not be included in 
the final rule. However, FCIC determined this requirement can be 
combined under Sec.  400.705(e)(6). Therefore, FCIC deleted Sec.  
400.705(e)(5), redesignated the succeeding sections, and added the 
focus group requirement under the newly redesignated Sec.  
400.705(e)(5). FCIC also added provisions that add more detail so the 
results of focus groups can provide more useful information to the 
Board so it can be considered one of the tools to assist the Board in 
determining marketability. Focus group information to be provided will 
now include the type of coverage producers want and what they are 
willing to pay, which, with all the other available information, will 
allow the external expert reviewers, RMA, and the Board to make better 
judgments on whether the product is viable and marketable.
    Comment: A commenter stated they believe it would be helpful for 
FCIC to describe its concept of a market research study at Sec.  
400.705(e)(6). The requirement in Sec.  400.705(e)(6) to show demand 
and coverage levels for which producers are willing to pay introduces a 
complex problem for submitters because the standard itself lacks 
definition. According to the regulation, an estimate that shows demand 
and the level of coverage for which producers are willing to pay is 
sufficient to meet the standard. It is unlikely this is the intent. In 
short, it appears the concept of an acceptable market research study 
remains fuzzy even to the drafters of the proposed rule.
    Response: FCIC has combined the focus group provisions with the 
market research study to allow submitters to provide data on its 
efforts to judge market interest in the product. Some policies approved 
under section 508(h) fail to sell because the coverage provided is not 
specifically desired by producers and the coverage they desire may not 
be insurable under the Act, or cannot be properly underwritten. Even 
when coverage may be available, it may not be available at a price 
producers are willing to pay. Collection of this information during the 
research and development process can provide more useful information to 
judge whether a product is marketable.
    Comment: A commenter stated that nothing within the expertise of 
most submitters qualifies the submitter to estimate cost for 
organizations whose cost structures are unknown to the submitter as 
required at Sec.  400.705(e)(8). This requirement appears to be the 
addition of a requirement that cannot be practically answered. It is 
possible to answer questions related to training requirements, whether 
the proposed program is amenable to current data record layouts. 
However, estimating the impact on 17 or 18 or 20 AIP computer systems, 
estimating administrative and training costs for 17 or 18 or 20 AIP's 
and determining whether any efficiency will be gained is not likely to 
net insightful answers. The commenter concludes that what does seem 
practical at Sec.  400.705(e)(8) is a discussion of whether the 
proposed program will place new demands upon the computer system that 
go beyond existing database structures.
    Response: FCIC agrees that it may be impractical to expect 
submitters to assess expected costs for these items. However, the 
effect of new products on the delivery system is statutorily mandated 
and given the limited resources available to RMA and AIPs, it is a 
serious consideration. For this and the other reasons stated herein, 
FCIC has revised the rule to require that submitters obtain an 
assessment from at least one AIP who is involved in the development of 
the product and that at least one other AIP is consulted. FCIC believes 
it is useful for the submitting AIP to provide insight not only 
marketability, but also on computer system impacts, administrative and 
training requirements, potential

[[Page 53666]]

efficiencies or effects on workload for AIPs or others participating in 
the program, and whether the policy or plan of insurance is consistent 
with the terms of the SRA. Therefore, FCIC added requirements to assess 
potential effects on the workload for AIPs or others participating in 
the program and whether the policy or plan of insurance is consistent 
with the terms of the SRA.
    Comment: A commenter stated that the requirement to include 
correspondence from producers in Sec.  400.705(e)(9) does not appear to 
provide valuable information. For example, at Sec.  400.705(e)(5) of 
this proposed rule, the requirement is to provide focus groups results. 
In addition, at Sec.  400.705(e)(6)(i) of the proposed rule requests 
evidence the proposed 508(h) submission will be positively received. At 
the very least, Sec.  400.705(e)(9) requests information that is 
required in a different form at several other locations within the 
proposed rule. The commenter suggests that the RMA combine its requests 
regarding grower interest in the insurance program into a single 
unified requirement. Furthermore, if the 508(h) submission is from or 
includes a grower organization, then it appears the spirit of Sec.  
400.705(e)(9) is met. Asking for additional correspondence creates 
redundant effort, Sec.  400.705(e)(9) should be required only in the 
absence of other means of demonstrating grower interest in the 
proposal.
    Response: FCIC agrees with the commenter that the requirement in 
Sec.  400.705(e)(9) to include correspondence from producers expressing 
the need for a policy or plan of insurance may not be as valuable as 
other information requested in the revised rule. There have been a 
number of submissions where producers have written letters in support 
or appeared in person to present the submission, but when the product 
is made available for sale there are few producers actually buying the 
product. There are a number of reasons for this, including the final 
product approved does not contain the coverage actually wanted by 
producers because of statutory or underwriting limitations or the price 
for the coverage is too high. Therefore, as stated above, FCIC has 
revised the information regarding the marketing research to address 
these and other issues so that the external expert reviewers, RMA and 
the Board can make more informed decisions on marketability before the 
submission is approved and before significant time, money and resources 
are invested in implementation of the product.
    Comment: A commenter noted that it appears the information required 
in Sec.  400.705(f)(1) through (5) should be contained within the 
underwriting guide. Rather than another redundant request, the 
commenter suggested FCIC require an underwriting guide with definitions 
that include and may expand upon items one through five in a manner 
similar to the information contained in Sec.  400.705(f)(7).
    Response: FCIC agrees the contents of Sec.  400.705(f)(1) through 
(3) should be contained in the underwriting guide. However, the 
contents of Sec.  400.705(f)(4) and (5) fit more appropriately in the 
loss adjustment standards handbook. FCIC agrees it is not necessary to 
have duplicate requirements that can be included in these handbooks. 
Therefore, FCIC revised the final rule to include the contents of Sec.  
400.705(f)(1) through (5) in the requirements for the underwriting 
guide and the loss adjustment standards handbook, as appropriate.
    Comment: A commenter stated that Sec.  400.705(f)(2) ``Relevant 
Dates'' is a nonspecific requirement. The commenter stated FCIC should 
list the dates it considers relevant in the final rule.
    Response: FCIC agrees that it may be helpful to include example 
dates that may be relevant. Therefore, FCIC included in the final rule 
an example of dates that may be relevant in Sec.  400.705(f).
    Comment: A commenter noted that the proposed rule in Sec.  
400.705(g)(1) appears to contain a requirement to propose a specific 
premium rating methodology. If that is the intention of FCIC, the 
commenter suggests that the word ``specific'' be deleted from the final 
rule. As FCIC and expert reviewers have noted, many of the crops 
remaining to receive the benefits of a crop insurance program will 
require creative efforts to estimate rates.
    Response: FCIC agrees the term ``specific'' is superfluous. 
Therefore, FCIC removed the term ``specific'' from Sec.  400.705(g)(1) 
in the final rule.
    Comment: A commenter noted that the requirement in Sec.  400.705(h) 
appears to be a redundant requirement. If, for example, the 
underwriting guide and loss adjustment manual contain forms, and they 
will, those forms must be separated from the document and placed in 
Sec.  400.705(h). Completing this section becomes an exercise in cut 
and paste with dubious relevance in a review process. A reviewer needs 
to review any form within the context of its use and the form has 
context within the document that contains the form and its instructions 
for use. The requirement at Sec.  400.705(h) should be removed from the 
final rule.
    Response: FCIC agrees the requirements in Sec.  400.705(h) are 
redundant. Therefore, FCIC deleted this section in the final rule and 
redesignated the succeeding sections.
    Comment: A commenter suggested that the clause in Sec.  
400.705(i)(1) proposes to restrict open commerce. It seems unlikely 
this requirement is legal. The statement attempts to undo the long 
history of using insurance brokers to facilitate the creation of 
insurance. Insurance brokers are forbidden in crop insurance. The 
requirement is discriminatory. One who is a submitter is prohibited 
from marketing that which they developed. The statement attempts to 
restrict the AIP and its agents from selling the crop insurance they 
have signed up to support. The commenter questioned how a submitter who 
is not an AIP will be able to meet the requirement in Sec.  
400.705(e)(10) given that this would appear to bar the AIP from sales. 
The commenter stated the requirement serves no legitimate business 
purpose other than to discourage development of new insurance products.
    Response: The proposed Sec.  400.705(i)(1) requires a statement 
certifying the submitter and AIP, or its affiliates, will not solicit 
or market the 508(h) submission until at least 60 days after all policy 
materials are released to the public by RMA, unless otherwise specified 
by the Board. The purpose is to create a level playing field so the 
submitter does not have an unfair marketing or sales advantage. Section 
508(h) of the Act states that any submission approved for reinsurance 
can be sold by any AIP wanting to do so. It would not be fair to other 
AIPs if the submitter was allowed to start soliciting sooner than the 
other AIPs. However, FCIC recognizes, as currently written the 60-day 
delay is not necessary and has generally not been enforced. Rather, it 
has been FCIC intent and past practice to allow marketing to commence 
once all policy materials are released to the public. FCIC strives to 
release policy materials at least 60 days prior to the earliest sales 
closing date. Therefore, FCIC has revised this provision to state that 
the submitter must certify that the submitter and any approved 
insurance provider or its affiliates will not solicit or market the 
submission until all policy materials are released to the public by 
RMA, unless otherwise specified by the Board.
    Comment: With respect to the requirement in the proposed Sec.  
400.705(i)(3), a commenter questioned

[[Page 53667]]

when agent and loss adjuster training plans are applicable.
    Response: Agent and loss adjuster training plans are not applicable 
to proposed rates of premium for a policy. Therefore, FCIC has revised 
newly redesignated Sec.  400.705(h)(3) by removing the phrase ``if 
applicable'' and specifying agent and loss adjuster training plans must 
be provided, except for 508(h) submissions only proposing changes to 
rates of premium for an existing policy.

Sec.  400.706--Review

    Comment: A few commenters expressed concern about the lack of a 
suitable appeal or review process for submitters who put together 
packages in good faith, but are then subject to a closed review process 
dependent on the Board and RMA being given the ability to determine 
``at its sole discretion'' [in Sec.  400.706(a)(3) and elsewhere in the 
rule] whether or not a proposal is complete or meets the subjective 
requirements outlined in the proposed rule. The commenters stated the 
proposed rule fails to give submitters a clear standard by which to 
judge the quality of a proposal. The commenters are concerned that as 
written the proposed rule eliminates due process, increases the 
potential for the intent of the Act to be administered inconsistent 
with its intent. One commenter stated the clause in Sec.  400.706(a)(3) 
is hostile toward submitters. Another commenter requested FCIC provide 
clear, measurable standards in regards to the requirements that 
submitters must meet, as well as to ensure that the decisions they make 
are based on the same sound and transparent standards.
    Response: The 2014 Farm Bill revised the criteria in the Act for 
review of submissions and expressly gave RMA the authority to determine 
whether the policy or plan of insurance will likely result in a viable 
and marketable policy that will provide crop insurance coverage in a 
significantly improved form and adequately protect the interests of 
producers. The provisions contained in the Act cannot be waived by this 
regulation. Unfortunately, over the years the Board has experienced 
addressing a number of submissions that were of poor quality that cost 
the Board, RMA and ultimately taxpayer's unnecessary funds to review 
numerous times before the submission morphed into a level of quality 
that could be sent to expert review or be considered for approval. FCIC 
agrees these standards are necessarily general but given all potential 
products have not been conceived, it is impossible to set tighter 
standards. However, FCIC will be reviewing the submitter's detailed 
description of why the terms have been met. Further, even if RMA were 
to use its discretion and reject a submission, it does not end the 
process. It simply means that the submitter must make improvements to 
the quality or contents of the submission.
    Comment: A few commenters raised concerns with Sec.  
400.706(b)(2)(i), which indicates that no reviewer can be employed by 
an approved insurance provider (AIP) or be a representative of an AIP. 
The commenters stated they understand why a competing AIP should not be 
a reviewer, but question why an organization like the National Crop 
Insurance Services (NCIS) should be excluded from a confidential 
review. This is a review that the NCIS would conduct in a confidential 
manner without any involvement of their member AIPs. The commenters 
would recommend that RMA not exclude organizations like the NCIS from a 
possible review as it could add industry perspective that RMA would not 
otherwise be able to receive as a part of the expert review process.
    Response: FCIC understands the commenter's perspective that an 
agency that is representative of AIPs could provide valuable reviews. 
However, the provision is intended to prevent bias that may result if 
an organization that represents interested stakeholders is involved in 
reviewing products that may be sold by those stakeholders. This 
provision was not proposed to be changed in the proposed rule. No 
change has been made in the final rule. However, in response to other 
comments, FCIC has increased the required involvement of the AIP in the 
process by requiring that at least one AIP be part of the submitter and 
that another AIP provide an assessment of the impacts of the submission 
on the delivery system and marketability of the submission.
    Comment: A commenter stated that the use of the word 
``appropriate'' in Sec.  400.706(b)(2)(ii)(C) leads to subjective 
determinations. The commenter questioned who determines what is 
appropriate. The commenter suggested that a better wording would be 
``follows recognized insurance principles.''
    Response: FCIC agrees the provision would be better worded if the 
term ``appropriate'' was changed to ``recognized.'' FCIC has made this 
change in Sec.  400.706(b)(2)(ii)(C) of the final rule.
    Comment: A commenter asked what an ``excessive risk'' is, in 
reference to Sec.  400.706(b)(2)(ii)(E).
    Response: FCIC has clarified in the final rule that excessive risk 
includes, but is not limited to, risk that encourages adverse 
selection, moral hazard, or risks that cannot be properly rated. 
Examples of excessive risk might be proposing to insure commodities in 
an area where the commodity is not generally recognized as a suitable 
growing environment or in an area likely to be frequently adversely 
affected by a known peril.
    Comment: A commenter stated that, including Sec.  
400.706(b)(2)(ii)(I), the term ``new kind of coverage'' appears in 
several locations throughout the proposed rule. The term is not 
entirely clear. For example, in the clause above new kind of coverage 
applies to a crop that previously had no available crop insurance, but 
it also applies to crops with low participation or that are insured at 
a low coverage level. Attempts to remedy low participation or low 
coverage levels may not involve ``a new kind of coverage.'' It is 
conceivable, and even likely, that efforts to improve participation may 
simply involve redesigned coverage, but not necessarily anything 
``new.'' Certainly in the case of crops with low participation 
concerns, the term ``new kind of coverage'' could easily become 
problematic. The commenter suggests the RMA either define the term or 
reconsider its use for crops with existing insurance programs where low 
participation levels are a concern.
    Response: FCIC agrees with the commenter that the provision in 
Sec.  400.706(b)(2)(ii)(I) could be problematic if the phrase ``new 
kind of coverage'' applies to the second part of the sentence in Sec.  
400.706(b)(2)(ii)(I). FCIC has revised the provision by removing the 
term ``new kind of coverage'' and replacing it with the phrase ``new or 
improved coverage.'' This change clarifies that a policy or plan of 
insurance could fall under the context of this provision if it provides 
improved coverage that addresses low participation or high levels of 
participation at low coverage levels.
    Comment: A commenter stated no marketing plan can demonstrate an 
insurance product is marketable as required in Sec.  
400.706(b)(2)(ii)(K). Marketability comes from the ability of the 
insurance instrument to adequately cover risk at a price growers will 
be willing to pay. The commenter stated the marketing plan is simply 
``the delivery system will sell and service the insurance plan.'' The 
commenter asserts that within hours of the announcement of a new 
program, agents respond by chasing the new commission money. The 
commenter believes the real challenge is to give the agent something to 
sell.

[[Page 53668]]

    Response: As stated above, FCIC has removed the concept of a 
marketing plan and replaced it with a marketability assessment of the 
policy or plan of insurance. Further, those provisions now will require 
submitters to provide additional indicators of marketability, such as 
producer interest as measured by their willingness to assist and 
provide the data necessary in the development process, whether the 
submission can provide the coverage desired by producers at a price 
producers are willing to pay, AIPs assessment of the ability to sell 
the product, etc. FCIC believes that looking at these additional 
factors will allow the Board to make better judgments in approving 
policies and plans of insurance agents can sell.
    Comment: A commenter stated that it is not entirely clear from the 
regulation if the proposed requirement in Sec.  400.706(b)(2)(ii)(K) to 
have a comprehensive ``marketing plan'' submitted is with the concept 
proposal or with the complete 508(h) submission. If it is with the 
concept proposal, this requirement is premature given that the policy 
has not been fully developed nor have the premium rates been 
established. The purpose of the concept proposal is to have a proof of 
concept approved prior to the majority of the investment of time and 
resources into developing a complete 508(h) submission. For the 
marketing plan to be complete for the concept proposal, it would 
essentially have to have been developed prior to the concept being 
approved, which is obviously in contradiction to the purpose of the 
concept proposal.
    Response: Marketability is a consideration in both the concept 
proposal and submission stages. However, FCIC recognizes that more 
information will be available at the submission stage and scrutiny by 
the Board will be higher. Therefore, while the Board will consider 
marketability at both stages, requirements may differ. Those 
requirements and standards relating to concept proposals are contained 
in Procedures Handbook 17030--Approved Procedures for Submission of 
Concept Proposals Seeking Advance Payment of Research and Development 
Cost. While the definition of submission excludes concept proposals, 
FCIC recognizes that the term ``submission'' is also commonly used when 
referring to concept proposals. Therefore, FCIC has changed the 
definition and all references of ``submission'' to ``508(h) 
submission.'' This change is expected to help eliminate potential 
confusion by providing a clearer distinction between 508(h) submissions 
and concept proposals in this regulation.
    Comment: A commenter stated that the proposed rule in Sec.  
400.706(b)(5) establishes the unabashedly arbitrary rule. No standard 
applies. What seems most unsettling about this rule is the three items 
the rule applies to, lend themselves to an objective decision.
    Response: FCIC determined the provision in Sec.  400.706(b)(5) is 
out of place and is not needed because subsequent provisions describe 
the process for approval and disapproval. Therefore, to prevent 
confusion the provision in Sec.  400.706(b)(5) relating to 508(h) 
submissions, and similar provisions in Sec.  400.706(c)(9) and (d)(5) 
referencing concept proposals and index-based weather plans have been 
deleted in the final rule.
    Comment: A commenter stated it is important to note that while the 
law allows the Board to prioritize the approval of policies or plans of 
insurance as described in Sec.  400.706(g), the exercise of this 
authority must be performed in an open and transparent manner. Doing so 
is vital to the ongoing success of the 508(h) process and is necessary 
to avoid the perception that the 508(h) process is not being 
implemented in a manner as intended by Congress. Further, it is the 
commenter's belief that any products related to cotton should be 
included under the second priority of ``existing policies or plans of 
insurance for which there is inadequate coverage or there exists low 
levels of participation.'' While there are products available to cotton 
producers including STAX as well as yield and revenue policies; these 
products are the sole risk management tool for cotton producers. In 
2014, 30 percent of cotton acres bought coverage at the 60 percent buy-
up level or below--17 percent of acres either had no coverage or 
coverage at the lowest levels available. Any enhancements to these 
products or the addition of new products or endorsements would be a 
benefit for cotton growers.
    Response: FCIC understands the concern of the submitter that 
provisions of the Act should be implemented in a transparent manner. 
However, the Act contains confidentiality standards that prevent FCIC 
from disclosing information about products that are under consideration 
for approval, which limits the transparency of the process. However, 
the Board is considering implementing procedures that will make the 
process more transparent. In the meantime, to assist the Board in 
determining if certain commodities such as cotton meet the provision in 
Sec.  400.706(g)(2), for each policy or plan of insurance submitted for 
approval, RMA will research and present to the Board information on 
whether there are existing policies for that commodity and the level of 
coverage and participation.
    Comment: With regard to Sec.  400.706(k)(1), a commenter stated 
that because protecting the interests of agricultural producers is a 
review criterion, the Board, RMA, developers and external expert 
reviewers must share a common understanding of the standard for judging 
whether a 508(h) submission protects the interests of agricultural 
producers and taxpayers. This proposed rule does not provide such a 
standard. The commenter requested that FCIC clarify the meaning of 
protecting the interests of agricultural producers and taxpayers so 
that developers can provide America's farmers with 508(h) submissions 
of sufficient quality.
    Response: FCIC disagrees with the commenter that provisions in 
Sec.  400.706(k)(1) do not provide clear standards for what it means to 
protect the interests of producers and taxpayers. Because it is not 
possible to list every scenario that may not protect the interests of 
producers and taxpayers, the provision includes a list of activities 
that meet this criteria that is not all-inclusive. This list includes: 
The 508(h) submission does not provide adequate coverage or treats 
producers disparately; the applicant has not presented sufficient 
documentation that the 508(h) submission will provide a new kind of 
coverage likely to be viable and marketable; coverage would be similar 
to another policy or plan of insurance that has not demonstrated a low 
level of participation or does not contain a clear and identifiable 
flaw and the producer would not significantly benefit from the 508(h) 
submission; the 508(h) submission may create adverse market distortions 
or adversely impact other crops or agricultural commodities if 
marketed; the 508(h) submission will have a significant adverse impact 
on the private delivery system; or the 508(h) submission cannot be 
implemented, administered, and delivered effectively and efficiently 
using RMA's information technology and delivery systems. To address the 
commenters concern, FCIC included two additional items to describe what 
protecting producer and taxpayer interests mean. These include ensuring 
the 508(h) submission does not contain flaws that may encourage adverse 
selection, moral hazard, or vulnerabilities that allow indemnities to 
exceed the value of the crop.

[[Page 53669]]

Sec.  400.708--Post Approval

    Comment: A commenter stated that Sec.  400.708(a)(1)(ii) indicates 
that after the 508(h) submission has been approved, a reinsurance 
agreement must be executed if the terms and conditions differ from the 
available existing reinsurance agreements. If a separate reinsurance 
agreement needs to be developed this now creates a situation in which 
the person or organization who has submitted the product, is more than 
likely not an existing AIP, but will now be charged with establishing 
the reinsurance terms for all other AIPs who choose to participate in 
writing the approved 508(h) submission. This is a major flaw in this 
regulation as all AIPs who choose to participate in writing this 
approved 508(h) submission should be involved in the discussions 
establishing the reinsurance terms for such product or program. This 
would result in a reinsurance agreement that is more equitable to all 
parties involved and likely enhance the chances of the new product 
being successful in the marketplace. The AIPs who must administer and 
bear the risk of the new product or program need to be involved in the 
development of the new reinsurance agreement and this regulation should 
be revised to take this into consideration. An example of this is the 
flawed Livestock Price Reinsurance Agreement (LPRA) which was developed 
in accordance with this regulation. The structure of the LPRA provides 
the AIPs with very little incentive to actively pursue and write 
livestock policies as it is currently structured. This subsequently 
results in limited sales and reduces the potential success of the 
livestock program.
    Response: FCIC agrees the terms of the reinsurance agreement 
developed in accordance with this provision should be established in an 
equitable manner that takes into consideration the interests of all 
participating AIPs. However, it is not possible to involve all AIPs 
that will sell the product, because it is not known which AIPs will 
choose to sell the product and confidentiality rights of the submitter 
must be respected. However, if a new or different reinsurance agreement 
is needed for a newly developed product, FCIC will endure to establish 
the standard terms of such reinsurance agreement so that they apply 
equitably to all AIPs, and that no one AIP (including any AIP who is 
part of the product submission) has a marketing or financial advantage 
over another AIP. FCIC has revised the final rule to clarify that 
participating AIPs interests will be considered when the terms of the 
reinsurance agreement are established.

Sec.  400.712--Research and Development Reimbursement, Maintenance 
Reimbursement, Advance Payments for Concept Proposals, and User Fees

    Comment: A commenter expressed support of the provision in Sec.  
400.712(c) that allows an advance payment of up to 50 percent of the 
projected total research and develop costs and the new provision which 
would allow the Board to provide up to an additional 25 percent advance 
payment. The commenter stated research and development costs of a major 
plan of insurance can be substantial, with many organizations unable to 
cover these up-front costs. The additional 25 percent advance payment 
could be instrumental in these situations, and the commenter encouraged 
FCIC to proactively use this authority to advance the ability of the 
RMA to provide growers with sound risk management options.
    Response: FCIC appreciates the commenter's support of this 
provision.
    Comment: A commenter stated that Sec.  400.712(c)(1)(ii) is 
government sanctioned usury. The proposed rule attempts to collect 
interest at 18 percent per annum for submitters attempting to help 
American farmers achieve risk management goals. The commenter concludes 
that this is a shameful proposal.
    Response: FCIC disagrees that Sec.  400.712(c)(1)(ii) attempts to 
collect interest at 18 percent per annum. The provision requires 
interest to be charged at a rate of 1.25 percent simple interest per 
calendar month, which results in an annual rate of 15 percent. 
Furthermore, the referenced provisions are intended to protect taxpayer 
dollars if developers accept funding from FCIC, but then fail to 
deliver an acceptable product. Failure to collect interest on the funds 
provided for development would be fiscally irresponsible. This interest 
rate was previously included in 17030--Approved Procedures for 
Submission of Concept Proposals Seeking Advance Payment of Research and 
Development Expenses. This interest rate is also consistent with the 
rate charged in section 24(a) of the Common Crop Insurance Policy Basic 
Provisions for amounts owed to FCIC and in the Standard Reinsurance 
Agreement. No change has been made in the final rule.
    Comment: A few commenters expressed concerns with the reduction in 
research and development costs contained in Sec.  400.712(e) based on 
the plan of insurance, complexity of the policy and rates of premium. A 
common concern was that the proposed reductions in reimbursement for 
research and development will make it difficult for farm organizations 
to obtain the services of qualified individuals who can meet the 
complicated requirements of Sec.  400.705. Another concern that was 
raised was that if agricultural organizations obtain the services of a 
developer who does not understand the requirements of this section, the 
agricultural organization may be required to make up the difference due 
to reimbursement reductions. Commenters were concerned the criteria 
used to gauge the level of program complexity may not always be 
representative of the actual challenges in developing a crop insurance 
program. Commenters were also concerned that the reductions will come 
as a surprise to submitters after they have already completed the work. 
Another concern was that the reductions are based on arbitrary 
standards. Several commenters recommended the provision be excluded 
from the final rule.
    Response: FCIC understands the concerns of grower groups that may 
contract with other companies to develop insurance products under the 
508(h) process. However, FCIC is statutorily required to consider 
complexity when making payments, and FCIC is striving to do that in a 
fair and equitable manner. This means that all submitters must be 
treated the same regardless of their experience. This rule requires 
that certain tasks be performed and those tasks are the same for all 
submitters. However, some of the tasks are simplified because the 
submitter uses existing policy materials, handbooks, procedures, or 
rating methodologies so that the hours required to perform the tasks 
are reduced. The Board takes this reduction into consideration. 
Therefore, FCIC has revised Sec.  400.712(e) by eliminating the 
reduction percentages and giving the Board discretion to reduce 
reimbursement for research and development costs and maintenance costs, 
as necessary, when requested reimbursement is not commensurate with the 
complexity or the size of the area proposed to be covered.
    Comment: A commenter stated that the proposed rule in Sec.  
400.712(i) speaks to the problem submitters will have with this 
proposed rule. A 508(h) submission may be determined to be of 
insufficient quality to refer to expert reviewers and the costs 
associated with perfecting the 508(h) submission may not be considered 
reimbursable. This may not be a disagreeable rule provided submitters 
have a clear target. If a submitter knows what the standard is

[[Page 53670]]

for sufficient quality, fails to meet the standard for sufficient 
quality then it may be reasonable for the Board to avoid payment for 
perfecting the 508(h) submission. However, with the standard that is 
almost completely arbitrary, this rule holds out the possibility of 
treating submitters disparately. Since the 508(h) process can be 
considered an invitation to perform work on behalf of the American 
farmer, FCIC should produce a clear and helpful rule. A substantial 
number of farmers rely upon the actions of the Board and RMA. Should 
they choose to become submitters, they deserve clear targets.
    Response: The provision in 712(i) is intended to prevent FCIC from 
paying for the same activities numerous times before a submission is 
ready for review or consideration of approval due to insufficient 
quality to conduct a meaningful review, or for errors, omissions and 
incomplete materials preventing an independent third party from being 
able to fully read, comprehend and understand the components of a 
submission. FCIC has clarified provisions regarding sufficient quality 
to require that the submission include all data, analysis and 
justification for assumptions made and in support of the information 
provided in the submission. This is crucial for the conduct of a 
meaningful external expert review. Therefore, the standard is not 
arbitrary and can be met by submitters. For example, if the submitter 
uses a proxy crop, the submitter must include the data and analysis 
that shows why the proxy was selected, why a proxy is needed, why the 
proxy selected best correlates with the crop to be insured under the 
submission, etc. The same applies with premium rating. The submitter 
must explain all assumptions made and all adjustments. Simply stating 
math formulas or a complete listing of all types of methodologies is no 
longer sufficient.

Sec.  400.713--Non-Reinsured Supplemental (NRS) Policy

    Comment: A commenter stated that language was added to Sec.  
400.713(a) requiring submission of any non-reinsured supplemental (NRS) 
policy that covers the same agricultural commodity as any policy 
reinsured by FCIC under the Federal Crop Insurance Act. The commenter 
questioned whether the changes now require Crop-Hail policies to be 
approved by RMA. The commenter stated the regulation should 
specifically state that Crop-Hail policies are excluded from these 
rules.
    Response: The definition of ``non-reinsured supplemental'' 
contained in Sec.  400.701 specifically excludes Crop Hail policies. 
Therefore, it is not necessary to state in Sec.  400.713 that Crop-Hail 
policies are excluded. No change has been made in the final rule.
    Comment: A commenter stated that the proposed rule in Sec.  
400.713(a) and (c) says that failure to provide such NRS policy or 
endorsement to RMA prior to its issuance shall result in the denial of 
reinsurance, A&O subsidy and risk subsidy on the underlying FCIC 
reinsured policy for which such NRS policy was sold. Because FCIC 
prohibits the tying of FCIC reinsured policies and private policies, 
the AIP that sold the FCIC reinsured policy may not be the AIP that 
sold the NRS policy. The commenter asked how this language will apply 
in these cases. The commenter adds that the regulation should exclude 
penalties from applying to the AIP that sold the underlying FCIC 
reinsured policy if the NRS is sold by a different AIP.
    Response: FCIC agrees with the commenter that the regulation should 
exclude penalties from applying to AIPs that sold the FCIC reinsured 
policy if the NRS is sold by a different AIP. However, FCIC does not 
believe AIPs that sell an NRS policy that is not submitted in 
accordance with Sec.  400.713 of this regulation or that is found to 
meet the conditions of Sec.  400.713(c)(1) through (5), should be 
excluded from penalty. FCIC has revised Sec.  400.713(a) and (c) by 
removing the penalty for denying reinsurance, A&O subsidy, and risk 
subsidy on the underlying FCIC reinsured policy if the AIP selling such 
underlying FCIC reinsured policy is not the company that sold the NRS. 
FCIC has added in its place a provision that makes the AIP that sold 
the NRS liable for an amount equal to the reinsurance, A&O subsidy, and 
risk subsidy on any underlying FCIC policies sold by other AIPs to 
which the NRS is attached.
    Comment: A commenter stated Sec.  400.713(a) states that any NRS 
policy that is issued before it is approved by RMA will result in a 
denial or reinsurance on the underlying FCIC reinsurance policy. The 
denial of reinsurance set-forth in paragraph (a) makes sense. However, 
in paragraph (c), which sets forth the approval process that RMA will 
go through 150 days prior to the sales closing date for any NRS policy, 
RMA states that reinsurance will also be denied on any FCIC reinsured 
policy not a meeting the prior approval criteria set forth in 
paragraphs (c)(1) through (5). Since it appears that RMA must approve 
NRS policies before they are sold, the commenter stated they do not 
understand the purpose of including a denial of reinsurance penalty in 
paragraph (c). The commenter suggested that the denial of reinsurance 
language in paragraph (c) be deleted and that the denial of reinsurance 
language in paragraph (a) be revised to read as follows: Reinsurance, 
A&O subsidy and risk subsidy on the underlying FCIC policy will be 
denied for any NRS policy issued without the prior approval of FCIC 
under this section.
    Response: RMA does not approve NRS policies, rather RMA reviews the 
policy to determine if the conditions in Sec.  400.713(c)(1) through 
(5) exist. Therefore, FCIC does not intend to add the suggested 
``approval'' language. The provision in Sec.  400.713(a) requires the 
NRS to be submitted, and if not submitted, provides consequences for 
not being submitted. The provision in Sec.  400.713(c) requires FCIC to 
notify the submitter of the consequences if the NRS meets the 
conditions contained in Sec.  400.713(c)(1) through (5). Therefore, 
both paragraphs are necessary because they contain different 
requirements. However, in response to a previous comment, FCIC has 
revised Sec.  400.713(c)(1) to state that FCIC will notify the AIP that 
submitted the NRS policy that if they sell the NRS policy, it will 
result in denial of reinsurance, A&O subsidy, and risk subsidy on all 
underlying FCIC reinsured policies, unless the underlying FCIC policy 
was sold by another AIP. If the underlying FCIC reinsured policy is 
sold by another AIP, the AIP that sold the NRS may be required to pay 
FCIC an amount equal to the reinsurance, A&O subsidy, and risk subsidy 
on the underlying FCIC policy.
    Comment: A commenter stated that the proposed rule indicates in 
Sec.  400.713(b) that the NRS policy and related materials must be 
submitted at least 150 days prior to the first sales closing date 
applicable to the NRS policy, which is 30 days more lead time than what 
is currently required. Since the AIPs are being required to submit the 
NRS policy 30 days earlier, it would also be beneficial for the AIPs if 
the RMA also responded back to the AIP 90 days before the first sales 
closing date rather than 60 days as currently required. This would 
allow additional time to train the agents and to market the NRS product 
prior to the applicable sales closing date. The commenter recommended 
that Sec.  400.713(d) of this regulation be changed to require that the 
RMA will respond back to the AIP not less than 90 days before the first 
sales closing date rather than 60 days as currently indicated.
    Response: FCIC understands the commenter's desire for additional 
time to train agents and market the product. To give both the AIP and 
RMA

[[Page 53671]]

additional time, FCIC has revised Sec.  400.713(d) in the final rule to 
require RMA to respond 75 days before the first sales closing date, or 
provide notice why RMA is unable to respond within the time frame 
allotted. This change gives both FCIC and the AIP an additional 15 days 
from what was allotted under the previous rule.
    Comment: A commenter stated that Sec.  400.713(b)(1) and (2) 
indicate that three hard copies and an electronic copy of the NRS 
policy must be sent to the Deputy Administrator for Product Management. 
If an electronic copy is sent, the commenter does not see the need or 
value in also sending three hard copies of the same material via 
regular postal mail. The commenter recommends that the regulation be 
clarified to indicate that either three hard copies or an electronic 
copy of the NRS policy be sent, but that both methods of submitting the 
NRS are not required.
    Response: FCIC agrees with the commenter that both an electronic 
and a hard copy are not necessary. FCIC removed the hard copy 
requirement from the final rule.
    Comment: A few commenters questioned the use of the term ``moral 
hazard'' in Sec.  400.713(c)(1)(i). One commenter stated the term moral 
hazard was added with an example, but it is not a defined term. The 
commenter asked what constitutes a moral hazard and if moral hazard is 
applied on a product basis or on an individual insured behavior basis. 
The commenter asks for clarification on whether FCIC will determine a 
policy creates a moral hazard based on its performance over a period of 
time or based on a single instance of abuse. Another commenter 
suggested defining moral hazard as ``the tendency for an insured party 
to take less care to avoid an insured loss than the party would have 
taken if the loss had not been insured, or even to act intentionally to 
bring about that loss.''
    Response: FCIC disagrees that the term ``moral hazard'' should be 
defined in the context of this provision. The term is commonly used in 
the insurance industry and because the term is not defined it takes on 
the common meaning. A moral hazard could be on an individual or product 
basis. FCIC may consider a policy to create a moral hazard if 
provisions lend themselves to abuse or if data collected shows the 
performance of the product over time creates an incentive for abuse. No 
change has been made in the final rule.
    Comment: A commenter stated the phrase ``aggregate indemnities'' 
was added to Sec.  400.713(c)(1)(i), but does not include a definition. 
The commenter asks, what is included in determining aggregate 
indemnities. The commenter adds that the regulation needs to 
specifically exclude hail insurance indemnities from the aggregate 
indemnities definition and to define what is included. A commenter also 
stated that the phrase ``expected value'' of the insured commodity was 
added to Sec.  400.713(c)(1)(i). The commenter asks what the definition 
is of expected value and when the expected value is determined. The 
commenter stated the regulation needs to define expected value, 
including what information can be used to determine the expected value 
and what the time frame is around when the expected value is 
determined.
    Response: FCIC agrees the provision should be revised to clarify 
what is included in the determination of aggregate indemnities. Hail 
policies and other policies not reinsured by FCIC would not be 
included. FCIC also agrees that the concept of expected value needs to 
be expanded upon in the final rule. FCIC intentionally did not include 
parameters for determining expected value because this can be defined 
differently by the submitter. However, the expected value must be based 
on parameters that represent the value a producer could reasonably 
expect to receive for the insured commodity. Therefore, FCIC has 
revised the provision in the final rule by removing the term 
``aggregate'' and adding language stating that a policy will be 
considered to shift or increase risk if it: (1) Results in the 
underlying FCIC policy either triggering a loss sooner, or paying a 
larger indemnity than would otherwise be allowed by the terms and 
conditions of the underlying reinsured policy; or (2) allows for 
combined indemnities between the underlying FCIC reinsured policy and 
the NRS that are in excess of the value a producer would reasonably 
expect to receive for the insured commodity if a normal crop was 
produced and sold at a reasonable market price.
    Comment: A commenter stated Sec.  400.713(c)(2) can be better and 
more equitably phrased as follows: ``The NRS reduces or limits the 
rights of the insured with respect to the underlying policy or plan of 
insurance reinsured by FCIC. An NRS policy will be considered to reduce 
or limit the rights of the insured with respect to the underlying 
policy or plan of insurance if it materially affects the terms or 
conditions of the underlying policy or otherwise materially undermines 
procedures issued by FCIC.''
    Response: FCIC agrees with the commenter that including the terms 
``affects'' and ``undermines'' help to describe when an NRS reduces or 
limits the rights of the insured. However, FCIC disagrees the phrasing 
proposed by the commenter to include the term ``materially'' is 
appropriate because this would allow for a determination of a degree of 
significance. FCIC maintains that if an NRS affects, alters, preempts, 
or undermines the terms or conditions of the underlying policy to any 
degree, such NRS policy is reducing or limiting the rights of the 
insured with respect to the underlying policy or plan of insurance. 
Therefore, FCIC revised the final rule by: Including the terms 
``affects'' and ``undermines''; the terms ``alters'' and ``preempts'' 
has been retained; and the term ``materially'' has not been included.
    Comment: A commenter stated that Sec.  400.713(c)(3) may be 
improved and more equitably phrased by adding the term ``materially'' 
prior to the phrase ``in excess of normal market demand.''
    Response: FCIC disagrees that including the term ``materially'' 
prior to the phrase ``in excess of market demand'' is appropriate. FCIC 
considers an NRS that encourages planting more acres of the insured 
commodity in excess of normal market demand to disrupt the marketplace, 
regardless of extent or degree. No change has been made in the final 
rule.
    Comment: A commenter stated that an example of disruption in the 
marketplace was added in Sec.  400.713(c)(3). The commenter asked what 
the basis will be for the evaluation. The commenter also asked if this 
will this be applied on an individual insured basis or a program basis 
and how much more than normal will be deemed to be excessive. The 
commenter questioned if the evaluation of excessive will be based on a 
single year or a certain number of years. A spike in planting may be 
attributable to factors other than the NRS policy.
    Response: The determination will be based on the evaluation of the 
policy language and any available evidence that substantiates or 
verifies the NRS will or has disrupted the marketplace. This 
determination may be applied on an individual or collective basis. If 
the NRS encourages planting of more acres of the insured commodity in 
excess of market demand it will be considered to disrupt the 
marketplace and may be assessed based on a single year or multiple 
years. FCIC agrees that an increase in planting could be due to factors 
other than the NRS policy, so RMA will consider all other potential 
factors before concluding the NRS is the cause of the disruption in the 
marketplace. FCIC has added the phrase ``RMA determines'' in Sec.  
400.713(c)(1)

[[Page 53672]]

through (4) to indicate the decision is based on RMA's determination.
    Comment: A commenter stated that language was added to the proposed 
rule in Sec.  400.713(e) requiring a review if the NRS policy exceeds a 
2.0 loss ratio. The commenter questions what are the parameters of the 
2.0 (e.g., a one year loss ratio, a rolling 3-5 year loss ratio, etc.). 
The commenter stated the current year loss ratio will be unknown when 
the required 150 days prior to sales closing date is applied. A gap 
year must be included in evaluation of loss ratio. The commenter asked 
if RMA will approve private product rating methodology and/or rates. 
The commenter also questioned if state department of insurance approval 
of the rate methodology and/or rates will be superseded by RMA's 
rejection of the same. The commenter stated that states regulate and 
approve private product rates. If a state approves the rates associated 
with a private product, the commenter questioned whether FCIC has the 
authority under the McCarran-Ferguson Act to reject or dispute those 
rates.
    Response: RMA will not review the premium rates of an NRS policy. 
Rather, FCIC was proposing to use the loss ratio as a possible 
indication there could be an underlying issue that may result in risk 
being shifted to the underlying FCIC reinsured policy. However, FCIC 
agrees with the commenter that a one year loss ratio would not be 
sufficient to determine if there was an underlying issue and FCIC 
already requires a NRS policy to be submitted for review in accordance 
with Sec.  400.713(c)(1) through (5). FCIC also agrees the AIP may not 
know the loss ratio 150 days prior to the sales closing date. Because 
these issues were not addressed in the proposed rule, FCIC has not 
included this provision in the final rule.
Executive Orders 12866 and 13563
    Executive Order 12866, ``Regulatory Planning and Review,'' and 
Executive Order 13563, ``Improving Regulation and Regulatory Review,'' 
direct agencies to assess all costs and benefits of available 
regulatory alternatives and, if regulation is necessary, to select 
regulatory approaches that maximize net benefits (including potential 
economic, environmental, public health and safety effects, distributive 
impacts, and equity). Executive Order 13563 emphasized the importance 
of quantifying both costs and benefits, of reducing costs, of 
harmonizing rules, and of promoting flexibility.
    The Office of Management and Budget (OMB) designated this rule as 
not significant under Executive Order 12866, ``Regulatory Planning and 
Review,'' and therefore, OMB has not reviewed this rule.
Paperwork Reduction Act of 1995
    Pursuant to the provisions of the Paperwork Reduction Act of 1995 
(44 U.S.C. chapter 35), the collections of information in this rule 
have been approved by the Office of Management and Budget (OMB) under 
control number 0563-0064.
E-Government Act Compliance
    FCIC is committed to complying with the E-Government Act of 2002, 
to promote the use of the Internet and other information technologies 
to provide increased opportunities for citizen access to Government 
information and services, and for other purposes.
Unfunded Mandates Reform Act of 1995
    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA, Pub. L. 
104-4) requires Federal agencies to assess the effects of their 
regulatory actions on State, local, and Tribal governments, or the 
private sector. Agencies generally need to prepare a written statement, 
including a cost-benefit analysis, for proposed and final rules with 
Federal mandates that may result in expenditures of $100 million or 
more in any year for State, local, or Tribal governments, in the 
aggregate, or to the private sector. UMRA generally requires agencies 
to consider alternatives and adopt the more cost effective or least 
burdensome alternative that achieves the objectives of the rule. This 
rule contains no Federal mandates, as defined in Title II of UMRA, for 
State, local, and Tribal governments or the private sector. Therefore, 
this rule is not subject to the requirements of sections 202 and 205 of 
UMRA.
Executive Order 13132
    It has been determined under section 1(a) of Executive Order 13132, 
Federalism, that this rule does not have sufficient implications to 
warrant consultation with the States. The provisions contained in this 
rule will not have a substantial direct effect on States, or on the 
relationship between the national government and the States, or on the 
distribution of power and responsibilities among the various levels of 
government, except as required by law.
Executive Order 13175
    This rule has been reviewed in accordance with the requirements of 
Executive Order 13175, ``Consultation and Coordination with Indian 
Tribal Governments.'' Executive Order 13175 requires Federal agencies 
to consult and coordinate with tribes on a government-to-government 
basis on policies that have tribal implications, including regulations, 
legislative comments or proposed legislation, and other policy 
statements or actions that have substantial direct effects on one or 
more Indian tribes, on the relationship between the Federal Government 
and Indian tribes or on the distribution of power and responsibilities 
between the Federal Government and Indian tribes. FCIC has assessed the 
impact of this rule on Indian tribes and determined that this rule does 
not, to our knowledge, have tribal implications that require tribal 
consultation under Executive Order 13175. If a Tribe requests 
consultation, FCIC will work with the USDA Office of Tribal Relations 
to ensure meaningful consultation is provided where changes, additions, 
and modifications identified in this rule are not expressly mandated by 
law.
Regulatory Flexibility Act
    The Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by 
the Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA, 
Pub. L. 104-121), generally requires an agency to prepare a regulatory 
flexibility analysis of any rule subject to the notice and comment 
rulemaking requirements under the Administrative Procedure Act or any 
other law, unless the agency certifies that the rule will not have a 
significant economic impact on a substantial number of small entities. 
FCIC certifies that this regulation will not have a significant 
economic impact on a substantial number of small entities. The 
regulation does not require any more action on the part of the small 
entities than is required on the part of large entities. No matter the 
size of the submitter, all submitters are required to perform the same 
tasks and those tasks are necessary to ensure that the concept proposal 
can be made into a viable and marketable 508(h) submission and any 
508(h) submission can be made into viable and marketable, actuarially 
sound insurance product. A Regulatory Flexibility Analysis has not been 
prepared since this regulation does not have an impact on small 
entities, and, therefore, this regulation is exempt from the provisions 
of the Regulatory Flexibility Act.
Federal Assistance Program
    This program is listed in the Catalog of Federal Domestic 
Assistance under No. 10.450.

[[Page 53673]]

Executive Order 12372
    This program is not subject to the provisions of Executive Order 
12372, which require intergovernmental consultation with State and 
local officials. See the Notice related to 7 CFR part 3015, subpart V, 
published at 48 FR 29115, June 24, 1983.
Executive Order 12988
    This rule has been reviewed in accordance with Executive Order 
12988 on civil justice reform. The provisions of this rule will not 
have a retroactive effect. The provisions of this rule will preempt 
State and local laws to the extent such State and local laws are 
inconsistent herewith. With respect to any direct action taken by FCIC 
or to require the insurance provider to take specific action under the 
terms of the crop insurance policy, the administrative appeal 
provisions published at 7 CFR part 11 must be exhausted before any 
action against FCIC for judicial review may be brought.
Environmental Evaluation
    This action is not expected to have a significant economic impact 
on the quality of the human environment, health, or safety. Therefore, 
neither an Environmental Assessment nor an Environmental Impact 
Statement is needed.

List of Subjects in 7 CFR Part 400

    Administrative practice and procedure, Crop insurance.

Final Rule

    Accordingly, as set forth in the preamble, FCIC amends 7 CFR part 
400 as follows:

PART 400--GENERAL ADMINISTRATIVE REGULATIONS

0
1. Revise subpart V to read as follows:
Subpart V--Submission of Policies, Provisions of Policies, Rates of 
Premium, and Non-Reinsured Supplemental Policies
Sec.
400.700 Basis, purpose, and applicability.
400.701 Definitions.
400.702 Confidentiality and duration of confidentiality.
400.703 Timing and format.
400.704 Covered by this subpart.
400.705 Contents for new and changed 508(h) submissions, concept 
proposals, and index-based weather plans of insurance.
400.706 Review.
400.707 Presentation to the Board for approval or disapproval.
400.708 Post approval.
400.709 Roles and responsibilities.
400.710 Preemption and premium taxation.
400.711 Right of review, modification, and the withdrawal of 
approval.
400.712 Research and development reimbursement, maintenance 
reimbursement, advance payments for concept proposals, and user 
fees.
400.713 Non-reinsured supplemental (NRS) policy.

    Authority:  7 U.S.C. 1506(l), 1506(o), 1508(h), 1522(b), 
1523(i).

Subpart V--Submission of Policies, Provisions of Policies, Rates of 
Premium, and Non-Reinsured Supplemental Policies


Sec.  400.700  Basis, purpose, and applicability.

    This subpart establishes guidelines, the approval process, and 
responsibilities of FCIC and the applicant for policies, provisions of 
policies, and rates of premium submitted to the Board as authorized 
under section 508(h) of the Act. It also provides procedures for 
reimbursement of research and development costs and maintenance costs 
for concept proposals and approved 508(h) submissions. Guidelines for 
submitting concept proposals and the standards for approval and advance 
payments are provided in this subpart. This subpart also provides 
guidelines and reference to procedures for submitting index-based 
weather plans of insurance as authorized under section 523(i) of the 
Act. The procedures for submitting non-reinsured supplemental policies 
in accordance with the Standard Reinsurance Agreement (SRA) are also 
contained within.


Sec.  400.701  Definitions.

    508(h) submission. A policy, plan of insurance, provision of a 
policy or plan of insurance, or rates of premium provided by an 
applicant to FCIC in accordance with the requirements of Sec.  
400.705.508(h) submissions as referenced in this subpart do not include 
concept proposals, index-based weather plans of insurance, or non-
reinsured supplemental policies.
    Act. Subtitle A of the Federal Crop Insurance Act, as amended (7 
U.S.C. 1501-1524).
    Actuarial documents. The information for the crop or insurance year 
that is available for public inspection in an agent's office and 
published on RMA's Web site, and that shows available insurance 
policies, coverage levels, information needed to determine amounts of 
insurance and guarantees, prices, premium rates, premium adjustment 
percentages, practices, particular types or varieties of the insurable 
crop or agricultural commodity, insurable acreage, and other related 
information regarding insurance in the county or state.
    Actuarially appropriate. A term used to describe premium rates when 
such rates are expected to cover anticipated losses and establish a 
reasonable reserve based on valid reasoning, an examination of 
available risk data, or knowledge or experience of the expected value 
of future costs associated with the risk to be covered. This will be 
expressed by a combination of data including, but not limited to 
liability, premium, indemnity, and loss ratios based on actual data or 
simulations reflecting the risks covered by the policy.
    Administrative and operating (A&O) subsidy. The subsidy for the 
administrative and operating expenses authorized by the Act and paid by 
FCIC on behalf of the producer to the approved insurance provider. Loss 
adjustment expense reimbursement paid by FCIC for catastrophic risk 
protection (CAT) eligible crop insurance contracts is not considered as 
A&O subsidy.
    Advance payment. A portion, up to 50 percent, of the estimated 
research and development costs, that may be approved by the Board under 
section 522(b) of the Act for an approved concept proposal. Upon 
request of the submitter the Board may at its sole discretion provide 
up to an additional 25 percent advance payment of the estimated 
research and development costs after the applicant begins research and 
development activities if:
    (1) The concept proposal will provide coverage for a region or crop 
that is underserved, including specialty crops; and
    (2) The submitter is making satisfactory progress towards 
developing a viable and marketable 508(h) submission.
    Agent. An individual licensed by the State in which an eligible 
crop insurance contract is sold and serviced for the reinsurance year, 
and who is employed by, or under contract with, the approved insurance 
provider, or its designee, to sell and service such eligible crop 
insurance contracts.
    Applicant. Any person or entity that submits to the Board for 
approval a 508(h) submission under section 508(h) of the Act, a concept 
proposal under section 522 of the Act, or an index-based weather plan 
of insurance under section 523(i) of the Act, who must include the AIP 
that has committed to be involved in the development and submission 
process and to market, sell and service the policy or plan of 
insurance.
    Approved insurance provider (AIP). A legal entity, including the 
Company, which has entered into a reinsurance

[[Page 53674]]

agreement with FCIC for the applicable reinsurance year.
    Approved procedures. The applicable handbooks, manuals, memoranda, 
bulletins or other directives issued by RMA or the Board.
    Board. The Board of Directors of FCIC.
    Commodity. Has the same meaning as section 518 of the Act.
    Complete. A 508(h) submission, concept proposal, or index-based 
weather plan of insurance determined by RMA and the Board to contain 
all required documentation in accordance with Sec.  400.705 and is of 
sufficient quality.
    Complexity. Consideration of factors such as originality of policy 
materials, underwriting methods, actuarial rating methodology, and the 
pricing methodology used in design, construction and all other steps 
required for the full development of a policy or plan of insurance.
    Concept proposal. A written proposal for a prospective 508(h) 
submission, submitted under section 522(b) of the Act for advance 
payment of research and development costs, and containing all the 
information required in this regulation and the Procedures Handbook 
17030--Approved Procedures for Submission of Concept Proposals Seeking 
Advance Payment of Research and Development Costs, which can be found 
on the RMA Web site at www.rma.usda.gov, such that the Board is able to 
determine that, if approved, will be developed into a viable and 
marketable policy consistent with Board approved procedures, these 
regulations, and section 508(h) of the Act.
    Delivery system. The components or parties that make the policy or 
plan of insurance available to the public for sale.
    Development. The process of composing documentation and procedures, 
pricing and rating methodologies, administrative and operating 
procedures, systems and software, supporting materials, and 
documentation necessary to create and implement a 508(h) submission.
    Endorsement. A document that amends or revises an insurance policy 
reinsured under the Act in a manner that changes existing, or provides 
additional, coverage provided by such policy.
    Expert reviewer. Independent persons contracted by the Board who 
meet the criteria for underwriters or actuaries that are selected by 
the Board to review a concept proposal, 508(h) submission, or index-
based weather plan of insurance and provide advice to the Board 
regarding the results of their review.
    FCIC. The Federal Crop Insurance Corporation, a wholly owned 
government corporation within USDA, whose programs are administered by 
RMA.
    Index-based weather plan of insurance. A risk management product in 
which indemnities are based on a defined weather parameter exceeding or 
failing to meet a given threshold during a specified time period. The 
weather index is a proxy to measure expected loss of production when 
the defined weather parameter does not meet the threshold.
    Limited resource producer. Has the same meaning as the term defined 
by USDA at: www.lrftool.sc.egov.usda.gov/LRP_Definition.aspx or a 
successor Web site.
    Livestock commodity. Has the same meaning as the term in section 
523(i) of the Act.
    Maintenance. For the purposes of this subpart only, the process of 
continual support, revision or improvement, as needed, for an approved 
508(h) submission, including the periodic review of premium rates and 
prices, updating or modifying the rating or pricing methodologies, 
updating or modifying policy terms and conditions, adding a new 
commodity under similar policy terms and conditions with similar rating 
and pricing methodology, or expanding a plan or policy to additional 
states and counties, and any other actions necessary to provide 
adequate, reasonable and meaningful protection for producers, ensure 
actuarial soundness, or to respond to statutory or regulatory changes. 
A concept proposal that is similar to a previously approved 508(h) 
submission will be considered maintenance for the similar approved 
508(h) submission if submitted by the same person.
    Maintenance costs. Specific expenses associated with the 
maintenance of an approved 508(h) submission as authorized by Sec.  
400.712.
    Maintenance period. A period of time that begins on the date the 
Board approves the 508(h) submission and ends on the date that is not 
more than four reinsurance years after such approval.
    Manager. The Manager of FCIC.
    Marketable. A determination by the Board, based on a detailed, 
written marketability assessment provided in accordance with Sec.  
400.705(e), that demonstrates a sufficient number of producers will 
purchase the product to justify the resources and expenses required to 
offer the product for sale and maintain the product for subsequent 
years.
    Multiple peril crop insurance (MPCI). Policies reinsured by FCIC 
that provide protection against multiple causes of loss that adversely 
affect production or revenue, such as to natural disasters, such as 
hail, drought, and floods.
    National Agricultural Statistics Service (NASS). An agency within 
USDA, or its successor agency that collects and analyzes data collected 
from producers and other sources.
    Non-reinsured supplemental policy (NRS). A policy, endorsement, or 
other risk management tool not reinsured by FCIC under the Act, that 
offers additional coverage, other than for loss related to hail.
    Non-significant changes. Minor changes to the policy or plan of 
insurance, such as technical corrections, that do not affect the rating 
or pricing methodologies, the amount of subsidy owed, the amount or 
type of coverage, FCIC's reinsurance risk, or any other condition that 
does not affect liability or the amount of loss to be paid under the 
policy. Revisions to approved plans required by statutory or regulatory 
changes are included in this category. Changes to the policy that 
involve concepts that have been previously sent for expert review are 
also included in this category.
    Plan of insurance. A class of policies, such as yield, revenue, or 
area based that offers a specific type of coverage to one or more 
agricultural commodities.
    Policy. Has the same meaning as the term in section 1 of the Basic 
Provisions (7 CFR 457.8).
    Rate of premium. The dollar amount per insured unit, or percentage 
rate per dollar of liability, that is needed to pay anticipated losses 
and provide a reasonable reserve.
    Reinsurance year. The term beginning July 1 and ending on June 30 
of the following year and, for reference purposes, identified by 
reference to the year containing June.
    Related material. The actuarial documents for the insured commodity 
and any underwriting or loss adjustment manuals, handbooks, forms, 
instructions or other information needed to administer the policy.
    Research. For the purposes of development, the gathering of 
information related to: Producer needs and interests for risk 
management; the marketability of the policy or plan of insurance; 
appropriate policy terms, premium rates, price elections, 
administrative and operating procedures, supporting materials, 
documentation, and the systems and software necessary to implement a

[[Page 53675]]

policy or plan of insurance. The gathering of information to determine 
whether it is feasible to expand a policy or plan of insurance to a new 
area or to cover a new commodity under the same policy terms and 
conditions, price, and premium rates is not considered research.
    Research and development costs. Specific expenses incurred and 
directly related to the research and development activities of a 508(h) 
submission as authorized in Sec.  400.712.
    Risk Management Agency (RMA). An agency within USDA that is 
authorized to administer the crop insurance program on behalf of FCIC.
    Risk subsidy. The portion of the premium paid by FCIC on behalf of 
the insured.
    Sales closing date. A date contained in the Special Provisions by 
which an application must be filed and the last date by which the 
insured may change the crop insurance coverage for a crop year.
    Secretary. The Secretary of the United States Department of 
Agriculture.
    Significant change. Any change to the policy or plan of insurance 
that may affect the rating and pricing methodologies, the amount of 
subsidy owed, the amount of coverage, the interests of producers, 
FCIC's reinsurance risk, or any condition that may affect liability or 
the amount of loss to be paid under the policy.
    Special Provisions. Has the same meaning as the term in section 1 
of the Basic Provisions (7 CFR 457.8).
    Specialty crops. Fruits and vegetables, tree nuts, dried fruits, 
and horticulture and nursery crops (including floriculture).
    Socially disadvantaged producer. Has the same meaning as section 
2501(E) of the Food, Agriculture, Conservation, and Trade Act of 1990 
(7 U.S.C. 2279(e)).
    Standard Reinsurance Agreement (SRA). The reinsurance agreement 
between FCIC and the approved insurance provider, under which the 
approved insurance provider is authorized to sell and service eligible 
crop insurance contracts. For the purposes of this subpart, all 
references to the SRA will also include any other reinsurance 
agreements entered into with FCIC, including the Livestock Price 
Reinsurance Agreement.
    Submitter. Same meaning as applicant.
    Sufficient quality. A determination made by RMA and the Board that 
the material presented is clearly written in plain language in 
accordance with the Plain Writing Act of 2010 (5 U.S.C. 301), 
unambiguous, and is supported by detailed analysis and data so that 
expert reviewers, RMA and the Board can understand, comprehend and make 
calculations, draw substantiated conclusions or results to determine 
whether the 508(h) submission, concept proposal, or index-based weather 
plan of insurance meets the standards required for approval.
    Targeted producer. Producers who are considered small, socially 
disadvantaged, beginning and limited resource or other specific aspects 
designated by FCIC for review.
    USDA. The United States Department of Agriculture.
    User fees. Fees, approved by the Board, that can be charged to 
approved insurance provider for use of a policy or plan of insurance 
once the period for maintenance has expired that only covers the 
expected maintenance costs to be incurred by the submitter.
    Viable. A determination by the Board that the concept proposal, 
index-based weather plan of insurance, or 508(h) submission is or can 
be developed into a policy or plan of insurance that can be implemented 
by the delivery system with actuarially appropriate rates in accordance 
with Board procedures.


Sec.  400.702   Confidentiality and duration of confidentiality.

    (a) Pursuant to section 508(h)(4)(A) of the Act, prior to approval 
by the Board, any 508(h) submission submitted to the Board under 
section 508(h) of the Act, concept proposal submitted under section 522 
of the Act, or index-based weather plan of insurance submitted under 
section 523(i) of the Act, including any information generated from the 
508(h) submission, concept proposal, or index-based weather plan of 
insurance, will be considered confidential commercial or financial 
information for purposes of 5 U.S.C. 552(b)(4) and will not be released 
by FCIC to the public, unless the applicant authorizes such release in 
writing.
    (b) Once the Board approves a 508(h) submission or an index-based 
weather plan of insurance, information provided with the 508(h) 
submission (including information from the concept proposal) or the 
index-based weather plan of insurance, or generated in the approval 
process, may be released to the public, as applicable, including any 
mathematical modeling and data, unless it remains confidential business 
information under 5 U.S.C. 552(b)(4). While the expert reviews are 
releasable once the 508(h) submission or an index-based weather plan of 
insurance has been approved, the names of the expert reviewers may be 
redacted to prevent any undue pressure on the expert reviewers.
    (c) Any 508(h) submission, concept proposal, or index-based weather 
plan of insurance disapproved by the Board will remain confidential 
commercial or financial information in accordance with 5 U.S.C. 
552(b)(4) (no information related to such 508(h) submission, concept 
proposal, or index-based weather plan of insurance will be released by 
FCIC unless authorized in writing by the applicant).
    (d) All 508(h) submissions, concept proposals, and index-based 
weather plans of insurance, will be kept confidential until approved by 
the Board and will be given an identification number for tracking 
purposes, unless the applicant advises otherwise.


Sec.  400.703  Timing and format.

    (a) A 508(h) submission, concept proposal, or index-based weather 
plan of insurance may only be provided to FCIC during the first five 
business days in January, April, July, and October.
    (b) A 508(h) submission, concept proposal, or index-based weather 
plan of insurance must be provided as an electronic file to FCIC in 
Microsoft Office compatible format, sent to either the address in 
paragraph (d)(1) or (d)(2) of this section by the due date in paragraph 
(a) of this section. The electronic file must contain a document with a 
detailed index that, in sequential order, references the location of 
the required information that may either be contained within the 
document or in a separate file. The detailed index must clearly 
identify each required section and include the page number if the 
information is contained in the document or file name if the 
information is contained in a separate file; and
    (c) Any 508(h) submission, concept proposal, or index-based weather 
plan of insurance not provided within the first 5 business days of a 
month stated in paragraph (a) of this section will be considered to 
have been provided in the next month stated in paragraph (a). For 
example, if an applicant provides a 508(h) submission on January 10, it 
will be considered to have been received on April 1.
    (d) Any 508(h) submission, concept proposal, or index-based weather 
plan of insurance must be provided to one of the following addresses, 
but not both:
    (1) By email to the Deputy Administrator for Product Management (or 
successor) at [email protected]; or
    (2) By mail on a removable storage device such as a compact disk or

[[Page 53676]]

Universal Serial Bus (USB) drive, sent to the Deputy Administrator for 
Product Management (or any successor position), USDA/Risk Management 
Agency, 2312 East Bannister Road, Kansas City, MO 64131-3011.
    (e) In addition to the requirements in paragraph (a) of this 
section, a 508(h) submission must be received not later than 240 days 
prior to the earliest proposed sales closing date to be considered for 
sale in the requested crop year.
    (f) To be offered for sale in a crop year, there must be at least 
sixty days between the date the policy is ready to be made available 
for sale and the earliest sales closing date, unless this requirement 
is expressly waived by the Board.
    (g) Notwithstanding, paragraph (f) of this section, the Board, or 
RMA if authorized by the Board, shall determine when sales can begin 
for a 508(h) submission approved by the Board after consideration of 
the analysis provided by the applicant AIP of the impact of the 
proposed implementation date on the delivery system.


Sec.  400.704  Covered by this subpart.

    (a) An applicant may submit to the Board, in accordance with Sec.  
400.705, a 508(h) submission that is:
    (1) A policy or plan of insurance not currently reinsured by FCIC;
    (2) One or more proposed revisions to a policy or plan of insurance 
authorized under the Act; or
    (3) Rates of premium for any policy or plan of insurance authorized 
under the Act.
    (b) An applicant must submit to the Board, any significant change 
to a previously approved 508(h) submission, including requests for 
expansion, prior to making the change in accordance with Sec.  400.705.
    (c) An applicant may submit a concept proposal to the Board prior 
to developing a full 508(h) submission, in accordance with this subpart 
and the Procedures Handbook 17030--Approved Procedures for Submission 
of Concept Proposals Seeking Advance Payment of Research and 
Development Costs, which can be found on the RMA Web site at 
www.rma.usda.gov.
    (d) An applicant who is an approved insurance provider may submit 
an index-based weather plan of insurance for consideration as a pilot 
program in accordance with this subpart and the Procedures Handbook 
17050--Approved Procedures for Submission of Index-based Weather Plans 
of Insurance, which can be found on the RMA Web site at 
www.rma.usda.gov.
    (e) An applicant must submit a non-reinsured supplemental policy or 
endorsement to RMA in accordance with Sec.  400.713.


Sec.  400.705  Contents for new and changed 508(h) submissions, concept 
proposals, and index-based weather plans of insurance.

    (a) A complete 508(h) submission must contain the following 
material, as applicable, submitted in accordance with Sec.  400.703(b). 
A complete 508(h) submission must be a viable and marketable insurance 
product that protects the interests of producers, is actuarially 
appropriate and ensures program integrity. The material must contain 
adequate information as required in this section, that is presented 
clearly to ensure the Board and RMA can determine whether RMA and the 
delivery system have the resources to implement, administer, and 
deliver the 508(h) submission effectively and efficiently. 
Calculations, procedures and methodologies must be consistent 
throughout the submission and appropriate for the commodity and the 
risks covered.
    (b) The first section will contain general information numbered as 
follows (1, 2, 3, etc.), including, as applicable:
    (1) The applicant's name(s), address or primary business location, 
phone number, and email address;
    (2) The type of 508(h) submission (see Sec.  400.704) and a 
notation of whether or not the 508(h) submission was approved by the 
Board as a concept proposal;
    (3) A statement of whether the applicant is requesting:
    (i) Reinsurance;
    (ii) Risk subsidy;
    (iii) A&O subsidy;
    (iv) Reimbursement for research and development costs, as 
applicable and, if the 508(h) submission was previously submitted as a 
concept proposal, the amount of the advance payment for expected 
research and development costs; or
    (v) Reimbursement for expected maintenance costs, if applicable;
    (4) The proposed agricultural commodities to be covered, including 
types, varieties, and practices covered by the 508(h) submission;
    (5) The crop or insurance year and reinsurance year in which the 
508(h) submission is proposed to be available for purchase by 
producers;
    (6) The proposed sales closing date, if applicable, or the sales 
window or the earliest date the applicant expects to release the 
product to the public;
    (7) The proposed states and counties where the plan of insurance is 
proposed to be offered;
    (8) Any known or anticipated future expansion plans;
    (9) Identification, including names, addresses, telephone numbers, 
and email addresses, of the person(s) responsible for:
    (i) Addressing questions regarding the policy, underwriting rules, 
loss adjustment procedures, rate and price methodologies, data 
processing and record-keeping requirements, and any other questions 
that may arise in implementing or administering the program if it is 
approved; and
    (ii) Annual reviews to ensure compliance with all requirements of 
the Act, this subpart, and any agreements executed between the 
applicant and FCIC;
    (10) A statement of whether the 508(h) submission will be filed 
with the applicable office responsible for regulating insurance in each 
state proposed for insurance coverage, and if not, reasons why the 
508(h) submission will not be filed for review; and
    (11) A statement of whether the submitter wants the 508(h) 
submission to remain confidential.
    (c) The second section must contain the benefits of the plan, 
including, as applicable, a summary that includes:
    (1) How the 508(h) submission offers coverage or other benefits not 
currently available from existing public or private programs;
    (2) How the 508(h) submission meets public policy goals and 
objectives consistent with the Act and other laws, as well as policy 
goals supported by USDA and the Federal Government; and
    (3) A detailed description of the coverage provided by the 508(h) 
submission and its applicability to all producers, including targeted 
producers.
    (d) Except as provided in this section, the third section must 
contain the policy, that is clearly written in plain language in 
accordance with the Plain Writing Act of 2010 (5 U.S.C. 301) such that 
producers will be able to understand the coverage being offered. The 
policy language permits actuaries to form a clear understanding of the 
payment contingencies for which they will set rates. The policy 
language does not encourage an excessive number of disputes or legal 
actions because of misinterpretations.
    (1) If the 508(h) submission involves a new insurance policy or 
plan of insurance:
    (i) All applicable policy provisions; and
    (ii) A list of any additional coverage that may be elected by the 
insured in conjunction with the 508(h) submission such as applicable 
endorsements

[[Page 53677]]

(include a description of the coverage and how such coverage may be 
obtained).
    (2) If the 508(h) submission involves a change to a previously 
approved policy, plan of insurance, or rates of premium, the proposed 
revisions, rationale for each change, data and analysis supporting each 
change, the impact of each change, and the impact of all changes in 
aggregate.
    (e) The fourth section must contain the following:
    (1) Potential impacts the 508(h) submission may have on producers 
both where the new plan will and will not be available (include both 
positive and negative impacts) and if applicable, the reasons why the 
508(h) submission is not being proposed for other areas producing the 
commodity;
    (2) The amount of commodity (acres, head, board feet, etc.), the 
amount of production, and the value of each agricultural commodity 
proposed to be covered in each proposed county and state;
    (3) A reasonable estimate of the expected number of potential 
buyers, liability and premium for each proposed county and state, total 
expected liability and premium by crop year based on the detailed 
assessment of producer interest, including a description of the number 
of producers involved in the development of the product, their level of 
participation, their type of participation, how many producers have 
provided data to assist the submitter in the development of the 
product, and a comparison with other similar products, including 
differences between the 508(h) submission and the similar products that 
may make participation different;
    (4) If available, any insurance experience for each year and in 
each proposed county and state in which the policy has been previously 
offered for sale including an evaluation of the policy's performance 
and, if data are available, a comparison with other similar insurance 
policies reinsured under the Act;
    (5) Market research studies; ``market research'' is the systematic 
gathering and interpretation of information about individuals or 
organizations using statistical and analytical methods and techniques 
of the applied social sciences to gain insight or support decision 
making, and that must include:
    (i) Focus group results (both positive and negative reactions) 
where a discussion is facilitated amongst a group of stakeholders in 
order to gain insight into their perceptions, opinions, beliefs, and 
attitudes towards a product, which must include the number of focus 
group sessions held, where they were held, when they were held, the 
number of attendees at each session, the attendees affiliation 
(producer, agent or other), and specific feedback from the attendees 
regarding levels of coverage the product should include to cover 
anticipated risks or perils encountered, the range of costs the 
producer is willing to pay, what coverages the producers are 
specifically looking for and an assessment of whether that coverage can 
be provided at the price the producers are willing to pay, what 
shortfall or gap in risk protection the product may address, tolerance 
of risk, perceptions of other similar products, policy features 
producers may desire, and quality issues;
    (ii) Other evidence the proposed 508(h) submission will be 
positively received by producers, agents, lending institutions, and 
other interested parties, including correspondence from producers, 
agents, grower organizations, or other stakeholders expressing the need 
for a certain risk management strategy, desired coverage for perils 
faced, and willingness to provide critical information for developing a 
product;
    (iii) An assessment of factors that could negatively or adversely 
affect the market and responses from a reasonable representative cross-
section of producers or significant market segment to be affected by 
the policy or plan of insurance; and
    (iv) For 508(h) submissions proposing products for specialty crops 
a consultation report must be provided that includes a summary and 
analysis of discussions with groups representing producers of those 
agricultural commodities in all major producing areas for commodities 
to be served or potentially impacted, either directly or indirectly, 
and the expected impact of the proposed 508(h) submission on the 
general marketing and production of the crop from both a regional and 
national perspective including evidence that the 508(h) submission will 
not create adverse market distortions; and
    (6) A marketability assessment from the applicant AIP who is part 
of the applicant and from at least one other AIP. If a marketability 
assessment is not provided by a separate AIP who is not part of the 
applicant, the applicant must provide information regarding the names 
of the persons and AIPs contacted and the basis for their refusal to 
provide the marketability assessment. The marketability assessment will 
include:
    (i) An assessment of whether producers will buy the proposed 508(h) 
submission;
    (ii) An assessment of whether AIPs and their agents will want to 
sell and service the proposed 508(h) submission;
    (iii) An assessment of the risks associated with the proposed 
508(h) submission and its likely effect under the SRA;
    (iv) Estimated computer system impacts and costs;
    (v) Estimated administrative and training requirement and costs;
    (vi) An analysis of the complexity of the product; and
    (vii) What, if any, efficiency will be gained or potential effects 
on the workload of AIPs or others participating in the program.
    (f) The fifth section must contain the information related to the 
underwriting and loss adjustment of the 508(h) submission, prepared in 
accordance with the RMA-14050 Risk Management Agency External Standards 
Handbook located at http://www.rma.usda.gov/handbooks/14000/index.html, 
including as applicable:
    (1) An underwriting guide that includes:
    (i) A table of contents and introduction;
    (ii) A section containing abbreviations, acronyms, and definitions;
    (iii) Relevant dates, including as applicable, sales closing, 
cancellation, termination, earliest planting, final planting, acreage 
reporting, premium billing, and end of insurance;
    (iv) A section containing insurance contract information 
(insurability requirements; producer elections, Crop Provisions not 
applicable to Catastrophic Risk Protection, specific unit division 
guidelines, etc.);
    (v) Detailed rules for determining insurance eligibility, including 
all producer reporting requirements;
    (vi) All form standards needed for inspections and producer 
certifications, plus detailed instructions for their use and 
completion;
    (vii) Step-by-step examples of the data and calculations needed to 
establish the insurance guarantee (liability) and premium per acre or 
other unit of measure, including worksheets that provide the 
calculations in sufficient detail and in the same order as presented in 
the policy to allow verification that the premiums charged for the 
coverage are consistent with policy provisions;
    (viii) A section containing any special coverage information (i.e., 
replanting, tree replacement or rehabilitation, prevented planting, 
etc.), as applicable; and
    (ix) A section containing all applicable reference material (i.e.,

[[Page 53678]]

minimum sample requirements, row width factors, etc.).
    (2) Any statements to be included in the actuarial documents 
including any intended Special Provisions statements that may change 
any underlying policy terms or conditions; and
    (3) The loss adjustment standards handbook for the policy or plan 
of insurance that includes:
    (i) A table of contents and introduction;
    (ii) A section containing abbreviations, acronyms, and definitions;
    (iii) A section containing insurance contract information 
(insurability requirements; Crop Provisions not applicable to 
catastrophic risk protection; specific unit division guidelines, if 
applicable; notice of damage or loss provisions; quality adjustment 
provisions; etc.);
    (iv) A detailed description of the causes of loss covered by the 
policy or plan of insurance and any causes of loss excluded;
    (v) A section that thoroughly explains appraisal methods, if 
applicable;
    (vi) Illustrative samples of all the applicable forms needed for 
insuring and adjusting losses in regards to the 508(h) submission in a 
format compatible with the Document and Supplemental Standards Handbook 
(FCIC 24040) located at http://www.rma.usda.gov/handbooks/24000/index.html, plus detailed instructions for their use and completion;
    (vii) Instructions, step-by-step examples of calculations used to 
determine indemnity payments for all probable situations where a 
partial or total loss may occur, and loss adjustment procedures that 
are necessary to establish the amounts of coverage and loss;
    (viii) A section containing any special coverage information (i.e., 
replanting, tree replacement or rehabilitation, prevented planting, 
etc.), as applicable; and
    (ix) A section containing all applicable reference material (i.e., 
minimum sample requirements, row width factors, etc.).
    (g) The sixth section must contain information related to prices 
and rates of premium, including, as applicable:
    (1) A detailed description of the premium rating methodology 
proposed to be used and the basis for selection of the rating 
methodology;
    (2) A list of all assumptions made in the premium rating and 
commodity pricing methodologies, and the basis for these assumptions;
    (3) A detailed description of the pricing and rating methodologies, 
including:
    (i) Supporting documentation needed for the rate methodology;
    (ii) All mathematical formulas and equations;
    (iii) Data and data sources used in determining rates and prices 
and a detailed assessment of the data (including availability, access, 
long term reliability, and the percentage of the total commercial 
production that the available data represents) and how it supports the 
proposed rates and prices;
    (iv) A detailed explanation of how the rates account for each of 
the risks covered by the policy; and
    (v) A detailed explanation of how the prices are applicable to the 
policy;
    (4) An example of both a rate calculation and a price calculation;
    (5) A discussion of the applicant's objective evaluation of the 
accuracy of the data, the short and long term availability of the data, 
and how the data will be obtained (if the data source is confidential 
or proprietary explain the cost of obtaining the data); and
    (6) An analysis of the results of simulations or modeling showing 
the performance of proposed rates and commodity prices, as applicable, 
based on one or more of the following (Such simulations must use all 
years of experience available to the applicant and must reflect both 
partial losses and total losses):
    (i) A recalculation of total premium and losses compared to a 
similar or comparable insurance plan offered under the authority of the 
Act with modifications, as needed, to represent the components of the 
508(h) submission;
    (ii) A simulation that shows liability, premium, indemnity, and 
loss ratios for the proposed insurance product based on the probability 
distributions used to develop the rates and commodity prices, as 
applicable, including sensitivity tests that demonstrate price or yield 
extremes, and the impact of inappropriate assumptions; or
    (iii) Any other comparable simulation that provides results 
indicating both aggregate and individual performance of the 508(h) 
submission including expected liability, premium, indemnity, and loss 
ratios for the proposed insurance product, under various scenarios 
depicting good and poor actuarial experience.
    (h) The seventh section must contain the following:
    (1) A statement certifying that the submitter and any approved 
insurance provider or its affiliates will not solicit or market the 
508(h) submission until after all policy materials are released to the 
public by RMA, unless otherwise specified by the Board;
    (2) An explanation of any provision of the policy not authorized 
under the Act and identification of the portion of the rate of premium 
due to these provisions; and
    (3) Agent and loss adjuster training plans, except for 508(h) 
submissions proposing only changes to rates of premium to an existing 
policy.
    (i) The eighth section must contain a statement from the submitter 
that, if the 508(h) submission is approved, the submitter will work 
with RMA and its computer programmers as needed to assure an effective 
and efficient implementation process. This section must also contain a 
description of any expected implementation or administration issues. 
The applicant must consult with RMA prior to providing the 508(h) 
submission to determine whether or not the 508(h) submission can be 
effectively and efficiently implemented and administered through the 
current information technology systems and that all reporting 
requirements, terminology, and dates conform to USDA standards and 
initiatives.
    (1) If FCIC approves the 508(h) submission and determines that its 
information technology systems have the capacity to implement and 
administer the 508(h) submission, the applicant must provide a document 
detailing acceptable computer processing requirements consistent with 
those used by RMA as shown on the RMA Web site in the Appendix III/M-13 
Handbook. This information details the acceptable computer processing 
requirements in a manner consistent with that used by RMA to facilitate 
the acceptance of producer applications and related data.
    (2) Any computer systems, requirements, code and software must be 
consistent with that used by RMA and comply with the standards 
established in Appendix III/M-13 Handbook, or any successor document, 
of the SRA or other reinsurance agreement as specified by FCIC.
    (3) These requirements are available from the USDA/Risk Management 
Agency, 2312 East Bannister Road, Kansas City, MO 64131-3011, or on 
RMA's Web site at http://www.rma.usda.gov/data/m13, or a successor Web 
site.
    (j) The ninth section submitted on separate pages and in accordance 
with Sec.  400.712 and any applicable Board procedures must specify:
    (1) The following amounts, which may be limited to the amount 
originally

[[Page 53679]]

estimated in the submission, unless the applicant can justify the 
additional costs:
    (i) For new products, the amount received for an advance payment, 
and a detailed estimate of the total amount of reimbursement for 
research and development costs; or
    (ii) For products that are within the maintenance period, an 
estimate for maintenance costs for the year that the 508(h) submission 
will be effective; and
    (2) A detailed estimate of maintenance costs for future years of 
the maintenance period and the basis that such maintenance costs will 
be incurred, including, but not limited to:
    (i) Any anticipated expansion;
    (ii) Anticipated changes or updates to policy materials;
    (iii) The generation of premium rates;
    (iv) The determination of prices; and
    (v) Any other costs that the applicant anticipates will be 
requested for reimbursement of maintenance costs or expenses;
    (k) The tenth section must contain executed (signed) certification 
statements in accordance with the following:
    (1) ``{Applicant's Name{time}  hereby claim that the basis and 
amounts set forth in this section and Sec.  400.712 are correct and due 
and owing to {Applicant's Name{time}  by FCIC under the Federal Crop 
Insurance Act''; and
    (2) ``{Applicant Name{time}  understands that, in addition to 
criminal fines and imprisonment, the 508(h) submission of false or 
fraudulent statements or claims may result in civil and administrative 
sanctions.''
    (l) The contents required for concept proposals are found in the 
Procedures Handbook 17030--Approved Procedures for Submission of 
Concept Proposals Seeking Advance Payment of Research and Development 
Costs. In addition, the proposal must provide a detailed description of 
why the concept provides insurance:
    (1) In a significantly improved form;
    (2) To a crop or region not traditionally served by the Federal 
crop insurance program; or
    (3) In a form that addresses a recognized flaw or problem in the 
program;
    (m) The contents required for index-based weather plans of 
insurance are found in the Procedures Handbook 17050--Approved 
Procedures for Submission of Index-based Weather Plans of Insurance. In 
accordance with the Board approved procedures, the approved insurance 
provider that submits the index-based weather plan of insurance must 
provide evidence they have:
    (1) Adequate experience in underwriting and administering policies 
or plans of insurance that are comparable to the proposed policy of 
plan of insurance;
    (2) Sufficient assets or reinsurance to satisfy the underwriting 
obligations of the approved insurance provider, and a sufficient 
insurance credit rating from an appropriate credit rating bureau; and
    (3) Applicable authority and approval from each State in which the 
approved insurance provider intends to sell the insurance product.


Sec.  400.706   Review.

    (a) Prior to providing a 508(h) submission, concept proposal, or 
index-based weather plan of insurance to the Board, RMA will:
    (1) Review the 508(h) submission, concept proposal, or index-based 
weather plan of insurance to determine if all required documentation is 
included in accordance with Sec.  400.705;
    (2) Review the 508(h) submission, concept proposal, or index-based 
weather plan of insurance to determine whether it is of sufficient 
quality to conduct a meaningful review such that the Board will be able 
to make an informed decision regarding approval or disapproval;
    (3) In accordance with section 508(h)(1)(B) of the Act, at its sole 
discretion, determine if the policy or plan of insurance:
    (i) Will likely result in a viable and marketable policy;
    (ii) Will provide crop insurance coverage in a significantly 
improved form; and
    (iii) Adequately protect the interests of producers.
    (4) RMA may reject and return any 508(h) submission, concept 
proposal, or index based weather plan of insurance that:
    (i) Is not complete;
    (ii) Is unlikely to result in a viable and marketable policy;
    (iii) Will not provide crop insurance coverage in a significantly 
improved form; and
    (iv) Will not adequately protect the interests of producers.
    (5) Except as provided in paragraph (a)(4) of this section, forward 
the 508(h) submission, concept proposal, or index-based weather plan of 
insurance, and the results of RMA's initial review, to the Board for 
its determination of completeness and quality.
    (b) Upon the Board's receipt of a 508(h) submission, the Board 
will:
    (1) Determine if the 508(h) submission is complete (the date the 
Board votes to contract with expert reviewers is the date the 508(h) 
submission is deemed to be complete for the start of the 120 day time-
period for approval);
    (2) Unless the 508(h) submission makes non-significant changes to a 
policy or plan of insurance, or involves policy provisions that have 
already undergone expert review, forward the complete 508(h) submission 
to at least five expert reviewers to review the 508(h) submission:
    (i) Of the five expert reviewers, no more than one will be employed 
by the Federal Government, and none may be employed by any approved 
insurance provider or their representative; and
    (ii) The expert reviewers will each provide their individual 
assessment of whether the 508(h) submission:
    (A) Protects the interests of agricultural producers and taxpayers;
    (B) Is actuarially appropriate;
    (C) Follows recognized insurance principles;
    (D) Meets the requirements of the Act;
    (E) Does not contain excessive risks (risks may be considered 
excessive if they encourage adverse selection, moral hazard, or if 
premium rates cannot be adequately or appropriately determined);
    (F) Follows sound, reasonable, and appropriate underwriting 
principles;
    (G) Will provide a new kind of coverage that is likely to be viable 
and marketable;
    (H) Will provide crop insurance coverage in a manner that addresses 
a clear and identifiable flaw or problem in an existing policy;
    (I) Will provide a new or improved coverage for a commodity that 
previously had no available crop insurance, or has demonstrated a low 
level of participation or coverage level under existing coverage;
    (J) May have a significant adverse impact on the crop insurance 
delivery system;
    (K) The marketability assessment reasonably demonstrates the 
product would be viable and marketable (if the applicant cannot obtain 
a marketability assessment by another AIP, the Board shall presume that 
the submission is unmarketable);
    (L) If applicable, contains a consultation report that provides 
evidence the 508(h) submission will not create adverse market 
distortions; and
    (M) Meets any other criteria the Board may deem necessary;
    (3) Return to the applicant any 508(h) submission the Board 
determines is not complete, along with an explanation of the reason for 
the determination and:
    (i) With respect to 508(h) submissions developed from approved 
concept proposals, the provisions in Sec.  400.712(c)(1) shall apply; 
and

[[Page 53680]]

    (ii) Except for 508(h) submissions developed from concept 
proposals, if the 508(h) submission is resubmitted at a later date, it 
will be considered a new 508(h) submission solely for the purpose of 
determining the amount of time that the Board must take action; and
    (4) For complete 508(h) submissions:
    (i) Request review by RMA to provide its assessment of whether the 
508(h) submission:
    (A) Meets the criteria listed in subsections (b)(2)(ii)(A) through 
(M);
    (B) Is consistent with USDA's public policy goals;
    (C) Does not increase or shift risk to any other FCIC reinsured 
policy;
    (D) Can be implemented, administered, and delivered effectively and 
efficiently using RMA's information technology and delivery systems; 
and
    (E) Contains requested amounts of government reinsurance, risk 
subsidy, and administrative and operating subsidies that are reasonable 
and appropriate for the type of coverage provided by the policy; and
    (ii) Seek review from the Office of the General Counsel (OGC) to 
determine if the 508(h) submission conforms to the requirements of the 
Act and all applicable Federal statutes and regulations.
    (c) Upon the Board's receipt of a concept proposal, the Board will:
    (1) Determine whether the concept proposal is complete (the date 
the Board votes to contract with expert reviewers is the date the 
concept proposal is deemed to be a complete concept proposal for the 
start of the 120 day time-period for approval);
    (2) If complete, forward the concept proposal to at least two 
expert reviewers with underwriting or actuarial experience to review 
the concept in accordance with section 522(b)(2) of the Act, this 
subpart, and Procedures Handbook 17030--Approved Procedures for 
Submission of Concept Proposals Seeking Advance Payment of Research and 
Development Costs;
    (3) Return to the applicant any concept proposal the Board 
determines is not complete, along with an explanation of the reason for 
the determination (If the concept proposal is resubmitted at a later 
date, it will be considered a new concept proposal solely for the 
purposes of determining the amount of time that the Board must take 
action);
    (4) Determine whether the concept proposal, if developed into a 
policy or plan of insurance would, in good faith, would meet the 
requirement of being likely to result in a viable and marketable policy 
consistent with section 508(h) (if the applicant cannot obtain a 
marketability assessment by another AIP, the Board shall presume that 
the submission is unmarketable);
    (5) At its sole discretion, determine whether the concept proposal, 
if developed into a policy or plan of insurance would meet the 
requirement of providing coverage:
    (i) In a significantly improved form;
    (ii) To a crop or region not traditionally served by the Federal 
crop insurance program; or
    (iii) In a form that addresses a recognized flaw or problem in the 
program;
    (6) Determine whether the proposed budget and timetable are 
reasonable;
    (7) Determine whether the concept proposal meets all other 
requirements imposed by the Board or as otherwise specified in 
Procedures Handbook 17030--Approved Procedures for Submission of 
Concept Proposals Seeking Advance Payment of Research and Development 
Costs; and
    (8) Provide a date by which the 508(h) submission must be provided 
in consultation with the applicant.
    (d) Upon the Board's receipt of an index-based weather plan of 
insurance, the Board will:
    (1) Determine whether the index-based weather plan of insurance is 
complete (the date the Board votes to contract with expert reviewers is 
the date the index-based weather plan of insurance is deemed to be 
complete for the start of the 120-day time-period for approval);
    (2) If determined to be complete, contract with five expert 
reviewers and review the index-based weather plan of insurance in 
accordance with section 523(i) of the Act, this subpart, and Procedures 
Handbook 17050--Approved Procedures for Submission of Index-based 
Weather Plans of Insurance;
    (3) Return to the applicant any index-based weather plan of 
insurance the Board determines is not complete, along with an 
explanation of the reason for the determination (if the index-based 
weather plan of insurance is resubmitted at a later date, it will be 
considered a new index-based weather plan of insurance solely for the 
purposes of determining the amount of time that the Board must take 
action); and
    (4) Give the highest priority for approval of index-based weather 
plans of insurance that provide a new kind of coverage for specialty 
crops and livestock commodities that previously had no available crop 
insurance, or have demonstrated a low level of participation under 
existing coverage.
    (e) All comments and evaluations will be provided to the Board by a 
date determined by the Board to allow the Board adequate time for 
review.
    (f) The Board will consider all comments, evaluations, and 
recommendations in its review process. Prior to making a decision, the 
Board may request additional information from RMA, OGC, the expert 
reviewers, or the applicant.
    (g) In considering whether to approve policies or plans of 
insurance and when such policies or plans of insurance will be offered 
for sale, the Board will:
    (1) First, consider policies or plans of insurance that address 
underserved commodities, including commodities for which there is no 
insurance;
    (2) Second, consider existing policies or plans of insurance for 
which there is inadequate coverage or there exists low levels of 
participation; and
    (3) Last, consider all policies or plans of insurance submitted to 
the Board that do not meet the criteria described in paragraph (g)(1) 
or (2) of this section.
    (h) At any time an applicant may request a time delay after the 
508(h) submission, concept proposal, or index-based weather plan of 
insurance has been placed on the Board meeting agenda. The Board is not 
required to agree to such an extension.
    (1) With respect to 508(h) submissions from concept proposals 
approved by the Board for advanced payment, the applicant must provide 
good cause why consideration should be delayed.
    (2) Any requested time delay is not limited in the length of time 
unless a date is set by the Board by which all revisions to the 508(h) 
submission, concept proposal or index-based weather plan of insurance 
must be made. However, delays may make implementation of the 508(h) 
submission for the targeted crop year impractical or impossible as 
determined by the Board.
    (3) The time period during which the Board will make a decision to 
approve or disapprove the 508(h) submission, concept proposal or index-
based weather plan of insurance shall be extended commensurately with 
any time delay requested by the applicant.
    (i) The applicant may withdraw a 508(h) submission, concept 
proposal, index-based weather plan of insurance, or a portion of a 
508(h) submission or concept proposal, at any time by presenting a 
request to the Board. A withdrawn 508(h) submission, concept proposal 
or index-based weather plan of insurance that is resubmitted will be 
deemed a new 508(h) submission, concept proposal, or index-based 
weather plan of insurance solely for the

[[Page 53681]]

purposes of determining the amount of time that the Board must take 
action.
    (j) The Board will render a decision on a 508(h) submission or 
index-based weather plan of insurance, with or without revision or give 
notice of intent to disapprove within 90 days after the date the 508(h) 
submission or index-based weather plan of insurance is considered 
complete by the Board, unless the Board agrees to a time delay in 
accordance with paragraph (h) of this section.
    (k) The Board may provide a notice of intent to disapprove a 508(h) 
submission if it determines:
    (1) The interests of producers and taxpayers are not protected, 
including but not limited to:
    (i) The 508(h) submission does not provide adequate coverage or 
treats producers disparately;
    (ii) The applicant has not presented sufficient documentation that 
the 508(h) submission will provide a new kind of coverage that is 
likely to be viable and marketable (if the applicant cannot obtain a 
marketability assessment by another AIP, the Board shall presume that 
the submission is unmarketable);
    (iii) Coverage would be similar to another policy or plan of 
insurance that has not demonstrated a low level of participation or 
does not contain a clear and identifiable flaw, and the producer would 
not significantly benefit from the 508(h) submission;
    (iv) The 508(h) submission may create adverse market distortions or 
adversely impact other crops or agricultural commodities if marketed;
    (v) The 508(h) submission will have a significant adverse impact on 
the private delivery system;
    (vi) The 508(h) submission cannot be implemented, administered, and 
delivered effectively and efficiently using RMA's information 
technology and delivery systems;
    (vii) The 508(h) submission contains flaws that may encourage 
adverse selection or moral hazard; or
    (viii) The 508(h) submission contains vulnerabilities that allow 
indemnities to exceed the value of the crop;
    (2) The premium rates are not actuarially appropriate;
    (3) The 508(h) submission does not conform to sound insurance and 
underwriting principles;
    (4) The risks associated with the 508(h) submission are excessive 
or it increases or shifts risk to another reinsured policy;
    (5) The 508(h) submission does not meet the requirements of the 
Act; or
    (6) The 90-day deadline under subsection (j) will expire before the 
Board has time to make an informed decision to approve or disapprove 
the 508(h) submission.
    (l) The Board may disapprove a concept proposal if it determines:
    (1) The concept, in good faith, will not likely result in a viable 
and marketable policy consistent with section 508(h);
    (2) At the sole discretion of the Board, the concept, if developed 
into a policy and approved by the Board, would not provide crop 
insurance coverage:
    (i) In a significantly improved form;
    (ii) To a crop or region not traditionally served by the Federal 
crop insurance program; or
    (iii) In a form that addresses a recognized flaw or problem in the 
program;
    (3) The proposed budget and timetable are not reasonable, as 
determined by the Board; or
    (4) The concept proposal fails to meet one or more requirements 
established by the Board.
    (m) The Board shall provide a notice of intent to disapprove an 
index-based weather plan of insurance if it determines there is not:
    (1) Adequate experience in underwriting and administering policies 
or plans of insurance that are comparable to the proposed policy or 
plan of insurance;
    (2) Sufficient assets or reinsurance to satisfy the underwriting 
obligations of the approved insurance provider, and possess a 
sufficient insurance credit rating from an appropriate credit rating 
bureau, in accordance with Board procedures; and
    (3) Applicable authority and approval from each State in which the 
approved insurance provider intends to sell the insurance product.
    (n) Unless otherwise provided for in this section:
    (1) If the Board intends to disapprove a 508(h) submission or 
index-based weather plan of insurance, the Board will provide the 
applicant with a written explanation outlining the basis for the intent 
to disapprove; and
    (2) Any approval or disapproval of a 508(h) submission, concept 
proposal, or index-based weather plan of insurance must be made by the 
Board in writing not later than 120 days after the Board has determined 
it to be complete.
    (o) If a notice of intent to disapprove all or part of a 508(h) 
submission or index-based weather plan of insurance has been provided 
by the Board, the applicant must provide written notice to the Board 
not later than 30 days after the Board provides such notice if the 
508(h) submission or index-based weather plan of insurance will be 
modified. If the applicant does not respond within the 30-day period, 
the Board will send the applicant a letter stating the 508(h) 
submission or index-based weather plan of insurance is disapproved.
    (p) If the applicant elects to modify the 508(h) submission or 
index-based weather plan of insurance:
    (1) The applicant must advise the Board of a date by which the 
modified 508(h) submission or index-based weather plan of insurance 
will be presented to the Board; and
    (2) The remainder of the time left between the Board's notice of 
intent to disapprove and the expiration of the 120-day deadline is 
paused until the modified 508(h) submission or index-based weather plan 
of insurance is received by the Board.
    (3) The Board will disapprove a modified 508(h) submission or 
index-based weather plan of insurance if the:
    (i) Causes for disapproval stated by the Board in its notification 
of intent to disapprove the 508(h) submission or index-based weather 
plan of insurance are not satisfactorily addressed;
    (ii) Board determines there is insufficient time for the Board to 
finish its review before the expiration of the 120-day deadline for 
disapproval of a 508(h) submission or index-based weather plan of 
insurance, unless the applicant grants the Board an extension of time 
to adequately consider the modified 508(h) submission or index-based 
weather plan of insurance (If an extension of time is agreed upon, the 
time period during which the Board must act on the modified 508(h) 
submission or index-based weather plan of insurance will paused during 
the extension); or
    (iii) Applicant does not present a modification of the 508(h) 
submission or index-based weather plan of insurance to the Board on the 
date the applicant specified and the applicant does not request an 
additional time delay.
    (q) If the Board fails to render a decision on a new 508(h) 
submission or index-based weather plan of insurance within the time 
periods specified in paragraph (j) or (n) of this section, such 508(h) 
submission or index-based weather plan of insurance will be deemed 
approved by the Board for the initial reinsurance year designated for 
the 508(h) submission or index-based weather plan of insurance. The 
Board must approve the 508(h) submission or index-based weather plan of 
insurance for it to be available for any subsequent reinsurance year.

[[Page 53682]]

Sec.  400.707  Presentation to the Board for approval or disapproval.

    (a) The Board will inform the applicant of the date, time, and 
place of the Board meeting.
    (b) The applicant will be given the opportunity and is encouraged 
to present the 508(h) submission, concept proposal, or index-based 
weather plan of insurance to the Board in person. The applicant must 
confirm in writing, email or fax whether the applicant will present in 
person to the Board.
    (c) If the applicant elects not to present the 508(h) submission, 
concept proposal, or index-based weather plan of insurance to the 
Board, the Board will make its decision based on the information 
provided in accordance with Sec.  400.705 and Sec.  400.706.


Sec.  400.708  Post approval.

    (a) After a 508(h) submission is approved by the Board, and prior 
to it being made available for sale to producers:
    (1) The following must be executed, as applicable:
    (i) If required by FCIC, an agreement between the applicant and 
FCIC that specifies:
    (A) In addition to the requirements in Sec.  400.709, 
responsibilities of each with respect to the implementation, delivery 
and maintenance of the 508(h) submission; and
    (B) The required timeframes for submitting any information and 
documentation needed to administer the approved 508(h) submission;
    (ii) A reinsurance agreement if the approved submission does not 
meet, or is not expected to perform in a financial manner consistent 
with the terms and conditions of the Standard Reinsurance Agreement or 
any other existing reinsurance agreement offered by FCIC in effect for 
the crop year, and that considers the interests of all participating 
AIPs; and
    (iii) A training package to facilitate implementation of the 
approved 508(h) submission;
    (2) The Board may limit the availability of coverage, for any 
policy or plan of insurance developed under the authority of the Act 
and this regulation, on any farm or in any county or area;
    (3) A 508(h) submission approved by the Board under this subpart 
will be made available to all approved insurance providers under the 
same reinsurance, subsidy, and terms and conditions as received by the 
applicant;
    (4) Any solicitation, sales, marketing, or advertising of the 
approved 508(h) submission by the applicant before FCIC has made the 
policy materials available to all interested parties through its 
official issuance system will result in the denial of reinsurance, risk 
subsidy, and A&O subsidy for those policies affected; and
    (5) The property rights to the 508(h) submission will automatically 
transfer to FCIC if the applicant elects not to maintain the 508(h) 
submission under Sec.  400.712(a)(3) or fails to notify FCIC of its 
decision to elect or not elect maintenance of the program under Sec.  
400.712(l).
    (b) Requirements and procedures for approved index-based weather 
plans of insurance are contained in Procedures Handbook 17050--Approved 
Procedures for Submission of Index-based Weather Plans of Insurance. In 
accordance with the Board approved procedures, index-based weather 
plans of insurance are not eligible for federal reinsurance, but may be 
approved for risk subsidy and A&O subsidy.


Sec.  400.709  Roles and responsibilities.

    (a) With respect to the applicant:
    (1) The applicant is responsible for:
    (i) Preparing and ensuring that all policy documents, rates of 
premium, prices, and supporting materials, including actuarial 
documents, are submitted by the deadline specified by FCIC, in the form 
approved by the Board, and are in compliance with section 508 of the 
Rehabilitation Act;
    (ii) Annually updating and providing maintenance changes no later 
than 180 days prior to the earliest contract change date for the 
commodity in all counties or states in which the policy or plan of 
insurance is sold;
    (iii) Timely addressing questions, problems or clarifications in 
regard to a policy or plan of insurance (all such resolutions for 
approved 508(h) submissions will be communicated to all approved 
insurance providers through FCIC's official issuance system); and
    (iv) If requested by the Board, providing an annual review of the 
policy's performance, in writing to the Board, 180 days prior to the 
contract change date for the plan of insurance (The first annual report 
will be submitted one full year after implementation of an approved 
policy or plan of insurance, as agreed to by the submitter and RMA);
    (2) Only the applicant may make changes to the policy, plan of 
insurance, or rates of premium approved by the Board:
    (i) Any changes to approved 508(h) submissions, both non-
significant and significant, must be submitted to FCIC in the form of a 
508(h) submission for review in accordance with this subpart no later 
than 180 days prior to the earliest contract change date for the 
commodity in all counties or states in which the policy or plan of 
insurance is sold; and
    (ii) Significant changes will be considered a new 508(h) 
submission;
    (3) Except as provided in paragraph (a)(4) of this section, the 
applicant is solely liable for any mistakes, errors, or flaws in the 
submitted policy, plan of insurance, their related materials, or the 
rates of premium that have been approved by the Board unless, or until, 
the policy or plan of insurance is transferred to FCIC in accordance 
with Sec.  400.712(l) (the applicant remains liable for any mistakes, 
errors, or flaws that occurred prior to transfer of the policy or plan 
of insurance to FCIC);
    (4) If the mistake, error, or flaw in the policy, plan of 
insurance, their related materials, or the rates of premium is 
discovered more than 45 days prior to the cancellation or termination 
date for the policy or plan of insurance, the applicant may request in 
writing that FCIC withdraw the approved policy, plan of insurance, or 
rates of premium:
    (i) Such request must state the discovered mistake, error, or flaw 
in the policy, plan of insurance, or rates of premium, and the expected 
impact on the program; and
    (ii) For all timely received requests for withdrawal, no liability 
will attach to such policies, plans of insurance, or rates of premium 
that have been withdrawn and no producer, approved insurance provider, 
or any other person will have a right of action against the applicant;
    (5) Notwithstanding the policy provisions regarding cancellation, 
any policy, plan of insurance, or rates of premium that have been 
withdrawn by the applicant, in accordance with paragraph (a)(4) of this 
section is deemed canceled and applications are deemed not accepted as 
of the date that FCIC publishes the notice of withdrawal on its Web 
site at www.rma.usda.gov.
    (i) Approved insurance providers will be notified in writing by 
FCIC that the policy, plan of insurance, or premium rates have been 
withdrawn; and
    (ii) Producers will have the option of selecting any other policy 
or plan of insurance authorized under the Act that is available in the 
area by the sales closing date for such policy or plan of insurance; 
and
    (6) Failure of the applicant to perform all of the applicant's 
responsibilities may result in the withdrawal of approval for the 
policy or plan of insurance.
    (b) With respect to FCIC:
    (1) FCIC is responsible for:

[[Page 53683]]

    (i) Conducting a review in accordance with Sec.  400.706 and 
providing its recommendations to the Board;
    (ii) With respect to 508(h) submissions:
    (A) Ensuring that all approved insurance providers receive the 
approved policy or plan of insurance, and related material, for sale to 
producers in a timely manner (All such information shall be 
communicated to all approved insurance providers through FCIC's 
official issuance system);
    (B) As applicable, ensuring that approved insurance providers 
receive reinsurance under the same terms and conditions as the 
applicant (Approved insurance providers should contact FCIC to obtain 
and execute a copy of the reinsurance agreement) if required; and
    (C) Reviewing the activities of approved insurance providers, 
agents, loss adjusters, and producers to ensure that they are in 
accordance with the terms of the policy or plan of insurance, the 
reinsurance agreement, and all applicable procedures;
    (2) FCIC will not be liable for any mistakes, errors, or flaws in 
the policy, plan of insurance, their related materials, or the rates of 
premium and no cause of action may be taken against FCIC as a result of 
such mistake, error, or flaw in a 508(h) submission or index-based 
weather plan of insurance submitted under this subpart;
    (3) If at any time prior to the cancellation date, FCIC discovers 
there is a mistake, error, or flaw in the policy, plan of insurance, 
their related materials, or the rates of premium, or any other reason 
for withdrawal of approval contained in Sec.  400.706(k) exists, FCIC 
will withdraw reinsurance for such policy or plan of insurance to all 
AIPs for the subsequent crop year (If reinsurance is denied, a written 
notice will be provided on RMA's Web site at www.rma.usda.gov);
    (4) If maintenance of the policy or plan of insurance is 
transferred to FCIC in accordance with Sec.  400.712(l), FCIC will 
assume liability for the policy or plan of insurance for any mistake, 
error, or flaw that occur after the date the policy is transferred.
    (c) If approval by the Board is withdrawn or reinsurance is denied 
for any 508(h) submission, RMA will provide such notice on its Web site 
and the approved insurance provider must cancel the policy or plan of 
insurance in accordance with its terms.


Sec.  400.710  Preemption and premium taxation.

    A policy or plan of insurance that is approved by the Board for 
FCIC reinsurance is preempted from state and local taxation. This 
preemption does not apply to index-based weather plans of insurance 
approved for premium subsidy or A&O subsidy under this part.


Sec.  400.711  Right of review, modification, and the withdrawal of 
approval.

    (a) At any time after approval, the Board may review any policy, 
plan of insurance, related material, or rates of premium approved under 
this subpart, including index-based weather plans of insurance and 
request additional information to determine whether the policy, plan of 
insurance, related material, or rates of premium comply with the 
requirements of this subpart.
    (b) The Board will notify the applicant of any problem or issue 
that may arise and allow the applicant an opportunity to make any 
needed change. If the contract change date has passed, the applicant 
will be liable for such problems or issues for the crop year in 
accordance with Sec.  400.709 until the policy may be changed.
    (c) The Board may withdraw approval for the applicable policy, plan 
of insurance or rate of premium, including index-based weather plans of 
insurance, as applicable, if:
    (1) The applicant fails to perform the responsibilities stated 
under Sec.  400.709(a);
    (2) The applicant does not timely and satisfactorily provide 
materials or resolve any issue to the Board's satisfaction so that 
necessary changes can be made prior to the earliest contract change 
date;
    (3) The Board determines the applicable policy, plan of insurance 
or rate of premium, including index-based weather plans of insurance is 
not in conformance with the Act, these regulations or the applicable 
procedures;
    (4) The policy, plan of insurance, or rates of premium are not 
sufficiently marketable according to the applicant's estimate or fails 
to perform sufficiently as determined by the Board; or
    (5) The interest of producers or tax payers is not protected or the 
continuation of the program raises questions or issues of program 
integrity.


Sec.  400.712  Research and development reimbursement, maintenance 
reimbursement, advance payments for concept proposals, and user fees.

    (a) For 508(h) submissions approved by the Board for reinsurance 
under section 508(h) of the Act:
    (1) The 508(h) submission may be eligible for a one-time payment of 
research and development costs and reimbursement of maintenance costs 
for up to four reinsurance years, as determined by the Board;
    (2) Reimbursement of research and development costs or maintenance 
costs will be considered as payment in full by FCIC for the 508(h) 
submission, and no additional amounts will be owed to the applicant if 
the 508(h) submission is transferred to FCIC in accordance with 
paragraph (l) of this section; and
    (3) If the applicant elects at any time not to continue to maintain 
the 508(h) submission, it will automatically become the property of 
FCIC and the applicant will no longer have any property rights to the 
508(h) submission and will not receive any user fees for the plan of 
insurance;
    (b) The Board approved procedures and time-frames must be followed, 
or research and development costs and maintenance costs may not be 
reimbursed.
    (1) After a 508(h) submission has been approved by the Board for 
reinsurance, to be considered for reimbursement of:
    (i) Research and development costs, the applicant must submit the 
total amount requested and all supporting documentation to FCIC by 
electronic method or by hard copy and such information must be received 
by FCIC on or before August 1 immediately following the date the 508(h) 
submission was released to approved insurance providers through FCIC's 
issuance system; or
    (ii) Maintenance costs, the applicant must submit the total amount 
requested and all supporting documentation to FCIC by electronic method 
or by hard copy and such information must be received by FCIC on or 
before August 1 of each year of the maintenance period.
    (2) Given the limitation on funds, regardless of when the request 
is received, no payment will be made prior to September 15 of the 
applicable fiscal year.
    (c) Applicants submitting a concept proposal may request an advance 
payment of up to 50 percent of the projected total research and 
development costs, and after the applicant has begun research and 
development activities, the Board may, at its sole discretion, provide 
up to an additional 25 percent advance payment of the estimated 
research and development costs, if the requirements in the definition 
of advance payment are met and the additional advance payment is 
requested in accordance with Procedures Handbook 17030--Approved 
Procedures for Submission of Concept Proposals Seeking Advance Payment 
of Research and Development Costs.
    (1) If a concept proposal is approved by the Board for advance 
payment, the applicant is responsible for

[[Page 53684]]

independently developing a 508(h) submission that is complete as 
specified in this subpart by the deadline set by the Board.
    (i) If an applicant fails to fulfill the obligation to provide a 
508(h) submission that is complete by the deadline set by the Board, 
the Board shall provide a notice of non-compliance to the applicant and 
allow not less than 30 days for the applicant to respond;
    (ii) If the applicant fails to respond, to the satisfaction of the 
Board, with just cause as to why a 508(h) submission that is complete 
was not provided by the deadline set by the Board, the applicant shall 
return the amount of the advance payment plus interest at the rate of 
1.25 percent simple interest per calendar month;
    (iii) If the applicant responds, to the satisfaction of the Board, 
with just cause as to why a 508(h) submission that is complete was not 
provided by the deadline set by the Board, the applicant will be given 
a new deadline by which to provide a 508(h) submission that is 
complete; and
    (iv) If the applicant fails to provide a 508(h) submission that is 
complete by the deadline, no additional extensions will be approved by 
the Board and the applicant shall return the amount of the advance 
payment plus interest at the rate of 1.25 percent simple interest per 
calendar month.
    (2) If an applicant receives an advance payment for a portion of 
the expected research and development costs for a concept proposal that 
is developed into a 508(h) submission and determined by the Board to be 
complete, but the 508(h) submission is not approved by the Board 
following expert review, the Board will not:
    (i) Seek a refund of any advance payments for research and 
development costs; and
    (ii) Make any further research and development cost reimbursements 
associated with the 508(h) submission.
    (d) Under section 522 of the Act, there are limited funds available 
on an annual fiscal year basis to pay for reimbursements of research 
and development costs (including advance payments for concept 
proposals) and maintenance costs. Consistent with paragraphs (e) 
through (j) of this section if all applicants' requests for 
reimbursement of research and development costs (including advance 
payments for concept proposals) and maintenance costs in any fiscal 
year:
    (1) Do not exceed the maximum amount authorized by law, the 
applicants may receive the full amount of reimbursement determined 
reasonable by the Board; or
    (2) Exceed the amount authorized by law, each applicant's 
reimbursement determined reasonable by the Board will be determined by 
dividing the total amount of each individual applicant's reimbursable 
costs authorized in paragraphs (e) through (j) of this section by the 
total amount of the aggregate of all applicants' reimbursable costs 
authorized in paragraphs (e) through (j) for the year and multiplying 
the result by the amount of reimbursement authorized under the Act.
    (e) The amount of reimbursement for research and development costs 
and maintenance costs requested by the applicant may be reduced as 
necessary when the requested amount is not commensurate with the 
complexity or the size of the area proposed to be covered.
    (f) Research and development costs and maintenance costs must be 
supported by itemized statements and supporting documentation (copies 
of contracts, billing statements, time sheets, travel vouchers, 
accounting ledgers, etc.).
    (1) Actual costs submitted will be examined for reasonableness and 
may be adjusted at the sole discretion of the Board.
    (2) Allowable research and development costs and maintenance costs 
(directly related to research and development or maintenance of the 
508(h) submission only) may include the following:
    (i) Wages and benefits, exclusive of bonuses, overtime pay, or 
shift differentials;
    (A) One line per employee or contractor, include job title, total 
hours, and total dollars;
    (B) The rates charged must be commensurate with the tasks performed 
(For example, a person performing the task of data entry should not be 
paid at the rate for performing data analysis);
    (C) The wage rate and benefits shall not exceed two times the 
hourly wage rate plus benefits provided by the Bureau of Labor 
Statistics; and
    (D) The applicant must report any familial or business relationship 
that exists between the applicant and the contractor or employee 
(Reimbursement may be limited or denied if the contractor or employee 
is associated to the applicant and they may be considered as one and 
the same. This includes a separate entity being created by the 
applicant to conduct research and development. Reimbursement may be 
limited or denied if the contractor is paid a salary or other 
compensation);
    (ii) Travel and transportation (One line per event, include the job 
title, destination, purpose of travel, lodging cost, mileage, air or 
other identified transportation costs, food and miscellaneous expenses, 
other costs, and the total cost);
    (iii) Software and computer programming developed specifically to 
determine appropriate rates, prices, or coverage amounts (Identify the 
item, include the purpose, and provide receipts or contract or 
straight-time hourly wage, hours, and total cost. Software developed to 
send or receive data between the producer, agent, approved insurance 
provider or RMA or such other similar software may not be included as 
an allowable cost);
    (iv) Miscellaneous expenses such as postage, telephone, express 
mail, and printing (Identify the item, cost per unit, number of items, 
and total dollars); and
    (v) Training costs expended to facilitate implementation of a new 
approved 508(h) submission (Include instructor(s) hourly rate, hours, 
and cost of materials and travel) conducted at a national level, 
directed to all approved insurance providers interested in selling the 
508(h) submission, and approved prior to the training by RMA).
    (3) The following expenses are specifically not eligible for 
research and development and maintenance cost reimbursement:
    (i) Copyright fees, patent fees, or any other charges, costs or 
expenses related to the use of intellectual property;
    (ii) Training costs, excluding training costs to facilitate 
implementation of the approved 508(h) submission in accordance with 
subsection (f)(2)(v);
    (iii) State filing fees and expenses;
    (iv) Normal ongoing administrative expenses or indirect overhead 
costs (for example, costs associated with the management or general 
functions of an organization, such as costs for internet service, 
telephone, utilities, and office supplies);
    (v) Paid or incurred losses;
    (vi) Loss adjustment expenses;
    (vii) Sales commission;
    (viii) Marketing costs;
    (ix) Lobbying costs;
    (x) Product or applicant liability resulting from the research, 
development, preparation or marketing of the policy;
    (xi) Copyright infringement claims resulting from the research, 
development, preparation or marketing of the policy;
    (xii) Costs of making program changes as a result of any mistakes, 
errors or flaws in the policy or plan of insurance;
    (xiii) Costs associated with building rents or space allocation;

[[Page 53685]]

    (xiv) Costs in paragraphs (i) and (j) of this section determined by 
the Board to be ineligible for reimbursement; and
    (xv) Local, State, or Federal taxes.
    (g) Requests for reimbursement of maintenance costs must be 
supported by itemized statements and supporting documentary evidence 
for each reinsurance year in the maintenance period.
    (1) Actual costs submitted will be examined for reasonableness and 
may be adjusted at the sole discretion of the Board.
    (2) Maintenance costs for the following activities may be 
reimbursed:
    (i) Expansion of the original 508(h) submission into additional 
crops, counties or states;
    (ii) Non-significant changes to the policy and any related 
material;
    (iii) Non-significant or significant changes to the policy as 
necessary to protect program integrity or as required by Congress; and
    (iv) Any other activity that qualifies as maintenance.
    (h) Projected costs for research and development for concept 
proposals shall be based on a detailed estimate of the costs allowed in 
paragraph (f) of this section. Since costs are one measurement of the 
viability to develop an efficient policy, the Board may limit 
reimbursements for research and development to the estimated costs 
contained in the concept proposal, unless the submitter can justify a 
higher reimbursement in accordance with Board procedures.
    (i) If a 508(h) submission is determined to be incomplete and is 
subsequently resubmitted and approved, the costs to perfect the 508(h) 
submission may not be considered reimbursable costs depending on the 
level of insufficiency or incompleteness of the 508(h) submission, as 
determined at the sole discretion of the Board.
    (j) Reimbursement of costs associated with addressing issues raised 
by the Board, expert reviewers and RMA will be evaluated based on the 
substance of the issue and the amount of time reasonably necessary to 
address the specific issue. Delays and additional costs caused by the 
inability or refusal to adequately address issues may not be considered 
reimbursable, as determined at the sole discretion of the Board.
    (k) If the Board withdraws its approval for reinsurance at any time 
during the period that reimbursement for maintenance is being made or 
user fees are being collected, no maintenance reimbursement shall be 
made nor any user fee be owed after the date of such withdrawal.
    (l) Not later than 180 days prior to the end of the last 
reinsurance year in which a maintenance reimbursement will be paid for 
the approved 508(h) submission, the applicant must notify FCIC in 
writing regarding its decision on future ownership and maintenance of 
the policy or plan of insurance.
    (1) The applicant must notify FCIC in writing whether it intends 
to:
    (i) Continue to maintain the policy or plan of insurance and charge 
approved insurance providers a user fee to cover maintenance expenses 
for all policies earning premium; or
    (ii) Transfer responsibility for maintenance to FCIC.
    (2) If the applicant fails to notify FCIC in writing by the 
deadline, the policy or plan of insurance will automatically transfer 
to FCIC beginning with the next reinsurance year.
    (3) If the applicant elects to:
    (i) Continue to maintain the policy or plan of insurance, the 
applicant must submit a request for approval of the user fee by the 
Board at the time of the election; or
    (ii) Transfer the policy or plan of insurance to FCIC, FCIC may at 
its sole discretion, continue to maintain the policy or plan of 
insurance or elect to withdraw the availability of the policy or plan 
of insurance.
    (4) Requests for approval of the user fee must be accompanied by 
written documentation to support the amount requested will only cover 
direct costs to maintain the plan of insurance. Costs that are not 
eligible for research and development and maintenance reimbursements 
under this section are not eligible to be considered for determining 
the user fee.
    (5) The Board will approve the amount of user fee, including the 
maximum amount of total maintenance that may be collected per year, 
that is payable to the applicant by approved insurance providers unless 
the Board determines that the user fee charged:
    (i) Is unreasonable in relation to the maintenance costs associated 
with the policy or plan of insurance; or
    (ii) Unnecessarily inhibits the use of the policy or plan of 
insurance by approved insurance providers.
    (6) If the total user fee exceeds the maximum amount determined by 
the Board, the maximum amount determined by the Board will be divided 
by the number of policies earning premium to determine the amount to be 
paid by each approved insurance provider.
    (7) Reasonableness of the initial request to charge a user fee will 
be determined by the Board based on a comparison of the amount of 
reimbursement for maintenance previously received, the number of 
policies, the number of approved insurance providers, and the expected 
total amount of user fees to be received in any reinsurance year.
    (8) A user fee unnecessarily inhibits the use of a policy or plan 
of insurance if it is so high that approved insurance providers will 
not sell the policy, or the user fee represents an unreasonable portion 
of the A&O subsidy paid to the AIP such that it prevents the AIP from 
meeting its other obligations under the SRA.
    (9) The user fee charged to each approved insurance provider will 
be considered payment in full for the use of such policy, plan of 
insurance or rate of premium for the reinsurance year in which payment 
is made.
    (10) It is the sole responsibility of the applicant to collect such 
fees from an approved insurance provider and any indebtedness for such 
fees must be resolved by the applicant and approved insurance provider.
    (i) Applicants may request that FCIC provide the number of policies 
sold by each approved insurance provider.
    (ii) Such information will be provided not later than 90 days after 
such request is made or not later than 90 days after the requisite 
information has been provided to FCIC by the approved insurance 
provider, whichever is later.
    (11) Every two years after approval of a user fee, or if the 
applicant has made a significant change to the approved 508(h) 
submission, applicants must submit documentation to the Board for 
review in determining if the user fee should be revised.
    (12) The Board may review the amount of the user fee at any time at 
its sole discretion.
    (m) The Board may consider information from the Equal Access to 
Justice Act, 5 U.S.C. 504, the Bureau of Labor Statistic's Occupational 
Employment Statistics Survey, the Bureau of Labor Statistic's 
Employment Cost Index, and any other information determined applicable 
by the Board, in making a determination whether to approve a 508(h) 
submission for reimbursement of research and development costs, 
maintenance costs, or user fees.
    (n) For purposes of this section, rights to, or obligations of, 
research and development cost reimbursement, maintenance cost 
reimbursement, or user fees cannot be transferred from any individual 
or entity unless specifically approved in writing by the Board.
    (o) Applicants requesting reimbursement for research and 
development costs, maintenance costs,

[[Page 53686]]

or user fees, may present their request in person to the Board prior to 
consideration for approval.
    (p) Index-based weather plans of insurance are not eligible for 
reimbursement from FCIC for maintenance costs or research and 
development costs. Submitters of approved index-based weather plans of 
insurance may collect user fees from other approved insurance providers 
in accordance with Procedures Handbook 17050--Approved Procedures for 
Submission of Index-based Weather Plans of Insurance.


Sec.  400.713  Non-reinsured supplemental (NRS) policy.

    (a) Unless otherwise specified by FCIC, any NRS policy that covers 
the same agricultural commodity as any policy reinsured by FCIC under 
the Act must be provided to RMA to ensure it does not shift any loss or 
risk that does not exist under the FCIC reinsured policy. Failure to 
provide such NRS policy or endorsement to RMA prior to its issuance 
shall result in the denial of reinsurance, A&O subsidy, and risk 
subsidy on all underlying FCIC reinsured policies unless the underlying 
FCIC policy was sold by another AIP. If the underlying FCIC reinsured 
policy is sold by another AIP, the AIP that sold the NRS may be 
required to pay FCIC an amount equal to the reinsurance, A&O subsidy, 
and risk subsidy on the underlying FCIC policy.
    (b) An electronic copy in Microsoft Office compatible format, of 
the new or revised NRS policy and related materials must be submitted 
at least 150 days prior to the first sales closing date applicable to 
the NRS policy. At a minimum, examples that demonstrate how liability 
and indemnities are calculated under differing scenarios must be 
included. Electronic copies of the NRS must be sent to the Deputy 
Administrator for Product Management (or successor) at 
[email protected].
    (c) RMA will review the NRS policy. If any of the conditions found 
in paragraphs (c)(1) through (5) of this section are found to occur, 
FCIC will notify the AIP that submitted the NRS policy that if they 
sell the NRS policy, it will result in denial of reinsurance, A&O 
subsidy, and risk subsidy on all underlying FCIC reinsured policies, 
unless the underlying FCIC policy was sold by another AIP. If the 
underlying FCIC reinsured policy is sold by another AIP, the AIP that 
sold the NRS may be required to pay FCIC an amount equal to the 
reinsurance, A&O subsidy, and risk subsidy on the underlying FCIC 
policy.
    (1) If the NRS policy materially increases or shifts risk to the 
underlying policy or plan of insurance reinsured by FCIC.
    (i) An NRS policy will be considered to materially increase or 
shift risk to the underlying policy or plan of insurance reinsured by 
FCIC if RMA determines it:
    (A) Creates a moral hazard, such as a financial incentive for the 
policyholder to behave in a way that increases the number or size of 
losses;
    (B) Results in the underlying FCIC policy either triggering a loss 
sooner, or paying a larger indemnity than would otherwise be allowed by 
the terms and conditions of the underlying reinsured policy; or
    (C) Allows for combined indemnities between the underlying FCIC 
reinsured policy and the NRS that are in excess of the value a producer 
would reasonably expect to receive for the insured commodity if a 
normal crop was produced and sold at a reasonable market price.
    (ii) The NRS must include language that clearly states no indemnity 
will be paid in excess of the initial value of the insured commodity.
    (2) The NRS reduces or limits the rights of the insured with 
respect to the underlying policy or plan of insurance reinsured by 
FCIC. An NRS policy will be considered to reduce or limit the rights of 
the insured with respect to the underlying policy or plan of insurance 
if RMA determines it affects, alters, preempts, or undermines the terms 
or conditions of the underlying policy or procedures issued by FCIC.
    (3) The NRS disrupts the marketplace. An NRS policy will be 
considered to disrupt the marketplace if RMA determines it encourages 
planting more acres of the insured commodity in excess of normal market 
demand, adversely affects the sales or administration of reinsured 
policies, undermines producers' confidence in the Federal crop 
insurance program, or harms public perception of the Federal crop 
insurance program.
    (4) The NRS is an impermissible rebate. An NRS may be considered to 
be an impermissible rebate if RMA determines that the premium rates 
charged are insufficient to cover the expected losses and a reasonable 
reserve or it offers other benefits that are generally provided at a 
cost.
    (5) The NRS policy is conditioned upon or provides incentive for 
the purchase of the underlying policy or plan of insurance reinsured by 
FCIC with a specific agent or approved insurance provider.
    (d) RMA will respond not less than 75 days before the first sales 
closing date or provide notice why RMA is unable to respond within the 
time frame allotted.
    (e) NRS policies reviewed by RMA will need to be submitted once 
every five years unless a change is made to the NRS or the underlying 
policy. Once any changes are made to either policy, or the five year 
period has concluded, the NRS must be resubmitted for review.

    Signed in Washington, DC, on August 2, 2016.
Timothy J. Gannon,
Acting Manager, Federal Crop Insurance Corporation.
[FR Doc. 2016-18743 Filed 8-11-16; 8:45 am]
 BILLING CODE 3410-08-P



                                                 53658              Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations

                                                 DEPARTMENT OF AGRICULTURE                                  A total of 80 comments were received               direction that encourages the smaller
                                                                                                         from 10 commenters. The commenters                    agricultural businesses in their region.
                                                 Federal Crop Insurance Corporation                      were insurance providers, insurance                      Response: FCIC appreciates the
                                                                                                         organizations, grower organizations,                  commenter’s support for the Federal
                                                 7 CFR Part 400                                          crop insurance product developers, and                crop insurance program.
                                                 [Docket No. FCIC–13–0006]                               a business council.                                      Comment: A commenter offered a
                                                                                                            The public comments received                       general concern with the 508(h) process,
                                                 RIN 0563–AC46                                           regarding the proposed rule and FCIC’s                which is that any individual or
                                                                                                         responses to the comments are as                      organization can submit a proposal
                                                 Submission of Policies, Provisions of                   follows:
                                                 Policies, Rates of Premium, and Non-                                                                          following the guidelines in these
                                                 Reinsured Supplemental Policies                         General                                               regulations even if they do not plan to
                                                                                                                                                               write or retain any of the risk for the
                                                 AGENCY:  Federal Crop Insurance                           Comment: A commenter stated they
                                                                                                                                                               proposed program. While the submitter
                                                 Corporation, USDA.                                      believe the 508(h) process serves
                                                                                                                                                               must have a commitment in writing
                                                                                                         agriculture well. The commenter
                                                 ACTION: Final rule.                                                                                           from at least one approved insurance
                                                                                                         believes Congress intended the 508(h)
                                                                                                                                                               provider (AIP) to sell and support the
                                                 SUMMARY:   The Federal Crop Insurance                   process to protect the best interest of
                                                                                                                                                               policy or plan of insurance, this is often
                                                 Corporation (FCIC) finalizes the General                most growers through inclusion in the
                                                                                                         farm bill. As the size of government                  very informal and the supporting AIP
                                                 Administrative Regulation—Subpart                                                                             will generally have little or no
                                                 V—Submission of Policies, Provisions                    shrinks, the ability to engage the private
                                                                                                         sector in creating functional insurance               involvement in the development
                                                 of Policies, Rates of Premium, and Non-                                                                       process of such product. These
                                                 Reinsured Supplemental Policies. The                    products will grow. In serving the
                                                                                                         American farmer, and to be consistent                 developers establish all of the terms,
                                                 intended effect of this action is to                                                                          conditions, and rates for the proposed
                                                 incorporate legislative changes to the                  with the farm bill, RMA should seek a
                                                                                                         vibrant and functional regulation that                program, but often have no exposure to
                                                 Federal Crop Insurance Act (Act)                                                                              the actual results that may occur from
                                                 stemming from the Agricultural Act of                   will encourage development of
                                                                                                         insurance products. A clear regulation                the product that is developed. The AIPs
                                                 2014, clarify existing regulations, lessen                                                                    who choose to participate in these
                                                 the burden on submitters of crop                        would be a step in the right direction.
                                                                                                           Response: FCIC agrees with the                      approved 508(h) submissions retain the
                                                 insurance policies, provisions of                                                                             risk for such coverages and suffer the
                                                 policies, or rates of premium under                     commenter that the regulation should be
                                                                                                         written as clearly as possible. FCIC has              consequences of any flaws or
                                                 section 508(h) of the Act, provide                                                                            deficiencies that may exist with them.
                                                 guidance on the submission and                          made a number of changes in the final
                                                                                                         rule to clarify provisions in the                     The commenter proposed that the FCIC
                                                 payment for concept proposals under                                                                           should allow the opportunity for AIPs
                                                                                                         regulation.
                                                 section 522 of the Act, provide                                                                               who choose to participate in writing
                                                                                                           Comment: A commenter offered
                                                 provisions for submission and approval                  support for the proposed rule. The                    these approved 508(h) submissions to
                                                 of index-based weather plans of                         commenter stated they believe that                    reduce their risk exposure for these
                                                 insurance as authorized by section                      under the current rules, smaller farmers              programs beyond what is currently
                                                 523(i) of the Act, and to incorporate                   and organizations are placed at a                     allowed during the initial years until a
                                                 changes that are consistent with those                  competitive disadvantage compared to                  credible number of years of experience
                                                 made in the Common Crop Insurance                       large corporate farms due to the current              have been developed to determine the
                                                 Policy Basic Provisions (Basic                          procedures favoring these bigger                      adequacy of the program from both an
                                                 Provisions).                                            businesses. The commenter stated they                 underwriting and rating standpoint.
                                                 DATES: This rule is effective September                 believe that under the current proposal,                 Response: FCIC agrees that the current
                                                 12, 2016.                                               these procedures would be simplified to               regulations do not contain enough
                                                 FOR FURTHER INFORMATION CONTACT: Tim                    facilitate increased access to FCIC’s                 involvement of the AIP in the
                                                 Hoffmann, Product Administration and                    services by smaller farmers, commodity                development process or consideration of
                                                 Standards Division, Risk Management                     groups, and others to make it easier for              the impact of the submission on other
                                                 Agency, United States Department of                     these producers to develop brand new                  AIPs and the delivery system. As a
                                                 Agriculture, Beacon Facility, Stop 0812,                programs. In that light, the commenter                result, FCIC is adding provisions that
                                                 Room 421, P.O. Box 419205, Kansas                       also favors the expansion of FCIC’s                   require a more formal involvement by
                                                 City, MO 64141–6205, telephone (816)                    current programs in western                           an AIP in the development process,
                                                 926–7730.                                               Washington to include many crops                      requiring that an AIP be included as a
                                                 SUPPLEMENTARY INFORMATION:                              which are classed as specialty crops and              submitter, and having that AIP and one
                                                                                                         currently not covered by FCIC. The                    other independent AIP provide an
                                                 Background                                              commenter stated they value their                     assessment of marketability, risks, and
                                                   This rule finalizes changes to the                    agricultural industry in western                      anticipated impacts on the delivery
                                                 General Administrative Regulation—                      Washington and the working                            system. With respect to the risks, AIPs
                                                 Subpart V—Submission of Policies,                       relationship they have with many of the               can independently assess the potential
                                                 Provisions of Policies, Rates of                        local farmers. Moreover, the commenter                risk of a privately developed policy, and
                                                 Premium, and Non-Reinsured                              stated they are committed to supporting               based on their own assessment, may
                                                 Supplemental Policies (7 CFR part 400,                  the small agricultural industry and                   choose whether or not to sell the
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                                                 subpart V), that were published by FCIC                 continuing to work with farmers,                      product. AIPs have the option to reduce
                                                 on February 25, 2015, as a notice of                    especially at the individual and small                their risk exposure by assigning higher
                                                 proposed rulemaking in the Federal                      producer level, in addressing collective              risk policies to the Assigned Risk Fund
                                                 Register at 80 FR 10008—10022. The                      interests. The commenter sees the                     under the Standard Reinsurance
                                                 public was afforded 60 days to submit                   proposed simplification of the                        Agreement (SRA), a fund that
                                                 comments after the regulation was                       procedures and expansion of crops                     significantly limits risk exposure to the
                                                 published in the Federal Register.                      covered as positive and vital steps in a              AIP and transfers that risk to FCIC.


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                                                                    Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations                                        53659

                                                    Comment: A commenter stated that                     begun research and development’’                      also be removed from the definition.
                                                 this regulation incorporates language to                should be moved to the end of the                     Meaningful should also be described
                                                 address the index-based weather plans                   definition to eliminate any possible                  within § 400.705. The commenter
                                                 of insurance, which were authorized by                  confusion.                                            suggested the following revised
                                                 the Agricultural Act of 2014 (2014 Farm                    Response: FCIC agrees with the                     definition of complete: ‘‘a submission,
                                                 Bill). One of the requirements for these                commenter and moved the phrase to                     concept proposal, or index-based
                                                 products is that they must first be                     prevent possible confusion. In addition,              weather plan of insurance that contains
                                                 approved by the applicable regulatory                   FCIC added the 25 percent advance                     all required documentation shown at
                                                 authority for the state in which the AIP                payment requirements from the Federal                 § 400.705.’’
                                                 intends to offer the product. The                       Crop Insurance Act. These requirements                   Response: FCIC disagrees with the
                                                 commenter stated their understanding is                 are as follows: (1) The concept proposal              commenter that the definition of
                                                 that there are currently no states that                 will provide coverage for a region or                 ‘‘complete’’ is subjective. The definition
                                                 will approve these type of products as                  crop that is underserved, including                   relies on submitters meeting the
                                                 they are considered to be derivative                    specialty crops; and (2) the submitter is             requirements in § 400.705 and the
                                                 products whereby the product may                        making satisfactory progress towards                  submission must be of ‘‘sufficient
                                                 allow a loss payment to be made even                    developing a viable and marketable                    quality’’ as defined in § 400.701.
                                                 though no physical damage to the crop                   508(h) submission. FCIC intended to                   Sufficient quality is not a performance
                                                 has occurred. If no states will approve                 include these requirements in the                     standard so much as it is a
                                                 such products, this effectively makes                   Procedures Handbook 17030—                            determination of whether there is
                                                 the additional language addressing such                 Approved Procedures for Submission of                 adequate information to consider the
                                                 index-based weather plans of insurance                  Concept Proposals Seeking Advance                     submission comprehensive enough and
                                                 meaningless. The commenter                              Payment of Research and Development                   complete to allow for a meaningful
                                                 recommended that the RMA consider                       Costs, but determined it more                         external reviewer to provide their
                                                 not including any reference to index-                   appropriate to include these in this                  assessment of the product submitted.
                                                 based weather plans of insurance until                  regulation. However, the evidence                     The main purpose of a determination of
                                                 such time that a state regulatory                       necessary to show satisfactory progress,              completeness is to determine whether to
                                                 authority will approve a product of this                or to determine if the crop or region is              send the submission for external expert
                                                 nature. Otherwise, the portion of the                   underserved, may be included in the                   review. Therefore, in addition to
                                                 regulation related to index-based                       Procedures Handbook 17030—                            providing the required information, it is
                                                 weather products is not implementable.                  Approved Procedures for Submission of                 also necessary that the information
                                                    Response: The proposed rule required                 Concept Proposals Seeking Advance                     provided is of sufficient quality in order
                                                 that index-based weather plans of                       Payment of Research and Development                   for external expert reviewers to conduct
                                                 insurance must first be approved by the                 Costs.                                                a meaningful review and be able to
                                                 state in which they will be sold prior to                  Comment: A commenter stated that                   determine if the 508(h) submission
                                                 FCIC approval. This provision is                        the definition of the term ‘‘complete’’ is            meets the standards for approval by the
                                                 necessary because these products are                    confusing or subjective. The commenter                Board. There is a cost for external
                                                 not reinsured by FCIC, so the provisions                stated the definition of complete in                  reviews so sufficient quality of a 508(h)
                                                 regarding Federal preemption do not                     § 400.701 attempts to redefine the word               submission is an important
                                                 apply. Each state will be required to                   to include unrelated subjects. This can               consideration for quality external expert
                                                 regulate the sale and service of these                  be very confusing, especially because                 reviews that provide the Board with
                                                 index-based weather plans of insurance.                 the word complete is hardly a term of                 meaningful feedback and analysis, and
                                                 Regardless of whether any states have                   art. A better definition of complete                  make prudent use of public funds. The
                                                 previously approved any index-based                     would be found in any dictionary. The                 definition in the dictionary would be
                                                 weather plans of insurance, FCIC is                     commenter suggested a 508(h)                          insufficient to evaluate the information
                                                 obligated to implement the process for                  submission be considered either                       necessary to determine completeness.
                                                 submitting, reviewing, approving, and                   complete or not complete (although the                No change has been made.
                                                 implementing these products in                          commenter suggested materiality should                   Comment: A commenter stated that
                                                 accordance with the Federal Crop                        be considered) if it contains the required            the definition of ‘‘complexity’’ should
                                                 Insurance Act because states may elect                  elements in § 400.705. The term                       be eliminated from the final rule. A
                                                 to approve such plans of insurance in                   ‘‘sufficient quality’’ is included within             developer’s notion of complexity has
                                                 the future. In such case, for any index-                the definition of complete, but is a                  little to do with any of the factors
                                                 based weather plan of insurance that                    performance standard. Performance                     considered in the proposed rule.
                                                 may be approved by a state, the process                 standards are better placed within                    Underwriting complexity arises from
                                                 to submit, review, approve, and                         § 400.705. The inclusion of performance               the identification and treatment of risk.
                                                 implement such plans of insurance will                  standards within a definition is suspect.             Tying complexity to the format of
                                                 timely be in place.                                     Significant effort will be expended to                existing crop insurance policy materials
                                                                                                         develop concept proposals and 508(h)                  is naı̈ve. Actuarial complexity resides
                                                 § 400.701—Definitions                                   submissions. In fact, it is a very                    with the types, quantity and quality of
                                                   Comment: A commenter stated that                      reasonable assumption that the                        available price and yield data. Crops
                                                 the definition of ‘‘advanced payment’’                  submitting public will invest tens of                 with significant recorded histories are
                                                 as proposed, could be read to allow 50                  thousands of hours (if not hundreds of                significantly easier to work with than
                                                 percent of the development cost after                   thousands of hours) in efforts to                     crops with sparse or scattered data. The
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                                                 the applicant has begun research and                    improve the crop insurance system                     proposed methodology has little to do
                                                 development activities. The commenter                   under this rule. FCIC can support the                 with a complexity determination. In
                                                 contends the intent of the definition is                improvements certain to come out of the               addition, the complexity determination
                                                 to allow an additional 25 percent                       private sector by expending relatively                seems to be a discriminatory tool placed
                                                 advance payment after research and                      small efforts to clearly codify its notion            against grower organizations needing
                                                 development activities are underway.                    as to what is sufficient quality. The term            crop insurance programs. The
                                                 The phrase ‘‘after the applicant has                    ‘‘meaningful’’ is subjective and should               complexity determination can and will


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                                                 53660              Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations

                                                 discourage developers from treating                     Act based on type of submission and                   delivery system includes the AIPs.
                                                 specialty crop insurable risks. Whereas                 amount of work required and the size of               However, there are numerous other
                                                 the generally accepted notion of a                      the area proposed to be covered.                      entities that are necessary to sell and
                                                 professional risk manager is to reduce                     Comment: A commenter stated that                   service policies to producers. Therefore,
                                                 risk, the complexity determination is                   the definition of ‘‘concept proposal’’                FCIC agrees with the commenter that
                                                 certain to increase risk for developers                 stretches into evaluative criteria. The               the second sentence containing the
                                                 precisely where an insurance treatment                  definition introduces a new concept,                  phrase ‘‘includes but is not limited to’’
                                                 of risk is often needed. The commenter                  ‘‘enough information.’’ This section of               is not necessary. Therefore, the
                                                 concludes that the discriminatory                       the proposed rule should be limited to                definition has been retained in the final
                                                 complexity determination should be                      the section title, ‘‘Definitions.’’ A more            rule, but the second sentence has been
                                                 eliminated from the final rule so that all              accurate definition would be: ‘‘A                     removed.
                                                 grower groups have equal access to the                  written proposal for the funding of                      Comment: A commenter stated that
                                                 benefits of crop insurance.                             research and development of a crop                    portions of the definition of
                                                    Response: FCIC disagrees with the                    insurance plan that will comply with                  ‘‘maintenance,’’ regarding the addition
                                                 commenter that the definition of                        the provisions of this rule and                       of a new commodity and concept
                                                 ‘‘complexity’’ should be removed. First,                authorized by section 522 of the Act.’’               proposals that are similar to a
                                                 the Board is required to consider                       Whether the concept proposal is                       previously approved 508(h) submission,
                                                 complexity when assessing the                           complete or of sufficient quality are                 should be removed. The commenter
                                                                                                         evaluative criteria best managed in their             stated that it seems new insured crops
                                                 reimbursement of costs under section
                                                                                                         proper location (§ 400.705) and not                   and new concept proposals should be
                                                 522(b)(6) of the Act. Therefore, a
                                                                                                         within the definitions section.                       eligible for advance payments and a full
                                                 standard for determining complexity is                     Response: FCIC agrees with the                     four reinsurance years of maintenance
                                                 required. Second, this provision is                     commenter that the proposed use of the                expenses in accordance with the Act.
                                                 neither intended nor expected to                        phrase ‘‘enough information’’ in the                  The portion of the definition that
                                                 discourage development of products for                  definition of ‘‘concept proposal’’ is                 considers expanding a 508(h) program
                                                 specialty crops. However, the use of the                vague and subjective. A better approach               maintenance, restricts the ability of
                                                 term ‘‘processes’’ is unclear and the                   would be to reference where the                       farmers to receive the benefits of crop
                                                 term has been removed in the final rule                 required information is contained. FCIC               insurance. The result is discriminatory
                                                 and replaced with the phrase ‘‘all other                has revised the definition by removing                because it prevents developers from
                                                 steps required.’’ FCIC recognizes the                   the phrase ‘‘enough information’’ and                 expanding a program into a new area if
                                                 complexity of a product should be                       replacing it with a reference to this                 the program is successful. For example,
                                                 reflected in the level of effort it takes to            regulation and the Procedures                         developers manage their risk by limiting
                                                 complete a particular submission                        Handbook 17030—Approved                               the scope of the program. USDA rules,
                                                 requirement. The purpose of these                       Procedures for Submission of Concept                  rather than encouraging the expansion
                                                 provisions is to protect taxpayer dollars               Proposals Seeking Advance Payment of                  of crop insurance, in fact cause
                                                 by reimbursing developers appropriate                   Research and Development Costs, which                 developers to cautiously approach the
                                                 amounts to reflect the level of effort and              can be found on the RMA Web site at                   development problem. For a developer,
                                                 work performed. This allows                             www.rma.usda.gov.                                     risk management may involve limiting
                                                 distinctions to be made between                            Comment: A few commenters stated                   the scope of the program to avoid the
                                                 submissions that may simply add a new                   that the definition of ‘‘delivery system’’            potential financial losses from having
                                                 coverage to an existing policy without                  should be modified. One commenter                     the current arbitrary standards, and the
                                                 changing the policy terms,                              stated that the phrase ‘‘but is not limited           increasingly arbitrary standards shown
                                                 underwriting, or premium rating and                     to’’ is not a necessary component of the              in this proposed rule, reducing their
                                                 submissions that create whole new                       definition and recommended that the                   operating capital. This is particularly a
                                                 plans of insurance that measure risk                    phrase be removed from the definition                 problem given the Board’s resistance to
                                                 differently than the yield or revenue                   of ‘‘delivery system.’’ Several                       expanding approved 508(h) products
                                                 based policies available under the                      commenters stated that this definition                into other territories due to an over-
                                                 Common Crop Insurance Policy (7 CFR                     would undermine the private-public                    cautious approach on the part of the
                                                 part 457) and the Area Risk Protection                  partnership that has been the                         Board and a failure to understand the
                                                 Policy (7 CFR part 407). Completely                     cornerstone of Federal Crop Insurance                 substantive risk the 508(h) process
                                                 new plans of insurance may require new                  for 35 years. One of the commenters                   presents to developers. Unfortunately,
                                                 underwriting and loss adjustment                        suggested this definition be stricken                 with this regulation, including this
                                                 handbooks or premium rating                             from the proposed rule. The commenter                 definition of maintenance, the FCIC
                                                 methodology and that will be reflected                  stated that when the United States                    continues to pressure developers, with
                                                 in the research and development for the                 Congress and American agriculture have                the result being fewer growers served by
                                                 submission. Presently, regardless of the                placed so much responsibility and                     the insurance program.
                                                 type of submission, most requests are                   confidence in Federal Crop Insurance                     Response: FCIC disagrees with the
                                                 generally near the same dollar amount,                  and just recently emphasized and                      commenter that the language in the
                                                 even though the level of work required                  renewed their trust in the context of the             definition of ‘‘maintenance’’ regarding
                                                 may not be the same. This gives the                     2014 Farm Bill, this provision of the                 the addition of a new commodity and
                                                 Board the discretion to reduce payments                 rule, which could very well be used to                concept proposals should be removed.
                                                 to submissions where the costs seem                     undermine the entire system, is both                  FCIC disagrees this language is
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                                                 excessive for the amount of work                        perplexing and especially ill-timed.                  discriminatory and arbitrary. The
                                                 needed. FCIC is revising the provisions                    Response: Congress expressly requires              language does not prevent the
                                                 in § 400.712(e) by removing the                         the Board to consider the potential                   expansion or reimbursement for
                                                 percentage reductions for complexity                    impact on the delivery system.                        expanding approved products, but
                                                 and scope and giving the Board                          Therefore, a definition of ‘‘delivery                 rather it prevents the inappropriate use
                                                 discretion to make adjustments as                       system’’ is necessary. Consistent with                of limited funds for activities that
                                                 required by the Federal Crop Insurance                  section 508(a)(4)(C) of the Act, the                  require little additional effort, work, or


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                                                                    Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations                                          53661

                                                 development on the part of the                          New and Changed Submissions. The                      has done and why and draw
                                                 submitter to add additional                             commenter stated it seems unlikely that               conclusions based on the data, analysis
                                                 commodities similar in nature and                       any submitter should be placed in the                 and information provided by the
                                                 scope. To the extent that added costs are               position of attempting to determine                   submitter. The definition has been
                                                 incurred during an expansion, the                       whether FCIC can implement any                        simplified to reflect this, and FCIC
                                                 submitter is able to request                            particular product. Although it seems                 removed the reference to, and definition
                                                 reimbursement of such costs in the                      logical that confusing regulations                    of ‘‘disinterested third party’’ because it
                                                 maintenance reimbursement. No change                    should be interpreted against the author,             is really the external expert reviewers,
                                                 made in the final rule.                                 when a regulation is confusing, it is                 RMA and the Board who have to
                                                    Comment: A commenter stated the                      likely to be held against the submitter.              evaluate concept proposals and
                                                 definition of ‘‘marketing plan’’ is                     Under this proposed rule, even if a                   submissions. FCIC has also revised the
                                                 unnecessary and only serves to confuse                  submitter complies with a reasonable                  definition of ‘‘sufficient quality’’ to
                                                 reviewers and submitters. A marketing                   interpretation of the submission                      clarify the determination is made by
                                                 plan is a submission requirement listed                 requirement and its evaluative standard,              RMA and the Board. FCIC agrees the
                                                 in § 400.705. The definition of a                       the 508(h) submission could be judged                 requirement in the definition of
                                                 marketing plan is redundant and should                  as being of insufficient quality. To                  ‘‘sufficient quality’’ for the material to
                                                 be struck from the final rule. All                      complicate a regulation with confusing,               be presented in Microsoft Office format
                                                 requirements for a marketing plan,                      arbitrary and subjective language is a                can be removed because this
                                                 including a standard for sufficient                     disservice to the farmers and ranchers                requirement is contained in § 400.705.
                                                 quality, should be shown in the                         whose financial well-being provides                   FCIC has also added a reference to the
                                                 regulatory language requiring the                       purpose for the crop insurance program.               Plain Writing Act of 2010 in order to
                                                 marketing plan.                                         The expectation of the FCIC should be                 clarify the ‘‘clearly written’’
                                                    Response: FCIC agrees the definition                 described using objective standards so                requirement.
                                                 of ‘‘marketing plan’’ is somewhat                       submitters’ efforts can match the                        Comment: A few commenters stated
                                                 repetitive because much of the                          standard. The lack of a clear definition              that the definition of ‘‘viable and
                                                 information is contained in § 400.705(e)                for sufficient quality allows for arbitrary           marketable’’ should be clearer and
                                                 and does not really capture the                         and possibly even discriminatory                      contain the qualities and standards to be
                                                 information that is required to assess the              decisions. Because there is no clear                  applied. One commenter states the
                                                 potential marketability of a submission.                standard and many of the decisions of                 definition of viable and marketable
                                                 Since the enactment of the 2014 Farm                    the Board are made ‘‘at the sole                      provides for a determination by the
                                                 Bill, marketability is a standard used by               discretion of the Board or RMA,’’ the                 Board. The commenter suggested that
                                                 the Board in determining whether to                     proposed rule invites disparate                       the determination of viable and
                                                 approve a submission. Previously,                                                                             marketable should be clear enough so a
                                                                                                         treatment of submitters. The final rule
                                                 marketability was only considered in                                                                          submitter is able to arrive at the same
                                                                                                         should be drafted with clear standards
                                                 the reimbursement of research and                                                                             conclusion as the Board or external
                                                                                                         to create a level playing field for all
                                                 development costs. Therefore, FCIC has                                                                        expert reviewers regarding the
                                                                                                         submitters. Because there are only about
                                                 changed the term to ‘‘marketability                                                                           marketability of the proposed product.
                                                                                                         12 places where sufficient quality needs
                                                 assessment’’ to more accurately reflect                                                                       The lack of a standard is certain to
                                                                                                         to be defined, the commenter strongly
                                                 the information necessary. FCIC has also                                                                      provide divergent views between
                                                                                                         encouraged FCIC to expend effort to
                                                 removed the definition and moved the                                                                          submitters, the Board, RMA, and the
                                                                                                         place its concept of sufficient quality
                                                 substantive provisions to § 400.705(e).                                                                       external expert reviewers. Given the
                                                    Comment: Several commenters were                     into § 400.705.
                                                                                                                                                               number of entities involved in this
                                                 concerned the definition of the term                       Response: FCIC agrees the                          process and the difficulties and costs
                                                 ‘‘sufficient quality’’ could be interpreted             performance standards included in the                 involved in producing a 508(h)
                                                 as subjective, confusing, and contains                  proposed definition of ‘‘sufficient                   submission, FCIC should include a clear
                                                 performance standards. The                              quality’’ should be located in § 400.705              definition of viable and marketable in
                                                 commenters stated that the definition                   so that the submitter is aware of the                 the final rule. A commenter stated that
                                                 should be transparent, concrete and                     standards by which the product will be                the proposed definition of viable and
                                                 reasonable. The commenters proposed                     measured. FCIC disagrees that the                     marketable addresses neither viable nor
                                                 FCIC revisit the terminology and                        definition of ‘‘sufficient quality’’ should           marketable and should be removed in
                                                 publish in the final rule definitions that              be removed because it is confusing or                 the final rule.
                                                 provide clear and measurable standards                  subjective. The definition of ‘‘sufficient               Response: Consideration of whether a
                                                 that can be met by a submitter. One                     quality’’ is necessarily subjective                   submission is ‘‘viable and marketable’’
                                                 commenter suggested the definition of                   because each submission is different,                 is required by the Act. The requirements
                                                 ‘‘sufficient quality’’ should be stricken               and an objective one-size-fits-all                    of the Act cannot be waived by this
                                                 from the final rule and an actual                       definition would do a disservice to                   regulation. However, to be clearer,
                                                 standard placed with the requirement in                 unique submissions that may differ                    separate definitions are provided for
                                                 § 400.705. A commenter stated the                       substantially from others. Further, the               ‘‘viable’’ and ‘‘marketable’’ to reflect the
                                                 requirement that ‘‘The material book                    purpose of the term ‘‘sufficient quality’’            different concepts embodied in each.
                                                 must be presented in Microsoft Office                   is to ensure that there is sufficient data            With respect to marketability, the Board
                                                 format . . .’’ is a submission                          and analysis to support the provisions                is specifically tasked with making the
                                                 requirement that belongs in § 400.703—                  in the concept or submission, and that                determination of whether or not a
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                                                 Timing and Format. A commenter stated                   the submission is clear, so the Board,                sufficient number of producers will
                                                 the phrase ‘‘must contain adequate                      RMA, and external expert reviewers can                purchase the product to justify the
                                                 information for determination to be                     evaluate the submission to determine                  resources and expenses required to offer
                                                 made whether RMA has the resources to                   whether it meets the qualifications for               the product for sale and maintain the
                                                 implement, administer and deliver’’ is a                approval. Therefore, the Board, RMA,                  product for subsequent years. There is
                                                 performance standard that should be                     and external expert reviewers must be                 no specific number of producers or
                                                 contained in § 400.705—Contents for                     able to understand what the submitter                 dollar amount that could be included in


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                                                 53662              Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations

                                                 the definition that would be appropriate                submission etc., may include PDF files,               preferred and the requirement for hard
                                                 for all scenarios. Therefore, it is                     Excel files, databases and other forms of             copies should be eliminated from the
                                                 necessary to give discretion to the Board               documentation that do not fit neatly                  final rule. By requiring two hard copies
                                                 to make this determination. With                        into a requirement for a single                       from the submitters, submitters must
                                                 respect to viability, the Board needs to                document. The commenter states that as                now keep a store of the appropriate
                                                 make a judgment regarding whether a                     written, the requirement for electronic               materials necessary to submit the hard
                                                 policy or plan of insurance can be                      format in § 400.703 will be difficult to              copies that are required only by FCIC,
                                                 developed into an insurance product                     impossible to meet. For example, further              allow time for the production of hard
                                                 meeting actuarial and underwriting                      within this regulation the agency asks                copies that provide minor benefit to the
                                                 standards, and that the new product can                 for letters demonstrating support. Those              FCIC, proceed to the post office or mail
                                                 be implemented into the market by the                   letters are likely to be in PDF format and            store to put the hard copies in the mail,
                                                 delivery system. However, because                       they will not fit neatly inside a                     incur the risk of not having the hard
                                                 submissions and markets vary, FCIC is                   Microsoft word document. Additionally,                copies exactly match the electronic
                                                 reluctant to create set standards or goals              the commenter asked, how a submitter                  copy, etc. Because FCIC very clearly
                                                 that may not be appropriate in all                      would place an Excel workbook inside                  stated in the preamble to the rule that
                                                 situations. In addition, no matter what                 a word document if a submitter wishes                 its intention was to ease the burden on
                                                 standards are created, external expert                  to include an Excel workbook. While                   submitters, FCIC should recognize
                                                 reviewers, RMA and the Board may still                  the commenter stated they appreciate                  requirement for hard copies increases
                                                 differ because they may be emphasizing                  the concern FCIC may have with                        the burden on submitters and the
                                                 one aspect over the other. For example,                 multiple documents, the proposed                      requirement for hard copies should be
                                                 actuaries may believe the rates are not                 solution falls short of solving the                   eliminated from the final rule. The
                                                 viable because they do not reflect the                  problem for all parties involved in the               background material for the regulation
                                                 risk but underwriters may believe the                   submission process. A different                       indicates that the rule was drafted in
                                                 policy is viable because it can be                      solution, such as a zip file with a                   part to lessen the burden on submitters
                                                 developed into a product that can                       control document, seems more                          by reducing the number of printed
                                                 provide meaningful coverage to                          appropriate.                                          copies required. However, what the
                                                 producers. It is the Board’s                               Response: FCIC agrees with the                     drafters of the regulation have done
                                                 responsibility to consider all comments                 commenter that the required                           increases the effort of submitters. The
                                                 and use its best judgment. Costs of                     information may not conveniently fit                  requirement for materials to be
                                                 development and implementation can                      into a single document. The purpose of                submitted in a three ring binder in
                                                 be a consideration of the potential to                  this proposed provision is to assure                  subsection (a) with page numbers in
                                                 develop the concept proposal or                         information is in the correct order and               section dividers is not at all helpful and
                                                 submission into a policy or plan of                     easily locatable by the reviewers.                    does not lessen the burden. The
                                                 insurance that can be offered for sale to               Because PDF files can be converted to                 requirement substantially increases the
                                                 producers. The Board has received                       Microsoft Word files and Excel files can              paperwork difficulty for submitters and
                                                 numerous submissions and concept                        be embedded in a Microsoft word                       in so doing contradicts the stated
                                                 proposals where the original cost                       document, FCIC believes it is possible to             objective of reducing the burden on
                                                 estimates are substantially less than the               provide the required information in a                 submitters. This will increase the
                                                 amount of research and development                      single document. However, FCIC agrees                 burden for submitters at no foreseeable
                                                 reimbursement actually requested. In                    it may not always be practical to embed
                                                                                                                                                               benefit for the RMA. A single copy of
                                                 some cases, actual costs were more than                 such files in a single document. For
                                                                                                                                                               the electronic document is insufficient
                                                 double the original estimates. Excessive                example, an Excel file may have more
                                                                                                                                                               for review purposes, therefore the FCIC
                                                 costs may be an indication that a                       columns than what will easily fit within
                                                                                                                                                               will need additional copies of the 508(h)
                                                 concept or submission may not be                        the margins of a Word document.
                                                                                                                                                               submission, presumably from the
                                                 viable or marketable.                                   Therefore, FCIC has revised the
                                                                                                                                                               electronic version, for reviewers. So the
                                                    Given the inaccuracy of the estimates                provision by removing the requirement
                                                                                                                                                               gain to FCIC appears to be nil, while the
                                                 received by the Board, FCIC is revising                 that all required information must be
                                                                                                                                                               burden on submitters increases. FCIC
                                                 the provisions to require that submitters               included in a single document. FCIC has
                                                                                                                                                               should drop the requirement for a hard
                                                 provide more accurate estimates of                      replaced this requirement with a
                                                 costs, and since this is a consideration                requirement to provide a document that                copy altogether and accept electronic
                                                 of viability, reimbursement may be                      contains a detailed index that, in                    copies only because FCIC has already
                                                 limited to the estimated amount unless                  sequential order, references the location             proposed a system whereby it agrees to
                                                 the submitter can justify the additional                of the required information that may                  make copies for its review process.
                                                 costs.                                                  either be contained within the                           Response: FCIC proposed to reduce
                                                                                                         document or in a separate file. The                   the number of hard copies required to
                                                 § 400.703—Timing and Format                                                                                   be submitted from six down to two.
                                                                                                         detailed index must clearly identify
                                                   Comment: A commenter stated that                      each required section and include the                 Therefore, FCIC disagrees with the
                                                 the proposed rule in § 400.703(b)(1)                    page number if the information is                     commenter that the proposal to provide
                                                 requires 508(h) submissions, concept                    contained in the document or file name                two hard copies increases the burden on
                                                 proposals or index-based weather plans                  if the information is contained in a                  submitters. However, FCIC recognizes
                                                 of insurance to be provided in electronic               separate file.                                        that removing the requirement for a
                                                 format. The electronic format is required                  Comment: A commenter stated that                   hard copy to be submitted would further
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                                                 to be in a single document. The                         the requirement to provide two hard                   reduce the burden. Therefore, FCIC has
                                                 commenter stated they appreciate the                    copies in § 400.703(b)(2) directly                    revised the final rule to eliminate the
                                                 desire for single documents, but FCIC                   conflicts with the FCIC stated intention              requirement for the submitter to provide
                                                 must recognize that some of the                         of easing the burden on submitters. This              hard copies. Submitters will be required
                                                 requirements it places on submitters                    requirement increases the burden on                   to submit an electronic copy either by
                                                 and materials that may be submitted to                  submitters to no benefit for the FCIC.                email or on a removable storage device
                                                 FCIC with a concept paper, 508(h)                       Electronic communication should be                    (including CD or USB drive) by mail,


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                                                                    Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations                                         53663

                                                 but not both. FCIC has also provided a                  make the determinations when sales                    better initial product with feedback
                                                 single email address and a single postal                should begin for an approved 508(h)                   from the Board.
                                                 address to avoid duplicative work by                    submission. RMA should take into                         Response: FCIC appreciates the
                                                 submitters and to prevent confusion for                 consideration the time cycle of the                   comment and the support for concept
                                                 FCIC.                                                   approved product and the                              proposals.
                                                    Comment: A commenter referenced                      administrative functions AIPs must                    § 400.705—Contents for New and
                                                 § 400.703(g), which states that the                     complete when making the decision of                  Changed 508(h) Submissions, Concept
                                                 Board, or RMA if authorized by the                      when sales will begin for the approved                Proposals, and Index-Based Weather
                                                 Board, shall determine when sales can                   508(h) submission. AIPs who choose to                 Plans of Insurance
                                                 begin for a 508(h) submission approved                  participate in these approved 508(h)
                                                                                                         submissions are the ones responsible for                 Comment: A commenter stated that
                                                 by the Board. The commenter                                                                                   new requirements in § 400.705(a)
                                                 recommends that either RMA be given                     all administrative tasks involved with
                                                                                                         writing new programs from agent                       disallowing appended items or
                                                 more authority by the Board or that                                                                           requiring a single software to be used
                                                 RMA is always authorized by the Board                   training, computer programming, form
                                                                                                         development etc. The decision to                      may also result in important
                                                 to make determinations when sales can                                                                         information being excluded.
                                                 begin for an approved 508(h)                            determine when sales begin should
                                                                                                         include the administrative tasks                         Response: FCIC agrees the
                                                 submission. A recent example of the                                                                           requirement for information to be
                                                 problems created by not taking all of the               completed by the AIPs and the time
                                                                                                         cycle of the approved 508(h)                          included in single document and
                                                 above into consideration is the                                                                               disallowing appended items could
                                                 Livestock Risk Protection (LRP) program                 submission.
                                                                                                            Response: While the comment is                     result in important information being
                                                 for lambs. The insurance year for LRP                                                                         excluded. Therefore, FCIC has removed
                                                                                                         relevant to the referenced provision,
                                                 Lamb starts on July 1 and ends on June                                                                        the provision in § 400.705(a) restricting
                                                                                                         FCIC does not believe changing the
                                                 30 of the following year. The LRP                                                                             items from being appended to the end
                                                                                                         provision to give RMA more authority to
                                                 program rules require that agents be                                                                          of the document. FCIC has also removed
                                                                                                         determine when a 508(h) submission
                                                 trained for three hours annually before                                                                       the requirement in § 400.703(b) that
                                                                                                         can be implemented will solve the
                                                 they are authorized to write a livestock                                                                      requires information to be included in a
                                                                                                         issues identified by the commenter. The
                                                 policy. The AIPs generally plan their                                                                         single document and replaced it with a
                                                                                                         problem is that RMA and the Board may
                                                 livestock training for late May and June                not be aware of the types of issues                   requirement to provide a document that
                                                 in order to have their agents properly                  raised by the commenter and submitters                contains a detailed index that, in
                                                 trained by the time the insurance period                are asking for implementation as                      sequential order, references the location
                                                 begins on July 1. The LRP lamb program                  quickly as possible. In response to this              of the required information that may
                                                 was previously developed and written                    and other comments, FCIC has revised                  either be contained within the
                                                 for several years, but was suspended                    the rule to require applicants to include             document or in a separate file.
                                                 due to some problems with the program.                  a marketability assessment from an AIP                   Comment: A commenter stated they
                                                 The developers made significant                         supporting the submission and that the                believe the revisions made in § 400.705
                                                 revisions to the program and RMA                        AIP be more involved in the submission                are problematic due to the fact that the
                                                 recently announced that sales would                     process. FCIC is also revising the rule to            ability of a concept proposal or
                                                 resume on May 4, 2015. The AIPs                         require that at least one other AIP be                complete 508(h) submission to move
                                                 already scheduled livestock training                    consulted and provide analysis of                     forward will be reliant on standards that
                                                 sessions for their agents for late May                  potential implementation issues. If a                 are not easily measured. It will be very
                                                 and June in preparation for the                         marketability assessment by another AIP               difficult for a submitter to know
                                                 beginning of the livestock insurance                    is not provided as part of the                        whether a proposal meets RMA and the
                                                 period, which begins on July 1. The                     submission, the applicant must provide                Board’s sole view that the concept
                                                 commenter notes that submitters have to                 information regarding the names of the                proposal or 508(h) submission is both
                                                 hold additional training sessions for                   persons and AIPs contacted and the                    ‘‘complete’’ and of ‘‘sufficient quality.’’
                                                 those agents who wish to write LRP                      basis for their refusal to provide the                The determination leaves a submitter
                                                 lambs to assure they are aware of all the               marketability assessment. If the                      with no opportunity for appeal of the
                                                 revisions made to this program. This                    applicant cannot obtain a marketability               decision if rejected. The commenter
                                                 could have easily been included with                    assessment by another AIP, the Board                  recommends FCIC incorporate language
                                                 the normal training cycle if program                    will presume that the submission is                   that provides submitters clear and
                                                 sales would have resumed on July 1                      unmarketable and it will be a very                    measurable standards and a fair appeal
                                                 instead of May 4. This is a perfect                     heavy burden on the submitter to                      process when the Board deems a 508(h)
                                                 example of problems that occur with                     overcome the presumption. By requiring                submission fails to meet those
                                                 releasing a program and not considering                 involvement of at least two AIPs, RMA                 standards. The commenter continues to
                                                 the time cycle of the program along with                and the Board can be made aware of                    offer that § 400.705 is the heart of the
                                                 the administrative issues the release                   implementation and other issues before                508(h) submission itself. RMA has been
                                                 causes to the AIPs who will be                          the issues become problems and take                   accepting 508(h) submissions for over
                                                 administering this program. The ideal                   appropriate actions.                                  10 years. With over a decade of
                                                 release date for the revised LRP lamb                                                                         experience, RMA should have a clear
                                                 program would be July 1, which                          § 400.704—Covered by This Subpart                     notion of sufficient quality for the finite
                                                 coincides with the start of the insurance                 Comment: A commenter offered                        number of requirements contained in
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                                                 period and allows the AIPs to properly                  support of the provision in § 400.704                 this paragraph. The commenter stated
                                                 train their agents about the LRP lamb                   that allows an applicant to submit a                  they believe this paragraph requires
                                                 revisions made during the normal                        concept proposal to the Board prior to                approximately 12 standards for clear
                                                 scheduled time frame for livestock                      developing a full 508(h) submission.                  communication with submitters. In
                                                 training sessions. In summary, the                      The commenter believes this will                      particular, clear and transparent
                                                 commenter stated the Board needs to                     expedite and streamline the process by                standards should be provided for
                                                 provide RMA with more authority to                      enabling the applicant to develop a                   § 400.705(d), the policy provisions,


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                                                 53664              Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations

                                                 § 400.705(e), the marketing plan,                          Comment: A commenter stated that                   approximately 12 locations within
                                                 § 400.705(g), the prices and rates of                   the request in § 400.705(c)(2) is                     § 400.705 are 508(h) submission
                                                 premium. The three paragraphs require                   redundant. It is the same request found               requirements lacking a definition that is
                                                 the creation of standards that describe a               in § 400.705(e)(4) rephrased. The                     either clear or understandable. Worse,
                                                 successful set of Crop Provisions,                      commenter stated that redundancy is                   the proposed rule resolves the problem
                                                 approximately six standards for the                     always problematic because it tends to                by incorporating a statement regarding
                                                 marketing plan and standards for the                    precipitate questions if there is not                 sufficient quality and then allows that
                                                 prices and rates of premium that                        precise agreement in the responses to                 determination to be arbitrary and
                                                 include standards for acceptable data                   the redundant requests. The commenter                 capricious. And yet, here is a standard
                                                 (although this can be a little dangerous).              urges FCIC to list a requirement one                  imposed on the submitter to be clear.
                                                    Response: FCIC believes the                          time and especially that the RMA not                     Response: FCIC understands the
                                                 requirements contained in § 400.705 are                 repeat any requirement in the final rule.             commenter’s desire for clear standards.
                                                 clear and transparent, but simply                          Response: FCIC agrees with the                     In § 400.705, FCIC attempted to clearly
                                                 providing an item on a list does not                    commenter that these sections are                     state the requirements for 508(h)
                                                 mean that the submission is complete.                   somewhat redundant. Section                           submissions, as appropriate. Sufficient
                                                 Unfortunately, over the years the Board                 400.705(c)(2) requests similar                        quality is a measurement of how well
                                                 has experienced a number of                             information to what is required under                 the submitters have supported the
                                                                                                         § 400.705(e). FCIC has revised the final              information provided in the 12
                                                 submissions that contained all the
                                                                                                         rule by consolidating the requirement in              categories. FCIC has attempted to do
                                                 required items in § 400.705 but the
                                                                                                         § 400.705(c)(2) under § 400.705(e).                   this by revising the definition of
                                                 contents were of such poor quality that
                                                                                                            Comment: A commenter states that                   ‘‘sufficient quality’’ to make it clear that
                                                 it cost the Board, RMA and ultimately                   the requirement in § 400.705(c)(3) seems              all information provided and assertions
                                                 taxpayer’s unnecessary funds to review                  better placed within § 400.705(e).                    made in § 400.705 must be supported by
                                                 the submission numerous times before                       Response: FCIC agrees with the                     data or analysis. Bare assertions without
                                                 the submission morphed into a level of                  commenter that § 400.705(c)(3) would                  establishing the basis for the assertions
                                                 quality that could be sent to expert                    be better placed within § 400.705(e).                 are no longer sufficient. This provides a
                                                 review or be considered for approval.                   FCIC has revised the final rule by                    more concrete standard and one
                                                 For this reason, and the reasons stated                 moving the requirements in                            submitters should be able to meet.
                                                 above, RMA is revising the definition of                § 400.705(c)(3) to section § 400.705(e).              However, because submissions vary so
                                                 ‘‘sufficient quality’’ to make it clear that               Comment: A commenter stated that                   greatly, it is impossible to show
                                                 the submission must contain the data,                   the requirement in § 400.705(c)(5) seems              standards for sufficiency in each
                                                 analysis, and conclusions to support the                better placed in § 400.705(d). Section                subsection in § 400.705.
                                                 information provided in the submission.                 400.705(d) contains the Crop Provisions.                 Comment: A commenter questioned
                                                 In many instances where the Board                       It seems far more logical to describe the             whether the development of the
                                                 concluded the submission or concept                     coverage in the section containing the                proposed marketing plan, as required in
                                                 proposal was not complete was because                   very language creating the coverage, the              § 400.705(e), is really in the best interest
                                                 it lacked the data or analysis needed for               Crop Provisions.                                      of taxpayers since it will significantly
                                                 external expert reviewers, RMA and the                     Response: FCIC disagrees with the                  increase the cost of developing a 508(h)
                                                 Board to determine that the information                 commenter. Section 400.705(c) is                      submission. The commenter would
                                                 provided was reasonable and would                       related to clearly understanding the                  understand the need for a marketing
                                                 meet the standards necessary for                        benefits the plan provides to producers               plan if there was limited interest in a
                                                 approval. For example, some                             and asks for a summary of such benefits.              proposed insurance program. However,
                                                 submissions identified a proxy crop                     Section 400.705(c)(5) requests a detailed             this seems to be largely unnecessary if
                                                 without providing any agronomic or risk                 description of the coverage provided                  there is an obvious and broad-based
                                                 information to show that the proxy crop                 and its applicability to all producers,               demand for the crop insurance program
                                                 would correlate with the crop to be                     including targeted producers. Section                 by the potential insureds. If the
                                                 insured. In some cases, adjustments are                 400.705(d) contains the actual policy.                marketing plan requirement is
                                                 made to rates without explaining why                    Although the information requested in                 ultimately included in the final rule,
                                                 such adjustments are necessary and the                  § 400.705(c)(5) is relevant to policy                 RMA should publish standards that a
                                                 basis for the amount of the adjustment.                 referenced in § 400.705(d), it more                   submitter can follow in order to meet
                                                 In other cases, assumptions are made                    appropriately resides in § 400.705(c) to              the requirements and for the external
                                                 without stating the basis for the                       allow the Board to assess the benefits                expert reviewers to use in evaluating the
                                                 assumptions. In those cases, external                   provided.                                             marketing plan for the proposed
                                                 expert review would be meaningless                         Comment: A commenter stated that                   program.
                                                 because there is not enough information                 the language in § 400.705(d) suggests the                Response: As stated above, a
                                                 to make any judgments on whether the                    508(h) submission must be clearly                     ‘‘marketing plan’’ is a misnomer because
                                                 standards for approval have been met.                   written so that the producers are able to             the name suggests how a product will be
                                                 Instead of a formal appeals process,                    understand the coverage being offered                 marketed to producers. However, the
                                                 section 508(h) of the Federal Crop                      and that the policy language permits                  purpose of § 400.705(e) is to provide
                                                 Insurance Act provides a process                        actuaries to form a clear understanding               information regarding the marketability
                                                 whereby the Board provides notice of                    of payment contingencies. The                         of the policy or other coverage because
                                                 intent to disapprove a 508(h)                           commenter stated that this is a good and              now this is one of the criteria for
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                                                 submission outlining its concerns and                   reasonable standard and suggests that                 approval of concept proposals and
                                                 reasons, and the submitter has the                      RMA apply the same standard to this                   submissions. Concept proposals and
                                                 opportunity to address the Board’s                      proposed rule. The commenter states                   submissions must be deemed
                                                 concerns with additional information or                 that the proposed rule is too vague for               marketable to be approved for
                                                 making changes as needed. In addition,                  a submitter to form a clear                           reinsurance by the Board. The
                                                 the submitter can request a time delay                  understanding regarding what the FCIC                 commenter claims that the marketing
                                                 to address issues raised by the Board.                  considers sufficient quality. In                      plan is unnecessary when there is an


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                                                                    Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations                                       53665

                                                 obvious and broad-based demand for                      an objective term, FCIC believes this is              level of coverage for which producers
                                                 the product, but history has shown a                    an appropriate standard to describe                   are willing to pay is sufficient to meet
                                                 substantial percentage of submissions                   what is expected of the submitter. With               the standard. It is unlikely this is the
                                                 where submitters provided letters                       respect to the requirement to estimate                intent. In short, it appears the concept
                                                 stating there was great interest and                    the market penetration of other similar               of an acceptable market research study
                                                 demand for the product but only a very                  products, FCIC agrees with the                        remains fuzzy even to the drafters of the
                                                 small percentage of producers actually                  commenter that simply estimating the                  proposed rule.
                                                 bought the policy or coverage when it                   market penetration of other similar                      Response: FCIC has combined the
                                                 was available for sale. Therefore,                      products may not adequately convey                    focus group provisions with the market
                                                 § 400.705(e) is necessary to provide                    expected producer interest and                        research study to allow submitters to
                                                 information to the Board to allow it to                 participation. Therefore, FCIC has                    provide data on its efforts to judge
                                                 better make an assessment of                            revised the final rule to require the                 market interest in the product. Some
                                                 marketability. Further, FCIC has revised                submitter compare other similar                       policies approved under section 508(h)
                                                 the standards to allow a more                           products with the 508(h) submission                   fail to sell because the coverage
                                                 meaningful assessment by looking at                     and identify potential differences                    provided is not specifically desired by
                                                 actual indicators of producer interest                  between the 508(h) submission and the                 producers and the coverage they desire
                                                 and marketability, such as the amount                   similar products that might make the                  may not be insurable under the Act, or
                                                 of data producers are willing to provide,               participation and level of coverage of                cannot be properly underwritten. Even
                                                 their participation in the development                  the proposed product different.                       when coverage may be available, it may
                                                 process, etc. FCIC has made revisions in                   Comment: A commenter stated that it                not be available at a price producers are
                                                 the final rule to § 400.705(e) in an                    seems unlikely the requirement in                     willing to pay. Collection of this
                                                 attempt to clarify the marketability                    § 400.705(e)(5) provides real value                   information during the research and
                                                 requirements. FCIC believes the                         within the 508(h) submission process                  development process can provide more
                                                 standards published in the final rule are               and § 400.705(e)(5) should not be in the              useful information to judge whether a
                                                 clearly defined and achievable.                         final rule. Given the requirement shown               product is marketable.
                                                    Comment: A commenter stated that                     at § 400.705(e)(6), the commenter                        Comment: A commenter stated that
                                                 the requirement in § 400.705(e)(3) has                  questioned what the vague requirement                 nothing within the expertise of most
                                                 two problems. First, the vague term                     at § 400.705(e)(5) can add. In fact, the              submitters qualifies the submitter to
                                                 ‘‘reasonable estimate’’ begs the question               vagueness of this requirement indicates               estimate cost for organizations whose
                                                 reasonable to whom. Rather than using                   the drafters of the proposed rule are not             cost structures are unknown to the
                                                 vague terms, the commenter suggested                    entirely clear regarding what this                    submitter as required at § 400.705(e)(8).
                                                 FCIC describe reasonable in objective                   requirement should contain.                           This requirement appears to be the
                                                 terms. Furthermore, the commenter                          Response: FCIC disagrees with the                  addition of a requirement that cannot be
                                                 finds the use of other similar products                 commenter that the focus group results                practically answered. It is possible to
                                                 for comparison purposes likely to lead                  requirement in § 400.705(e)(5) should                 answer questions related to training
                                                 reviewers down the wrong path. Market                   not be included in the final rule.                    requirements, whether the proposed
                                                 acceptance increases with grower                        However, FCIC determined this                         program is amenable to current data
                                                 involvement and participation in the                    requirement can be combined under                     record layouts. However, estimating the
                                                 development process and decreases                       § 400.705(e)(6). Therefore, FCIC deleted              impact on 17 or 18 or 20 AIP computer
                                                 when growers’ confidence in the                         § 400.705(e)(5), redesignated the                     systems, estimating administrative and
                                                 product is diminished. For example, the                 succeeding sections, and added the                    training costs for 17 or 18 or 20 AIP’s
                                                 fresh market bean insurance program                     focus group requirement under the                     and determining whether any efficiency
                                                 began strong. Most acres were insured at                newly redesignated § 400.705(e)(5).                   will be gained is not likely to net
                                                 the buy-up level. However, after growers                FCIC also added provisions that add                   insightful answers. The commenter
                                                 made a request to correct a program                     more detail so the results of focus                   concludes that what does seem practical
                                                 feature they considered disadvantageous                 groups can provide more useful                        at § 400.705(e)(8) is a discussion of
                                                 and the correction was not                              information to the Board so it can be                 whether the proposed program will
                                                 implemented, grower confidence in the                   considered one of the tools to assist the             place new demands upon the computer
                                                 program wavered and sales declined.                     Board in determining marketability.                   system that go beyond existing database
                                                 One would not want to use the fresh                     Focus group information to be provided                structures.
                                                 market bean product for comparison                      will now include the type of coverage                    Response: FCIC agrees that it may be
                                                 purposes given that the wound is self-                  producers want and what they are                      impractical to expect submitters to
                                                 inflicted.                                              willing to pay, which, with all the other             assess expected costs for these items.
                                                    Response: ‘‘Reasonable estimate’’                    available information, will allow the                 However, the effect of new products on
                                                 means in the best judgment of the                       external expert reviewers, RMA, and the               the delivery system is statutorily
                                                 submitter based on all the information                  Board to make better judgments on                     mandated and given the limited
                                                 available to the submitter, and provided                whether the product is viable and                     resources available to RMA and AIPs, it
                                                 with the submission. RMA has revised                    marketable.                                           is a serious consideration. For this and
                                                 the rule to require that submitters                        Comment: A commenter stated they                   the other reasons stated herein, FCIC
                                                 provide the information upon which                      believe it would be helpful for FCIC to               has revised the rule to require that
                                                 they judge the reasonableness of the                    describe its concept of a market research             submitters obtain an assessment from at
                                                 projected participation estimate,                       study at § 400.705(e)(6). The                         least one AIP who is involved in the
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                                                 including the level of participation of                 requirement in § 400.705(e)(6) to show                development of the product and that at
                                                 producers in the development of the                     demand and coverage levels for which                  least one other AIP is consulted. FCIC
                                                 product, their type of participation, and               producers are willing to pay introduces               believes it is useful for the submitting
                                                 whether they have provided the                          a complex problem for submitters                      AIP to provide insight not only
                                                 available data to assist the submitter in               because the standard itself lacks                     marketability, but also on computer
                                                 the development of the product.                         definition. According to the regulation,              system impacts, administrative and
                                                 Although ‘‘reasonable estimate’’ is not                 an estimate that shows demand and the                 training requirements, potential


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                                                 53666              Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations

                                                 efficiencies or effects on workload for                    Comment: A commenter noted that it                 requirement at § 400.705(h) should be
                                                 AIPs or others participating in the                     appears the information required in                   removed from the final rule.
                                                 program, and whether the policy or plan                 § 400.705(f)(1) through (5) should be                    Response: FCIC agrees the
                                                 of insurance is consistent with the terms               contained within the underwriting                     requirements in § 400.705(h) are
                                                 of the SRA. Therefore, FCIC added                       guide. Rather than another redundant                  redundant. Therefore, FCIC deleted this
                                                 requirements to assess potential effects                request, the commenter suggested FCIC                 section in the final rule and
                                                 on the workload for AIPs or others                      require an underwriting guide with                    redesignated the succeeding sections.
                                                 participating in the program and                        definitions that include and may                         Comment: A commenter suggested
                                                 whether the policy or plan of insurance                 expand upon items one through five in                 that the clause in § 400.705(i)(1)
                                                 is consistent with the terms of the SRA.                a manner similar to the information                   proposes to restrict open commerce. It
                                                    Comment: A commenter stated that                     contained in § 400.705(f)(7).                         seems unlikely this requirement is legal.
                                                 the requirement to include                                 Response: FCIC agrees the contents of              The statement attempts to undo the long
                                                 correspondence from producers in                        § 400.705(f)(1) through (3) should be                 history of using insurance brokers to
                                                 § 400.705(e)(9) does not appear to                      contained in the underwriting guide.                  facilitate the creation of insurance.
                                                 provide valuable information. For                       However, the contents of § 400.705(f)(4)              Insurance brokers are forbidden in crop
                                                 example, at § 400.705(e)(5) of this                     and (5) fit more appropriately in the loss            insurance. The requirement is
                                                 proposed rule, the requirement is to                    adjustment standards handbook. FCIC                   discriminatory. One who is a submitter
                                                 provide focus groups results. In                        agrees it is not necessary to have                    is prohibited from marketing that which
                                                 addition, at § 400.705(e)(6)(i) of the                  duplicate requirements that can be                    they developed. The statement attempts
                                                 proposed rule requests evidence the                     included in these handbooks. Therefore,               to restrict the AIP and its agents from
                                                 proposed 508(h) submission will be                      FCIC revised the final rule to include                selling the crop insurance they have
                                                 positively received. At the very least,                 the contents of § 400.705(f)(1) through               signed up to support. The commenter
                                                 § 400.705(e)(9) requests information that               (5) in the requirements for the                       questioned how a submitter who is not
                                                 is required in a different form at several              underwriting guide and the loss                       an AIP will be able to meet the
                                                 other locations within the proposed                     adjustment standards handbook, as                     requirement in § 400.705(e)(10) given
                                                 rule. The commenter suggests that the                   appropriate.                                          that this would appear to bar the AIP
                                                                                                            Comment: A commenter stated that
                                                 RMA combine its requests regarding                                                                            from sales. The commenter stated the
                                                                                                         § 400.705(f)(2) ‘‘Relevant Dates’’ is a
                                                 grower interest in the insurance                                                                              requirement serves no legitimate
                                                                                                         nonspecific requirement. The
                                                 program into a single unified                                                                                 business purpose other than to
                                                                                                         commenter stated FCIC should list the
                                                 requirement. Furthermore, if the 508(h)                                                                       discourage development of new
                                                                                                         dates it considers relevant in the final
                                                 submission is from or includes a grower                                                                       insurance products.
                                                                                                         rule.
                                                 organization, then it appears the spirit                   Response: FCIC agrees that it may be                  Response: The proposed
                                                 of § 400.705(e)(9) is met. Asking for                   helpful to include example dates that                 § 400.705(i)(1) requires a statement
                                                 additional correspondence creates                       may be relevant. Therefore, FCIC                      certifying the submitter and AIP, or its
                                                 redundant effort, § 400.705(e)(9) should                included in the final rule an example of              affiliates, will not solicit or market the
                                                 be required only in the absence of other                dates that may be relevant in                         508(h) submission until at least 60 days
                                                 means of demonstrating grower interest                  § 400.705(f).                                         after all policy materials are released to
                                                 in the proposal.                                           Comment: A commenter noted that                    the public by RMA, unless otherwise
                                                    Response: FCIC agrees with the                       the proposed rule in § 400.705(g)(1)                  specified by the Board. The purpose is
                                                 commenter that the requirement in                       appears to contain a requirement to                   to create a level playing field so the
                                                 § 400.705(e)(9) to include                              propose a specific premium rating                     submitter does not have an unfair
                                                 correspondence from producers                           methodology. If that is the intention of              marketing or sales advantage. Section
                                                 expressing the need for a policy or plan                FCIC, the commenter suggests that the                 508(h) of the Act states that any
                                                 of insurance may not be as valuable as                  word ‘‘specific’’ be deleted from the                 submission approved for reinsurance
                                                 other information requested in the                      final rule. As FCIC and expert reviewers              can be sold by any AIP wanting to do
                                                 revised rule. There have been a number                  have noted, many of the crops                         so. It would not be fair to other AIPs if
                                                 of submissions where producers have                     remaining to receive the benefits of a                the submitter was allowed to start
                                                 written letters in support or appeared in               crop insurance program will require                   soliciting sooner than the other AIPs.
                                                 person to present the submission, but                   creative efforts to estimate rates.                   However, FCIC recognizes, as currently
                                                 when the product is made available for                     Response: FCIC agrees the term                     written the 60-day delay is not
                                                 sale there are few producers actually                   ‘‘specific’’ is superfluous. Therefore,               necessary and has generally not been
                                                 buying the product. There are a number                  FCIC removed the term ‘‘specific’’ from               enforced. Rather, it has been FCIC intent
                                                 of reasons for this, including the final                § 400.705(g)(1) in the final rule.                    and past practice to allow marketing to
                                                 product approved does not contain the                      Comment: A commenter noted that                    commence once all policy materials are
                                                 coverage actually wanted by producers                   the requirement in § 400.705(h) appears               released to the public. FCIC strives to
                                                 because of statutory or underwriting                    to be a redundant requirement. If, for                release policy materials at least 60 days
                                                 limitations or the price for the coverage               example, the underwriting guide and                   prior to the earliest sales closing date.
                                                 is too high. Therefore, as stated above,                loss adjustment manual contain forms,                 Therefore, FCIC has revised this
                                                 FCIC has revised the information                        and they will, those forms must be                    provision to state that the submitter
                                                 regarding the marketing research to                     separated from the document and                       must certify that the submitter and any
                                                 address these and other issues so that                  placed in § 400.705(h). Completing this               approved insurance provider or its
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                                                 the external expert reviewers, RMA and                  section becomes an exercise in cut and                affiliates will not solicit or market the
                                                 the Board can make more informed                        paste with dubious relevance in a                     submission until all policy materials are
                                                 decisions on marketability before the                   review process. A reviewer needs to                   released to the public by RMA, unless
                                                 submission is approved and before                       review any form within the context of                 otherwise specified by the Board.
                                                 significant time, money and resources                   its use and the form has context within                  Comment: With respect to the
                                                 are invested in implementation of the                   the document that contains the form                   requirement in the proposed
                                                 product.                                                and its instructions for use. The                     § 400.705(i)(3), a commenter questioned


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                                                                    Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations                                        53667

                                                 when agent and loss adjuster training                   reviewing the submitter’s detailed                    but is not limited to, risk that
                                                 plans are applicable.                                   description of why the terms have been                encourages adverse selection, moral
                                                    Response: Agent and loss adjuster                    met. Further, even if RMA were to use                 hazard, or risks that cannot be properly
                                                 training plans are not applicable to                    its discretion and reject a submission, it            rated. Examples of excessive risk might
                                                 proposed rates of premium for a policy.                 does not end the process. It simply                   be proposing to insure commodities in
                                                 Therefore, FCIC has revised newly                       means that the submitter must make                    an area where the commodity is not
                                                 redesignated § 400.705(h)(3) by                         improvements to the quality or contents               generally recognized as a suitable
                                                 removing the phrase ‘‘if applicable’’ and               of the submission.                                    growing environment or in an area
                                                 specifying agent and loss adjuster                         Comment: A few commenters raised                   likely to be frequently adversely affected
                                                 training plans must be provided, except                 concerns with § 400.706(b)(2)(i), which               by a known peril.
                                                 for 508(h) submissions only proposing                   indicates that no reviewer can be                        Comment: A commenter stated that,
                                                 changes to rates of premium for an                      employed by an approved insurance                     including § 400.706(b)(2)(ii)(I), the term
                                                 existing policy.                                        provider (AIP) or be a representative of              ‘‘new kind of coverage’’ appears in
                                                                                                         an AIP. The commenters stated they                    several locations throughout the
                                                 § 400.706—Review
                                                                                                         understand why a competing AIP                        proposed rule. The term is not entirely
                                                   Comment: A few commenters                             should not be a reviewer, but question                clear. For example, in the clause above
                                                 expressed concern about the lack of a                   why an organization like the National                 new kind of coverage applies to a crop
                                                 suitable appeal or review process for                   Crop Insurance Services (NCIS) should                 that previously had no available crop
                                                 submitters who put together packages in                 be excluded from a confidential review.               insurance, but it also applies to crops
                                                 good faith, but are then subject to a                   This is a review that the NCIS would                  with low participation or that are
                                                 closed review process dependent on the                  conduct in a confidential manner                      insured at a low coverage level.
                                                 Board and RMA being given the ability                   without any involvement of their                      Attempts to remedy low participation or
                                                 to determine ‘‘at its sole discretion’’ [in             member AIPs. The commenters would                     low coverage levels may not involve ‘‘a
                                                 § 400.706(a)(3) and elsewhere in the                    recommend that RMA not exclude                        new kind of coverage.’’ It is conceivable,
                                                 rule] whether or not a proposal is                      organizations like the NCIS from a                    and even likely, that efforts to improve
                                                 complete or meets the subjective                        possible review as it could add industry              participation may simply involve
                                                 requirements outlined in the proposed                   perspective that RMA would not                        redesigned coverage, but not necessarily
                                                 rule. The commenters stated the                         otherwise be able to receive as a part of             anything ‘‘new.’’ Certainly in the case of
                                                 proposed rule fails to give submitters a                the expert review process.                            crops with low participation concerns,
                                                 clear standard by which to judge the                       Response: FCIC understands the                     the term ‘‘new kind of coverage’’ could
                                                 quality of a proposal. The commenters                   commenter’s perspective that an agency                easily become problematic. The
                                                 are concerned that as written the                       that is representative of AIPs could                  commenter suggests the RMA either
                                                 proposed rule eliminates due process,                   provide valuable reviews. However, the                define the term or reconsider its use for
                                                 increases the potential for the intent of               provision is intended to prevent bias                 crops with existing insurance programs
                                                 the Act to be administered inconsistent                 that may result if an organization that               where low participation levels are a
                                                 with its intent. One commenter stated                   represents interested stakeholders is                 concern.
                                                 the clause in § 400.706(a)(3) is hostile                involved in reviewing products that                      Response: FCIC agrees with the
                                                 toward submitters. Another commenter                    may be sold by those stakeholders. This               commenter that the provision in
                                                 requested FCIC provide clear,                           provision was not proposed to be                      § 400.706(b)(2)(ii)(I) could be
                                                 measurable standards in regards to the                  changed in the proposed rule. No                      problematic if the phrase ‘‘new kind of
                                                 requirements that submitters must meet,                 change has been made in the final rule.               coverage’’ applies to the second part of
                                                 as well as to ensure that the decisions                 However, in response to other                         the sentence in § 400.706(b)(2)(ii)(I).
                                                 they make are based on the same sound                   comments, FCIC has increased the                      FCIC has revised the provision by
                                                 and transparent standards.                              required involvement of the AIP in the                removing the term ‘‘new kind of
                                                   Response: The 2014 Farm Bill revised                  process by requiring that at least one                coverage’’ and replacing it with the
                                                 the criteria in the Act for review of                   AIP be part of the submitter and that                 phrase ‘‘new or improved coverage.’’
                                                 submissions and expressly gave RMA                      another AIP provide an assessment of                  This change clarifies that a policy or
                                                 the authority to determine whether the                  the impacts of the submission on the                  plan of insurance could fall under the
                                                 policy or plan of insurance will likely                 delivery system and marketability of the              context of this provision if it provides
                                                 result in a viable and marketable policy                submission.                                           improved coverage that addresses low
                                                 that will provide crop insurance                           Comment: A commenter stated that                   participation or high levels of
                                                 coverage in a significantly improved                    the use of the word ‘‘appropriate’’ in                participation at low coverage levels.
                                                 form and adequately protect the                         § 400.706(b)(2)(ii)(C) leads to subjective               Comment: A commenter stated no
                                                 interests of producers. The provisions                  determinations. The commenter                         marketing plan can demonstrate an
                                                 contained in the Act cannot be waived                   questioned who determines what is                     insurance product is marketable as
                                                 by this regulation. Unfortunately, over                 appropriate. The commenter suggested                  required in § 400.706(b)(2)(ii)(K).
                                                 the years the Board has experienced                     that a better wording would be ‘‘follows              Marketability comes from the ability of
                                                 addressing a number of submissions                      recognized insurance principles.’’                    the insurance instrument to adequately
                                                 that were of poor quality that cost the                    Response: FCIC agrees the provision                cover risk at a price growers will be
                                                 Board, RMA and ultimately taxpayer’s                    would be better worded if the term                    willing to pay. The commenter stated
                                                 unnecessary funds to review numerous                    ‘‘appropriate’’ was changed to                        the marketing plan is simply ‘‘the
                                                 times before the submission morphed                     ‘‘recognized.’’ FCIC has made this                    delivery system will sell and service the
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                                                 into a level of quality that could be sent              change in § 400.706(b)(2)(ii)(C) of the               insurance plan.’’ The commenter asserts
                                                 to expert review or be considered for                   final rule.                                           that within hours of the announcement
                                                 approval. FCIC agrees these standards                      Comment: A commenter asked what                    of a new program, agents respond by
                                                 are necessarily general but given all                   an ‘‘excessive risk’’ is, in reference to             chasing the new commission money.
                                                 potential products have not been                        § 400.706(b)(2)(ii)(E).                               The commenter believes the real
                                                 conceived, it is impossible to set tighter                 Response: FCIC has clarified in the                challenge is to give the agent something
                                                 standards. However, FCIC will be                        final rule that excessive risk includes,              to sell.


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                                                 53668              Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations

                                                    Response: As stated above, FCIC has                  508(h) submissions and concept                        of insurance submitted for approval,
                                                 removed the concept of a marketing                      proposals in this regulation.                         RMA will research and present to the
                                                 plan and replaced it with a                                Comment: A commenter stated that                   Board information on whether there are
                                                 marketability assessment of the policy                  the proposed rule in § 400.706(b)(5)                  existing policies for that commodity and
                                                 or plan of insurance. Further, those                    establishes the unabashedly arbitrary                 the level of coverage and participation.
                                                 provisions now will require submitters                  rule. No standard applies. What seems
                                                                                                         most unsettling about this rule is the                  Comment: With regard to
                                                 to provide additional indicators of
                                                                                                         three items the rule applies to, lend                 § 400.706(k)(1), a commenter stated that
                                                 marketability, such as producer interest
                                                 as measured by their willingness to                     themselves to an objective decision.                  because protecting the interests of
                                                 assist and provide the data necessary in                   Response: FCIC determined the                      agricultural producers is a review
                                                 the development process, whether the                    provision in § 400.706(b)(5) is out of                criterion, the Board, RMA, developers
                                                 submission can provide the coverage                     place and is not needed because                       and external expert reviewers must
                                                 desired by producers at a price                         subsequent provisions describe the                    share a common understanding of the
                                                 producers are willing to pay, AIPs                      process for approval and disapproval.                 standard for judging whether a 508(h)
                                                 assessment of the ability to sell the                   Therefore, to prevent confusion the                   submission protects the interests of
                                                 product, etc. FCIC believes that looking                provision in § 400.706(b)(5) relating to              agricultural producers and taxpayers.
                                                 at these additional factors will allow the              508(h) submissions, and similar                       This proposed rule does not provide
                                                 Board to make better judgments in                       provisions in § 400.706(c)(9) and (d)(5)              such a standard. The commenter
                                                 approving policies and plans of                         referencing concept proposals and                     requested that FCIC clarify the meaning
                                                 insurance agents can sell.                              index-based weather plans have been                   of protecting the interests of agricultural
                                                    Comment: A commenter stated that it                  deleted in the final rule.                            producers and taxpayers so that
                                                 is not entirely clear from the regulation                  Comment: A commenter stated it is                  developers can provide America’s
                                                 if the proposed requirement in                          important to note that while the law                  farmers with 508(h) submissions of
                                                 § 400.706(b)(2)(ii)(K) to have a                        allows the Board to prioritize the                    sufficient quality.
                                                 comprehensive ‘‘marketing plan’’                        approval of policies or plans of
                                                 submitted is with the concept proposal                  insurance as described in § 400.706(g),                 Response: FCIC disagrees with the
                                                 or with the complete 508(h) submission.                 the exercise of this authority must be                commenter that provisions in
                                                 If it is with the concept proposal, this                performed in an open and transparent                  § 400.706(k)(1) do not provide clear
                                                 requirement is premature given that the                 manner. Doing so is vital to the ongoing              standards for what it means to protect
                                                 policy has not been fully developed nor                 success of the 508(h) process and is                  the interests of producers and taxpayers.
                                                 have the premium rates been                             necessary to avoid the perception that                Because it is not possible to list every
                                                 established. The purpose of the concept                 the 508(h) process is not being                       scenario that may not protect the
                                                 proposal is to have a proof of concept                  implemented in a manner as intended                   interests of producers and taxpayers, the
                                                 approved prior to the majority of the                   by Congress. Further, it is the                       provision includes a list of activities
                                                 investment of time and resources into                   commenter’s belief that any products                  that meet this criteria that is not all-
                                                 developing a complete 508(h)                            related to cotton should be included                  inclusive. This list includes: The 508(h)
                                                 submission. For the marketing plan to                   under the second priority of ‘‘existing               submission does not provide adequate
                                                 be complete for the concept proposal, it                policies or plans of insurance for which              coverage or treats producers disparately;
                                                 would essentially have to have been                     there is inadequate coverage or there                 the applicant has not presented
                                                 developed prior to the concept being                    exists low levels of participation.’’                 sufficient documentation that the 508(h)
                                                 approved, which is obviously in                         While there are products available to                 submission will provide a new kind of
                                                 contradiction to the purpose of the                     cotton producers including STAX as                    coverage likely to be viable and
                                                 concept proposal.                                       well as yield and revenue policies; these             marketable; coverage would be similar
                                                    Response: Marketability is a                         products are the sole risk management                 to another policy or plan of insurance
                                                 consideration in both the concept                       tool for cotton producers. In 2014, 30                that has not demonstrated a low level of
                                                 proposal and submission stages.                         percent of cotton acres bought coverage               participation or does not contain a clear
                                                 However, FCIC recognizes that more                      at the 60 percent buy-up level or                     and identifiable flaw and the producer
                                                 information will be available at the                    below—17 percent of acres either had
                                                                                                                                                               would not significantly benefit from the
                                                 submission stage and scrutiny by the                    no coverage or coverage at the lowest
                                                                                                                                                               508(h) submission; the 508(h)
                                                 Board will be higher. Therefore, while                  levels available. Any enhancements to
                                                                                                                                                               submission may create adverse market
                                                 the Board will consider marketability at                these products or the addition of new
                                                                                                         products or endorsements would be a                   distortions or adversely impact other
                                                 both stages, requirements may differ.
                                                                                                         benefit for cotton growers.                           crops or agricultural commodities if
                                                 Those requirements and standards
                                                 relating to concept proposals are                          Response: FCIC understands the                     marketed; the 508(h) submission will
                                                 contained in Procedures Handbook                        concern of the submitter that provisions              have a significant adverse impact on the
                                                 17030—Approved Procedures for                           of the Act should be implemented in a                 private delivery system; or the 508(h)
                                                 Submission of Concept Proposals                         transparent manner. However, the Act                  submission cannot be implemented,
                                                 Seeking Advance Payment of Research                     contains confidentiality standards that               administered, and delivered effectively
                                                 and Development Cost. While the                         prevent FCIC from disclosing                          and efficiently using RMA’s information
                                                 definition of submission excludes                       information about products that are                   technology and delivery systems. To
                                                 concept proposals, FCIC recognizes that                 under consideration for approval, which               address the commenters concern, FCIC
                                                 the term ‘‘submission’’ is also                         limits the transparency of the process.               included two additional items to
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                                                 commonly used when referring to                         However, the Board is considering                     describe what protecting producer and
                                                 concept proposals. Therefore, FCIC has                  implementing procedures that will                     taxpayer interests mean. These include
                                                 changed the definition and all                          make the process more transparent. In                 ensuring the 508(h) submission does not
                                                 references of ‘‘submission’’ to ‘‘508(h)                the meantime, to assist the Board in                  contain flaws that may encourage
                                                 submission.’’ This change is expected to                determining if certain commodities such               adverse selection, moral hazard, or
                                                 help eliminate potential confusion by                   as cotton meet the provision in                       vulnerabilities that allow indemnities to
                                                 providing a clearer distinction between                 § 400.706(g)(2), for each policy or plan              exceed the value of the crop.


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                                                                    Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations                                        53669

                                                 § 400.708—Post Approval                                 considered when the terms of the                      reductions in reimbursement for
                                                                                                         reinsurance agreement are established.                research and development will make it
                                                    Comment: A commenter stated that                                                                           difficult for farm organizations to obtain
                                                 § 400.708(a)(1)(ii) indicates that after the            § 400.712—Research and Development
                                                                                                                                                               the services of qualified individuals
                                                 508(h) submission has been approved, a                  Reimbursement, Maintenance
                                                                                                                                                               who can meet the complicated
                                                 reinsurance agreement must be executed                  Reimbursement, Advance Payments for
                                                                                                                                                               requirements of § 400.705. Another
                                                 if the terms and conditions differ from                 Concept Proposals, and User Fees
                                                                                                                                                               concern that was raised was that if
                                                 the available existing reinsurance                         Comment: A commenter expressed                     agricultural organizations obtain the
                                                 agreements. If a separate reinsurance                   support of the provision in § 400.712(c)              services of a developer who does not
                                                 agreement needs to be developed this                    that allows an advance payment of up                  understand the requirements of this
                                                 now creates a situation in which the                    to 50 percent of the projected total                  section, the agricultural organization
                                                 person or organization who has                          research and develop costs and the new                may be required to make up the
                                                 submitted the product, is more than                     provision which would allow the Board                 difference due to reimbursement
                                                 likely not an existing AIP, but will now                to provide up to an additional 25                     reductions. Commenters were
                                                 be charged with establishing the                        percent advance payment. The                          concerned the criteria used to gauge the
                                                 reinsurance terms for all other AIPs who                commenter stated research and                         level of program complexity may not
                                                 choose to participate in writing the                    development costs of a major plan of                  always be representative of the actual
                                                 approved 508(h) submission. This is a                   insurance can be substantial, with many               challenges in developing a crop
                                                 major flaw in this regulation as all AIPs               organizations unable to cover these up-               insurance program. Commenters were
                                                 who choose to participate in writing this               front costs. The additional 25 percent                also concerned that the reductions will
                                                 approved 508(h) submission should be                    advance payment could be instrumental                 come as a surprise to submitters after
                                                 involved in the discussions establishing                in these situations, and the commenter                they have already completed the work.
                                                 the reinsurance terms for such product                  encouraged FCIC to proactively use this               Another concern was that the
                                                 or program. This would result in a                      authority to advance the ability of the               reductions are based on arbitrary
                                                 reinsurance agreement that is more                      RMA to provide growers with sound                     standards. Several commenters
                                                 equitable to all parties involved and                   risk management options.                              recommended the provision be
                                                 likely enhance the chances of the new                      Response: FCIC appreciates the                     excluded from the final rule.
                                                 product being successful in the                         commenter’s support of this provision.                  Response: FCIC understands the
                                                                                                            Comment: A commenter stated that                   concerns of grower groups that may
                                                 marketplace. The AIPs who must
                                                                                                         § 400.712(c)(1)(ii) is government                     contract with other companies to
                                                 administer and bear the risk of the new
                                                                                                         sanctioned usury. The proposed rule                   develop insurance products under the
                                                 product or program need to be involved
                                                                                                         attempts to collect interest at 18 percent            508(h) process. However, FCIC is
                                                 in the development of the new
                                                                                                         per annum for submitters attempting to                statutorily required to consider
                                                 reinsurance agreement and this
                                                                                                         help American farmers achieve risk                    complexity when making payments, and
                                                 regulation should be revised to take this
                                                                                                         management goals. The commenter                       FCIC is striving to do that in a fair and
                                                 into consideration. An example of this
                                                                                                         concludes that this is a shameful                     equitable manner. This means that all
                                                 is the flawed Livestock Price
                                                                                                         proposal.                                             submitters must be treated the same
                                                 Reinsurance Agreement (LPRA) which                         Response: FCIC disagrees that
                                                 was developed in accordance with this                                                                         regardless of their experience. This rule
                                                                                                         § 400.712(c)(1)(ii) attempts to collect               requires that certain tasks be performed
                                                 regulation. The structure of the LPRA                   interest at 18 percent per annum. The
                                                 provides the AIPs with very little                                                                            and those tasks are the same for all
                                                                                                         provision requires interest to be charged             submitters. However, some of the tasks
                                                 incentive to actively pursue and write                  at a rate of 1.25 percent simple interest
                                                 livestock policies as it is currently                                                                         are simplified because the submitter
                                                                                                         per calendar month, which results in an               uses existing policy materials,
                                                 structured. This subsequently results in                annual rate of 15 percent. Furthermore,
                                                 limited sales and reduces the potential                                                                       handbooks, procedures, or rating
                                                                                                         the referenced provisions are intended                methodologies so that the hours
                                                 success of the livestock program.                       to protect taxpayer dollars if developers             required to perform the tasks are
                                                    Response: FCIC agrees the terms of                   accept funding from FCIC, but then fail               reduced. The Board takes this reduction
                                                 the reinsurance agreement developed in                  to deliver an acceptable product. Failure             into consideration. Therefore, FCIC has
                                                 accordance with this provision should                   to collect interest on the funds provided             revised § 400.712(e) by eliminating the
                                                 be established in an equitable manner                   for development would be fiscally                     reduction percentages and giving the
                                                 that takes into consideration the                       irresponsible. This interest rate was                 Board discretion to reduce
                                                 interests of all participating AIPs.                    previously included in 17030—                         reimbursement for research and
                                                 However, it is not possible to involve all              Approved Procedures for Submission of                 development costs and maintenance
                                                 AIPs that will sell the product, because                Concept Proposals Seeking Advance                     costs, as necessary, when requested
                                                 it is not known which AIPs will choose                  Payment of Research and Development                   reimbursement is not commensurate
                                                 to sell the product and confidentiality                 Expenses. This interest rate is also                  with the complexity or the size of the
                                                 rights of the submitter must be                         consistent with the rate charged in                   area proposed to be covered.
                                                 respected. However, if a new or                         section 24(a) of the Common Crop                        Comment: A commenter stated that
                                                 different reinsurance agreement is                      Insurance Policy Basic Provisions for                 the proposed rule in § 400.712(i) speaks
                                                 needed for a newly developed product,                   amounts owed to FCIC and in the                       to the problem submitters will have
                                                 FCIC will endure to establish the                       Standard Reinsurance Agreement. No                    with this proposed rule. A 508(h)
                                                 standard terms of such reinsurance                      change has been made in the final rule.               submission may be determined to be of
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                                                 agreement so that they apply equitably                     Comment: A few commenters                          insufficient quality to refer to expert
                                                 to all AIPs, and that no one AIP                        expressed concerns with the reduction                 reviewers and the costs associated with
                                                 (including any AIP who is part of the                   in research and development costs                     perfecting the 508(h) submission may
                                                 product submission) has a marketing or                  contained in § 400.712(e) based on the                not be considered reimbursable. This
                                                 financial advantage over another AIP.                   plan of insurance, complexity of the                  may not be a disagreeable rule provided
                                                 FCIC has revised the final rule to clarify              policy and rates of premium. A common                 submitters have a clear target. If a
                                                 that participating AIPs interests will be               concern was that the proposed                         submitter knows what the standard is


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                                                 53670              Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations

                                                 for sufficient quality, fails to meet the               Hail policies. Therefore, it is not                   that the denial of reinsurance language
                                                 standard for sufficient quality then it                 necessary to state in § 400.713 that                  in paragraph (c) be deleted and that the
                                                 may be reasonable for the Board to                      Crop-Hail policies are excluded. No                   denial of reinsurance language in
                                                 avoid payment for perfecting the 508(h)                 change has been made in the final rule.               paragraph (a) be revised to read as
                                                 submission. However, with the standard                     Comment: A commenter stated that                   follows: Reinsurance, A&O subsidy and
                                                 that is almost completely arbitrary, this               the proposed rule in § 400.713(a) and (c)             risk subsidy on the underlying FCIC
                                                 rule holds out the possibility of treating              says that failure to provide such NRS                 policy will be denied for any NRS
                                                 submitters disparately. Since the 508(h)                policy or endorsement to RMA prior to                 policy issued without the prior approval
                                                 process can be considered an invitation                 its issuance shall result in the denial of            of FCIC under this section.
                                                 to perform work on behalf of the                        reinsurance, A&O subsidy and risk                        Response: RMA does not approve
                                                 American farmer, FCIC should produce                    subsidy on the underlying FCIC                        NRS policies, rather RMA reviews the
                                                 a clear and helpful rule. A substantial                 reinsured policy for which such NRS                   policy to determine if the conditions in
                                                 number of farmers rely upon the actions                 policy was sold. Because FCIC prohibits               § 400.713(c)(1) through (5) exist.
                                                 of the Board and RMA. Should they                       the tying of FCIC reinsured policies and              Therefore, FCIC does not intend to add
                                                 choose to become submitters, they                       private policies, the AIP that sold the               the suggested ‘‘approval’’ language. The
                                                 deserve clear targets.                                  FCIC reinsured policy may not be the                  provision in § 400.713(a) requires the
                                                    Response: The provision in 712(i) is                 AIP that sold the NRS policy. The                     NRS to be submitted, and if not
                                                 intended to prevent FCIC from paying                    commenter asked how this language                     submitted, provides consequences for
                                                 for the same activities numerous times                  will apply in these cases. The                        not being submitted. The provision in
                                                 before a submission is ready for review                 commenter adds that the regulation                    § 400.713(c) requires FCIC to notify the
                                                 or consideration of approval due to                     should exclude penalties from applying                submitter of the consequences if the
                                                 insufficient quality to conduct a                       to the AIP that sold the underlying FCIC              NRS meets the conditions contained in
                                                 meaningful review, or for errors,                       reinsured policy if the NRS is sold by                § 400.713(c)(1) through (5). Therefore,
                                                 omissions and incomplete materials                      a different AIP.                                      both paragraphs are necessary because
                                                 preventing an independent third party                      Response: FCIC agrees with the                     they contain different requirements.
                                                 from being able to fully read,                          commenter that the regulation should                  However, in response to a previous
                                                 comprehend and understand the                           exclude penalties from applying to AIPs               comment, FCIC has revised
                                                 components of a submission. FCIC has                    that sold the FCIC reinsured policy if                § 400.713(c)(1) to state that FCIC will
                                                 clarified provisions regarding sufficient               the NRS is sold by a different AIP.                   notify the AIP that submitted the NRS
                                                 quality to require that the submission                  However, FCIC does not believe AIPs                   policy that if they sell the NRS policy,
                                                 include all data, analysis and                          that sell an NRS policy that is not                   it will result in denial of reinsurance,
                                                 justification for assumptions made and                  submitted in accordance with § 400.713                A&O subsidy, and risk subsidy on all
                                                 in support of the information provided                  of this regulation or that is found to                underlying FCIC reinsured policies,
                                                 in the submission. This is crucial for the              meet the conditions of § 400.713(c)(1)                unless the underlying FCIC policy was
                                                 conduct of a meaningful external expert                 through (5), should be excluded from                  sold by another AIP. If the underlying
                                                 review. Therefore, the standard is not                  penalty. FCIC has revised § 400.713(a)                FCIC reinsured policy is sold by another
                                                 arbitrary and can be met by submitters.                 and (c) by removing the penalty for                   AIP, the AIP that sold the NRS may be
                                                 For example, if the submitter uses a                    denying reinsurance, A&O subsidy, and                 required to pay FCIC an amount equal
                                                 proxy crop, the submitter must include                  risk subsidy on the underlying FCIC                   to the reinsurance, A&O subsidy, and
                                                 the data and analysis that shows why                    reinsured policy if the AIP selling such              risk subsidy on the underlying FCIC
                                                 the proxy was selected, why a proxy is                  underlying FCIC reinsured policy is not               policy.
                                                 needed, why the proxy selected best                     the company that sold the NRS. FCIC                      Comment: A commenter stated that
                                                 correlates with the crop to be insured                  has added in its place a provision that               the proposed rule indicates in
                                                 under the submission, etc. The same                     makes the AIP that sold the NRS liable                § 400.713(b) that the NRS policy and
                                                 applies with premium rating. The                        for an amount equal to the reinsurance,               related materials must be submitted at
                                                 submitter must explain all assumptions                  A&O subsidy, and risk subsidy on any                  least 150 days prior to the first sales
                                                 made and all adjustments. Simply                        underlying FCIC policies sold by other                closing date applicable to the NRS
                                                 stating math formulas or a complete                     AIPs to which the NRS is attached.                    policy, which is 30 days more lead time
                                                 listing of all types of methodologies is                   Comment: A commenter stated                        than what is currently required. Since
                                                 no longer sufficient.                                   § 400.713(a) states that any NRS policy               the AIPs are being required to submit
                                                                                                         that is issued before it is approved by               the NRS policy 30 days earlier, it would
                                                 § 400.713—Non-Reinsured                                 RMA will result in a denial or                        also be beneficial for the AIPs if the
                                                 Supplemental (NRS) Policy                               reinsurance on the underlying FCIC                    RMA also responded back to the AIP 90
                                                   Comment: A commenter stated that                      reinsurance policy. The denial of                     days before the first sales closing date
                                                 language was added to § 400.713(a)                      reinsurance set-forth in paragraph (a)                rather than 60 days as currently
                                                 requiring submission of any non-                        makes sense. However, in paragraph (c),               required. This would allow additional
                                                 reinsured supplemental (NRS) policy                     which sets forth the approval process                 time to train the agents and to market
                                                 that covers the same agricultural                       that RMA will go through 150 days prior               the NRS product prior to the applicable
                                                 commodity as any policy reinsured by                    to the sales closing date for any NRS                 sales closing date. The commenter
                                                 FCIC under the Federal Crop Insurance                   policy, RMA states that reinsurance will              recommended that § 400.713(d) of this
                                                 Act. The commenter questioned                           also be denied on any FCIC reinsured                  regulation be changed to require that the
                                                 whether the changes now require Crop-                   policy not a meeting the prior approval               RMA will respond back to the AIP not
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                                                 Hail policies to be approved by RMA.                    criteria set forth in paragraphs (c)(1)               less than 90 days before the first sales
                                                 The commenter stated the regulation                     through (5). Since it appears that RMA                closing date rather than 60 days as
                                                 should specifically state that Crop-Hail                must approve NRS policies before they                 currently indicated.
                                                 policies are excluded from these rules.                 are sold, the commenter stated they do                   Response: FCIC understands the
                                                   Response: The definition of ‘‘non-                    not understand the purpose of including               commenter’s desire for additional time
                                                 reinsured supplemental’’ contained in                   a denial of reinsurance penalty in                    to train agents and market the product.
                                                 § 400.701 specifically excludes Crop                    paragraph (c). The commenter suggested                To give both the AIP and RMA


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                                                                    Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations                                        53671

                                                 additional time, FCIC has revised                       asks, what is included in determining                 describe when an NRS reduces or limits
                                                 § 400.713(d) in the final rule to require               aggregate indemnities. The commenter                  the rights of the insured. However, FCIC
                                                 RMA to respond 75 days before the first                 adds that the regulation needs to                     disagrees the phrasing proposed by the
                                                 sales closing date, or provide notice                   specifically exclude hail insurance                   commenter to include the term
                                                 why RMA is unable to respond within                     indemnities from the aggregate                        ‘‘materially’’ is appropriate because this
                                                 the time frame allotted. This change                    indemnities definition and to define                  would allow for a determination of a
                                                 gives both FCIC and the AIP an                          what is included. A commenter also                    degree of significance. FCIC maintains
                                                 additional 15 days from what was                        stated that the phrase ‘‘expected value’’             that if an NRS affects, alters, preempts,
                                                 allotted under the previous rule.                       of the insured commodity was added to                 or undermines the terms or conditions
                                                    Comment: A commenter stated that                     § 400.713(c)(1)(i). The commenter asks                of the underlying policy to any degree,
                                                 § 400.713(b)(1) and (2) indicate that                   what the definition is of expected value              such NRS policy is reducing or limiting
                                                 three hard copies and an electronic copy                and when the expected value is                        the rights of the insured with respect to
                                                 of the NRS policy must be sent to the                   determined. The commenter stated the                  the underlying policy or plan of
                                                 Deputy Administrator for Product                        regulation needs to define expected                   insurance. Therefore, FCIC revised the
                                                 Management. If an electronic copy is                    value, including what information can                 final rule by: Including the terms
                                                 sent, the commenter does not see the                    be used to determine the expected value               ‘‘affects’’ and ‘‘undermines’’; the terms
                                                 need or value in also sending three hard                and what the time frame is around when                ‘‘alters’’ and ‘‘preempts’’ has been
                                                 copies of the same material via regular                 the expected value is determined.                     retained; and the term ‘‘materially’’ has
                                                 postal mail. The commenter                                 Response: FCIC agrees the provision                not been included.
                                                 recommends that the regulation be                       should be revised to clarify what is                     Comment: A commenter stated that
                                                 clarified to indicate that either three                 included in the determination of                      § 400.713(c)(3) may be improved and
                                                 hard copies or an electronic copy of the                aggregate indemnities. Hail policies and              more equitably phrased by adding the
                                                 NRS policy be sent, but that both                       other policies not reinsured by FCIC                  term ‘‘materially’’ prior to the phrase
                                                 methods of submitting the NRS are not                   would not be included. FCIC also agrees               ‘‘in excess of normal market demand.’’
                                                 required.                                               that the concept of expected value needs                 Response: FCIC disagrees that
                                                    Response: FCIC agrees with the                       to be expanded upon in the final rule.                including the term ‘‘materially’’ prior to
                                                 commenter that both an electronic and                   FCIC intentionally did not include                    the phrase ‘‘in excess of market
                                                 a hard copy are not necessary. FCIC                     parameters for determining expected                   demand’’ is appropriate. FCIC considers
                                                 removed the hard copy requirement                       value because this can be defined                     an NRS that encourages planting more
                                                 from the final rule.                                    differently by the submitter. However,                acres of the insured commodity in
                                                    Comment: A few commenters                            the expected value must be based on                   excess of normal market demand to
                                                 questioned the use of the term ‘‘moral                  parameters that represent the value a                 disrupt the marketplace, regardless of
                                                 hazard’’ in § 400.713(c)(1)(i). One                     producer could reasonably expect to                   extent or degree. No change has been
                                                 commenter stated the term moral hazard                  receive for the insured commodity.                    made in the final rule.
                                                 was added with an example, but it is not                Therefore, FCIC has revised the                          Comment: A commenter stated that an
                                                 a defined term. The commenter asked                     provision in the final rule by removing               example of disruption in the
                                                 what constitutes a moral hazard and if                  the term ‘‘aggregate’’ and adding                     marketplace was added in
                                                 moral hazard is applied on a product                    language stating that a policy will be                § 400.713(c)(3). The commenter asked
                                                 basis or on an individual insured                       considered to shift or increase risk if it:           what the basis will be for the evaluation.
                                                 behavior basis. The commenter asks for                  (1) Results in the underlying FCIC                    The commenter also asked if this will
                                                 clarification on whether FCIC will                      policy either triggering a loss sooner, or            this be applied on an individual insured
                                                 determine a policy creates a moral                      paying a larger indemnity than would                  basis or a program basis and how much
                                                 hazard based on its performance over a                  otherwise be allowed by the terms and                 more than normal will be deemed to be
                                                 period of time or based on a single                     conditions of the underlying reinsured                excessive. The commenter questioned if
                                                 instance of abuse. Another commenter                    policy; or (2) allows for combined                    the evaluation of excessive will be based
                                                 suggested defining moral hazard as ‘‘the                indemnities between the underlying                    on a single year or a certain number of
                                                 tendency for an insured party to take                   FCIC reinsured policy and the NRS that                years. A spike in planting may be
                                                 less care to avoid an insured loss than                 are in excess of the value a producer                 attributable to factors other than the
                                                 the party would have taken if the loss                  would reasonably expect to receive for                NRS policy.
                                                 had not been insured, or even to act                    the insured commodity if a normal crop                   Response: The determination will be
                                                 intentionally to bring about that loss.’’               was produced and sold at a reasonable                 based on the evaluation of the policy
                                                    Response: FCIC disagrees that the                    market price.                                         language and any available evidence
                                                 term ‘‘moral hazard’’ should be defined                    Comment: A commenter stated                        that substantiates or verifies the NRS
                                                 in the context of this provision. The                   § 400.713(c)(2) can be better and more                will or has disrupted the marketplace.
                                                 term is commonly used in the insurance                  equitably phrased as follows: ‘‘The NRS               This determination may be applied on
                                                 industry and because the term is not                    reduces or limits the rights of the                   an individual or collective basis. If the
                                                 defined it takes on the common                          insured with respect to the underlying                NRS encourages planting of more acres
                                                 meaning. A moral hazard could be on an                  policy or plan of insurance reinsured by              of the insured commodity in excess of
                                                 individual or product basis. FCIC may                   FCIC. An NRS policy will be considered                market demand it will be considered to
                                                 consider a policy to create a moral                     to reduce or limit the rights of the                  disrupt the marketplace and may be
                                                 hazard if provisions lend themselves to                 insured with respect to the underlying                assessed based on a single year or
                                                 abuse or if data collected shows the                    policy or plan of insurance if it                     multiple years. FCIC agrees that an
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                                                 performance of the product over time                    materially affects the terms or                       increase in planting could be due to
                                                 creates an incentive for abuse. No                      conditions of the underlying policy or                factors other than the NRS policy, so
                                                 change has been made in the final rule.                 otherwise materially undermines                       RMA will consider all other potential
                                                    Comment: A commenter stated the                      procedures issued by FCIC.’’                          factors before concluding the NRS is the
                                                 phrase ‘‘aggregate indemnities’’ was                       Response: FCIC agrees with the                     cause of the disruption in the
                                                 added to § 400.713(c)(1)(i), but does not               commenter that including the terms                    marketplace. FCIC has added the phrase
                                                 include a definition. The commenter                     ‘‘affects’’ and ‘‘undermines’’ help to                ‘‘RMA determines’’ in § 400.713(c)(1)


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                                                 53672              Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations

                                                 through (4) to indicate the decision is                 12866, ‘‘Regulatory Planning and                      Governments.’’ Executive Order 13175
                                                 based on RMA’s determination.                           Review,’’ and therefore, OMB has not                  requires Federal agencies to consult and
                                                    Comment: A commenter stated that                     reviewed this rule.                                   coordinate with tribes on a government-
                                                 language was added to the proposed                                                                            to-government basis on policies that
                                                 rule in § 400.713(e) requiring a review if              Paperwork Reduction Act of 1995
                                                                                                                                                               have tribal implications, including
                                                 the NRS policy exceeds a 2.0 loss ratio.                  Pursuant to the provisions of the                   regulations, legislative comments or
                                                 The commenter questions what are the                    Paperwork Reduction Act of 1995 (44                   proposed legislation, and other policy
                                                 parameters of the 2.0 (e.g., a one year                 U.S.C. chapter 35), the collections of                statements or actions that have
                                                 loss ratio, a rolling 3–5 year loss ratio,              information in this rule have been                    substantial direct effects on one or more
                                                 etc.). The commenter stated the current                 approved by the Office of Management                  Indian tribes, on the relationship
                                                 year loss ratio will be unknown when                    and Budget (OMB) under control                        between the Federal Government and
                                                 the required 150 days prior to sales                    number 0563–0064.                                     Indian tribes or on the distribution of
                                                 closing date is applied. A gap year must                                                                      power and responsibilities between the
                                                                                                         E-Government Act Compliance
                                                 be included in evaluation of loss ratio.                                                                      Federal Government and Indian tribes.
                                                 The commenter asked if RMA will                            FCIC is committed to complying with                FCIC has assessed the impact of this
                                                 approve private product rating                          the E-Government Act of 2002, to                      rule on Indian tribes and determined
                                                 methodology and/or rates. The                           promote the use of the Internet and                   that this rule does not, to our
                                                 commenter also questioned if state                      other information technologies to                     knowledge, have tribal implications that
                                                 department of insurance approval of the                 provide increased opportunities for                   require tribal consultation under
                                                 rate methodology and/or rates will be                   citizen access to Government                          Executive Order 13175. If a Tribe
                                                 superseded by RMA’s rejection of the                    information and services, and for other               requests consultation, FCIC will work
                                                 same. The commenter stated that states                  purposes.                                             with the USDA Office of Tribal
                                                 regulate and approve private product                                                                          Relations to ensure meaningful
                                                                                                         Unfunded Mandates Reform Act of 1995
                                                 rates. If a state approves the rates                                                                          consultation is provided where changes,
                                                 associated with a private product, the                     Title II of the Unfunded Mandates
                                                                                                                                                               additions, and modifications identified
                                                 commenter questioned whether FCIC                       Reform Act of 1995 (UMRA, Pub. L.
                                                                                                                                                               in this rule are not expressly mandated
                                                 has the authority under the McCarran-                   104–4) requires Federal agencies to
                                                                                                                                                               by law.
                                                 Ferguson Act to reject or dispute those                 assess the effects of their regulatory
                                                 rates.                                                  actions on State, local, and Tribal                   Regulatory Flexibility Act
                                                    Response: RMA will not review the                    governments, or the private sector.
                                                                                                         Agencies generally need to prepare a                    The Regulatory Flexibility Act (5
                                                 premium rates of an NRS policy. Rather,
                                                                                                         written statement, including a cost-                  U.S.C. 601–612), as amended by the
                                                 FCIC was proposing to use the loss ratio
                                                 as a possible indication there could be                 benefit analysis, for proposed and final              Small Business Regulatory Enforcement
                                                 an underlying issue that may result in                  rules with Federal mandates that may                  Fairness Act of 1996 (SBREFA, Pub. L.
                                                 risk being shifted to the underlying                    result in expenditures of $100 million or             104–121), generally requires an agency
                                                 FCIC reinsured policy. However, FCIC                    more in any year for State, local, or                 to prepare a regulatory flexibility
                                                 agrees with the commenter that a one                    Tribal governments, in the aggregate, or              analysis of any rule subject to the notice
                                                 year loss ratio would not be sufficient to              to the private sector. UMRA generally                 and comment rulemaking requirements
                                                 determine if there was an underlying                    requires agencies to consider                         under the Administrative Procedure Act
                                                 issue and FCIC already requires a NRS                   alternatives and adopt the more cost                  or any other law, unless the agency
                                                 policy to be submitted for review in                    effective or least burdensome alternative             certifies that the rule will not have a
                                                 accordance with § 400.713(c)(1) through                 that achieves the objectives of the rule.             significant economic impact on a
                                                 (5). FCIC also agrees the AIP may not                   This rule contains no Federal mandates,               substantial number of small entities.
                                                 know the loss ratio 150 days prior to the               as defined in Title II of UMRA, for State,            FCIC certifies that this regulation will
                                                 sales closing date. Because these issues                local, and Tribal governments or the                  not have a significant economic impact
                                                 were not addressed in the proposed                      private sector. Therefore, this rule is not           on a substantial number of small
                                                 rule, FCIC has not included this                        subject to the requirements of sections               entities. The regulation does not require
                                                 provision in the final rule.                            202 and 205 of UMRA.                                  any more action on the part of the small
                                                                                                                                                               entities than is required on the part of
                                                 Executive Orders 12866 and 13563                        Executive Order 13132                                 large entities. No matter the size of the
                                                   Executive Order 12866, ‘‘Regulatory                     It has been determined under section                submitter, all submitters are required to
                                                 Planning and Review,’’ and Executive                    1(a) of Executive Order 13132,                        perform the same tasks and those tasks
                                                 Order 13563, ‘‘Improving Regulation                     Federalism, that this rule does not have              are necessary to ensure that the concept
                                                 and Regulatory Review,’’ direct agencies                sufficient implications to warrant                    proposal can be made into a viable and
                                                 to assess all costs and benefits of                     consultation with the States. The                     marketable 508(h) submission and any
                                                 available regulatory alternatives and, if               provisions contained in this rule will                508(h) submission can be made into
                                                 regulation is necessary, to select                      not have a substantial direct effect on               viable and marketable, actuarially sound
                                                 regulatory approaches that maximize                     States, or on the relationship between                insurance product. A Regulatory
                                                 net benefits (including potential                       the national government and the States,               Flexibility Analysis has not been
                                                 economic, environmental, public health                  or on the distribution of power and                   prepared since this regulation does not
                                                 and safety effects, distributive impacts,               responsibilities among the various                    have an impact on small entities, and,
                                                 and equity). Executive Order 13563                      levels of government, except as required              therefore, this regulation is exempt from
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                                                 emphasized the importance of                            by law.                                               the provisions of the Regulatory
                                                 quantifying both costs and benefits, of                                                                       Flexibility Act.
                                                 reducing costs, of harmonizing rules,                   Executive Order 13175
                                                                                                                                                               Federal Assistance Program
                                                 and of promoting flexibility.                             This rule has been reviewed in
                                                   The Office of Management and Budget                   accordance with the requirements of                     This program is listed in the Catalog
                                                 (OMB) designated this rule as not                       Executive Order 13175, ‘‘Consultation                 of Federal Domestic Assistance under
                                                 significant under Executive Order                       and Coordination with Indian Tribal                   No. 10.450.


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                                                                    Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations                                       53673

                                                 Executive Order 12372                                   400.712 Research and development                         Actuarially appropriate. A term used
                                                                                                             reimbursement, maintenance                        to describe premium rates when such
                                                   This program is not subject to the                        reimbursement, advance payments for
                                                 provisions of Executive Order 12372,                                                                          rates are expected to cover anticipated
                                                                                                             concept proposals, and user fees.
                                                 which require intergovernmental                         400.713 Non-reinsured supplemental (NRS)
                                                                                                                                                               losses and establish a reasonable reserve
                                                 consultation with State and local                           policy.                                           based on valid reasoning, an
                                                 officials. See the Notice related to 7 CFR                                                                    examination of available risk data, or
                                                                                                           Authority: 7 U.S.C. 1506(l), 1506(o),
                                                 part 3015, subpart V, published at 48 FR                                                                      knowledge or experience of the
                                                                                                         1508(h), 1522(b), 1523(i).
                                                 29115, June 24, 1983.                                                                                         expected value of future costs associated
                                                                                                         Subpart V—Submission of Policies,                     with the risk to be covered. This will be
                                                 Executive Order 12988                                                                                         expressed by a combination of data
                                                                                                         Provisions of Policies, Rates of
                                                    This rule has been reviewed in                       Premium, and Non-Reinsured                            including, but not limited to liability,
                                                 accordance with Executive Order 12988                   Supplemental Policies                                 premium, indemnity, and loss ratios
                                                 on civil justice reform. The provisions                                                                       based on actual data or simulations
                                                 of this rule will not have a retroactive                § 400.700 Basis, purpose, and                         reflecting the risks covered by the
                                                                                                         applicability.                                        policy.
                                                 effect. The provisions of this rule will
                                                 preempt State and local laws to the                       This subpart establishes guidelines,                   Administrative and operating (A&O)
                                                 extent such State and local laws are                    the approval process, and                             subsidy. The subsidy for the
                                                 inconsistent herewith. With respect to                  responsibilities of FCIC and the                      administrative and operating expenses
                                                 any direct action taken by FCIC or to                   applicant for policies, provisions of                 authorized by the Act and paid by FCIC
                                                 require the insurance provider to take                  policies, and rates of premium                        on behalf of the producer to the
                                                 specific action under the terms of the                  submitted to the Board as authorized                  approved insurance provider. Loss
                                                 crop insurance policy, the                              under section 508(h) of the Act. It also              adjustment expense reimbursement paid
                                                 administrative appeal provisions                        provides procedures for reimbursement                 by FCIC for catastrophic risk protection
                                                 published at 7 CFR part 11 must be                      of research and development costs and                 (CAT) eligible crop insurance contracts
                                                 exhausted before any action against                     maintenance costs for concept proposals               is not considered as A&O subsidy.
                                                 FCIC for judicial review may be brought.                and approved 508(h) submissions.                         Advance payment. A portion, up to 50
                                                                                                         Guidelines for submitting concept                     percent, of the estimated research and
                                                 Environmental Evaluation                                proposals and the standards for                       development costs, that may be
                                                   This action is not expected to have a                 approval and advance payments are                     approved by the Board under section
                                                 significant economic impact on the                      provided in this subpart. This subpart                522(b) of the Act for an approved
                                                 quality of the human environment,                       also provides guidelines and reference                concept proposal. Upon request of the
                                                 health, or safety. Therefore, neither an                to procedures for submitting index-                   submitter the Board may at its sole
                                                 Environmental Assessment nor an                         based weather plans of insurance as                   discretion provide up to an additional
                                                 Environmental Impact Statement is                       authorized under section 523(i) of the                25 percent advance payment of the
                                                 needed.                                                 Act. The procedures for submitting non-               estimated research and development
                                                                                                         reinsured supplemental policies in                    costs after the applicant begins research
                                                 List of Subjects in 7 CFR Part 400                      accordance with the Standard                          and development activities if:
                                                   Administrative practice and                           Reinsurance Agreement (SRA) are also                     (1) The concept proposal will provide
                                                 procedure, Crop insurance.                              contained within.                                     coverage for a region or crop that is
                                                 Final Rule                                              § 400.701    Definitions.                             underserved, including specialty crops;
                                                   Accordingly, as set forth in the                        508(h) submission. A policy, plan of                and
                                                 preamble, FCIC amends 7 CFR part 400                    insurance, provision of a policy or plan                 (2) The submitter is making
                                                 as follows:                                             of insurance, or rates of premium                     satisfactory progress towards developing
                                                                                                         provided by an applicant to FCIC in                   a viable and marketable 508(h)
                                                 PART 400—GENERAL                                        accordance with the requirements of                   submission.
                                                 ADMINISTRATIVE REGULATIONS                              § 400.705.508(h) submissions as                          Agent. An individual licensed by the
                                                                                                         referenced in this subpart do not                     State in which an eligible crop
                                                 ■   1. Revise subpart V to read as follows:             include concept proposals, index-based                insurance contract is sold and serviced
                                                 Subpart V—Submission of Policies,                       weather plans of insurance, or non-                   for the reinsurance year, and who is
                                                 Provisions of Policies, Rates of Premium,               reinsured supplemental policies.                      employed by, or under contract with,
                                                 and Non-Reinsured Supplemental Policies                   Act. Subtitle A of the Federal Crop                 the approved insurance provider, or its
                                                 Sec.                                                    Insurance Act, as amended (7 U.S.C.                   designee, to sell and service such
                                                 400.700 Basis, purpose, and applicability.              1501–1524).                                           eligible crop insurance contracts.
                                                 400.701 Definitions.                                      Actuarial documents. The                               Applicant. Any person or entity that
                                                 400.702 Confidentiality and duration of                 information for the crop or insurance                 submits to the Board for approval a
                                                      confidentiality.                                   year that is available for public                     508(h) submission under section 508(h)
                                                 400.703 Timing and format.
                                                                                                         inspection in an agent’s office and                   of the Act, a concept proposal under
                                                 400.704 Covered by this subpart.
                                                 400.705 Contents for new and changed                    published on RMA’s Web site, and that                 section 522 of the Act, or an index-
                                                      508(h) submissions, concept proposals,             shows available insurance policies,                   based weather plan of insurance under
                                                      and index-based weather plans of                   coverage levels, information needed to                section 523(i) of the Act, who must
                                                      insurance.                                         determine amounts of insurance and                    include the AIP that has committed to
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                                                 400.706 Review.                                         guarantees, prices, premium rates,                    be involved in the development and
                                                 400.707 Presentation to the Board for                   premium adjustment percentages,                       submission process and to market, sell
                                                      approval or disapproval.                           practices, particular types or varieties of           and service the policy or plan of
                                                 400.708 Post approval.
                                                 400.709 Roles and responsibilities.                     the insurable crop or agricultural                    insurance.
                                                 400.710 Preemption and premium taxation.                commodity, insurable acreage, and other                  Approved insurance provider (AIP). A
                                                 400.711 Right of review, modification, and              related information regarding insurance               legal entity, including the Company,
                                                      the withdrawal of approval.                        in the county or state.                               which has entered into a reinsurance


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                                                 53674              Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations

                                                 agreement with FCIC for the applicable                  Board regarding the results of their                  maintain the product for subsequent
                                                 reinsurance year.                                       review.                                               years.
                                                    Approved procedures. The applicable                     FCIC. The Federal Crop Insurance                      Multiple peril crop insurance (MPCI).
                                                 handbooks, manuals, memoranda,                          Corporation, a wholly owned                           Policies reinsured by FCIC that provide
                                                 bulletins or other directives issued by                 government corporation within USDA,                   protection against multiple causes of
                                                 RMA or the Board.                                       whose programs are administered by                    loss that adversely affect production or
                                                    Board. The Board of Directors of                     RMA.                                                  revenue, such as to natural disasters,
                                                 FCIC.                                                      Index-based weather plan of                        such as hail, drought, and floods.
                                                    Commodity. Has the same meaning as                   insurance. A risk management product                     National Agricultural Statistics
                                                 section 518 of the Act.                                 in which indemnities are based on a                   Service (NASS). An agency within
                                                    Complete. A 508(h) submission,                       defined weather parameter exceeding or                USDA, or its successor agency that
                                                 concept proposal, or index-based                        failing to meet a given threshold during              collects and analyzes data collected
                                                 weather plan of insurance determined                    a specified time period. The weather                  from producers and other sources.
                                                 by RMA and the Board to contain all                     index is a proxy to measure expected                     Non-reinsured supplemental policy
                                                 required documentation in accordance                    loss of production when the defined                   (NRS). A policy, endorsement, or other
                                                 with § 400.705 and is of sufficient                     weather parameter does not meet the                   risk management tool not reinsured by
                                                 quality.                                                threshold.                                            FCIC under the Act, that offers
                                                    Complexity. Consideration of factors                    Limited resource producer. Has the                 additional coverage, other than for loss
                                                 such as originality of policy materials,                same meaning as the term defined by                   related to hail.
                                                 underwriting methods, actuarial rating                  USDA at: www.lrftool.sc.egov.usda.gov/                   Non-significant changes. Minor
                                                 methodology, and the pricing                            LRP_Definition.aspx or a successor Web                changes to the policy or plan of
                                                 methodology used in design,                             site.                                                 insurance, such as technical corrections,
                                                 construction and all other steps required                  Livestock commodity. Has the same                  that do not affect the rating or pricing
                                                 for the full development of a policy or                 meaning as the term in section 523(i) of              methodologies, the amount of subsidy
                                                 plan of insurance.                                      the Act.                                              owed, the amount or type of coverage,
                                                                                                            Maintenance. For the purposes of this              FCIC’s reinsurance risk, or any other
                                                    Concept proposal. A written proposal
                                                                                                         subpart only, the process of continual                condition that does not affect liability or
                                                 for a prospective 508(h) submission,
                                                                                                         support, revision or improvement, as                  the amount of loss to be paid under the
                                                 submitted under section 522(b) of the
                                                                                                         needed, for an approved 508(h)                        policy. Revisions to approved plans
                                                 Act for advance payment of research
                                                                                                         submission, including the periodic                    required by statutory or regulatory
                                                 and development costs, and containing
                                                                                                         review of premium rates and prices,                   changes are included in this category.
                                                 all the information required in this
                                                                                                         updating or modifying the rating or                   Changes to the policy that involve
                                                 regulation and the Procedures
                                                                                                         pricing methodologies, updating or                    concepts that have been previously sent
                                                 Handbook 17030—Approved
                                                                                                         modifying policy terms and conditions,                for expert review are also included in
                                                 Procedures for Submission of Concept
                                                                                                         adding a new commodity under similar                  this category.
                                                 Proposals Seeking Advance Payment of
                                                                                                                                                                  Plan of insurance. A class of policies,
                                                 Research and Development Costs, which                   policy terms and conditions with
                                                                                                                                                               such as yield, revenue, or area based
                                                 can be found on the RMA Web site at                     similar rating and pricing methodology,
                                                                                                                                                               that offers a specific type of coverage to
                                                 www.rma.usda.gov, such that the Board                   or expanding a plan or policy to
                                                                                                                                                               one or more agricultural commodities.
                                                 is able to determine that, if approved,                 additional states and counties, and any                  Policy. Has the same meaning as the
                                                 will be developed into a viable and                     other actions necessary to provide                    term in section 1 of the Basic Provisions
                                                 marketable policy consistent with Board                 adequate, reasonable and meaningful                   (7 CFR 457.8).
                                                 approved procedures, these regulations,                 protection for producers, ensure                         Rate of premium. The dollar amount
                                                 and section 508(h) of the Act.                          actuarial soundness, or to respond to                 per insured unit, or percentage rate per
                                                    Delivery system. The components or                   statutory or regulatory changes. A                    dollar of liability, that is needed to pay
                                                 parties that make the policy or plan of                 concept proposal that is similar to a                 anticipated losses and provide a
                                                 insurance available to the public for                   previously approved 508(h) submission                 reasonable reserve.
                                                 sale.                                                   will be considered maintenance for the                   Reinsurance year. The term beginning
                                                    Development. The process of                          similar approved 508(h) submission if                 July 1 and ending on June 30 of the
                                                 composing documentation and                             submitted by the same person.                         following year and, for reference
                                                 procedures, pricing and rating                             Maintenance costs. Specific expenses               purposes, identified by reference to the
                                                 methodologies, administrative and                       associated with the maintenance of an                 year containing June.
                                                 operating procedures, systems and                       approved 508(h) submission as                            Related material. The actuarial
                                                 software, supporting materials, and                     authorized by § 400.712.                              documents for the insured commodity
                                                 documentation necessary to create and                      Maintenance period. A period of time               and any underwriting or loss adjustment
                                                 implement a 508(h) submission.                          that begins on the date the Board                     manuals, handbooks, forms, instructions
                                                    Endorsement. A document that                         approves the 508(h) submission and                    or other information needed to
                                                 amends or revises an insurance policy                   ends on the date that is not more than                administer the policy.
                                                 reinsured under the Act in a manner                     four reinsurance years after such                        Research. For the purposes of
                                                 that changes existing, or provides                      approval.                                             development, the gathering of
                                                 additional, coverage provided by such                      Manager. The Manager of FCIC.                      information related to: Producer needs
                                                 policy.                                                    Marketable. A determination by the                 and interests for risk management; the
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                                                    Expert reviewer. Independent persons                 Board, based on a detailed, written                   marketability of the policy or plan of
                                                 contracted by the Board who meet the                    marketability assessment provided in                  insurance; appropriate policy terms,
                                                 criteria for underwriters or actuaries                  accordance with § 400.705(e), that                    premium rates, price elections,
                                                 that are selected by the Board to review                demonstrates a sufficient number of                   administrative and operating
                                                 a concept proposal, 508(h) submission,                  producers will purchase the product to                procedures, supporting materials,
                                                 or index-based weather plan of                          justify the resources and expenses                    documentation, and the systems and
                                                 insurance and provide advice to the                     required to offer the product for sale and            software necessary to implement a


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                                                                    Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations                                       53675

                                                 policy or plan of insurance. The                        detailed analysis and data so that expert             any undue pressure on the expert
                                                 gathering of information to determine                   reviewers, RMA and the Board can                      reviewers.
                                                 whether it is feasible to expand a policy               understand, comprehend and make                          (c) Any 508(h) submission, concept
                                                 or plan of insurance to a new area or to                calculations, draw substantiated                      proposal, or index-based weather plan
                                                 cover a new commodity under the same                    conclusions or results to determine                   of insurance disapproved by the Board
                                                 policy terms and conditions, price, and                 whether the 508(h) submission, concept                will remain confidential commercial or
                                                 premium rates is not considered                         proposal, or index-based weather plan                 financial information in accordance
                                                 research.                                               of insurance meets the standards                      with 5 U.S.C. 552(b)(4) (no information
                                                    Research and development costs.                      required for approval.                                related to such 508(h) submission,
                                                 Specific expenses incurred and directly                   Targeted producer. Producers who are                concept proposal, or index-based
                                                 related to the research and development                 considered small, socially                            weather plan of insurance will be
                                                 activities of a 508(h) submission as                    disadvantaged, beginning and limited                  released by FCIC unless authorized in
                                                 authorized in § 400.712.                                resource or other specific aspects                    writing by the applicant).
                                                    Risk Management Agency (RMA). An                     designated by FCIC for review.                           (d) All 508(h) submissions, concept
                                                 agency within USDA that is authorized                     USDA. The United States Department                  proposals, and index-based weather
                                                 to administer the crop insurance                        of Agriculture.                                       plans of insurance, will be kept
                                                 program on behalf of FCIC.                                User fees. Fees, approved by the                    confidential until approved by the
                                                    Risk subsidy. The portion of the                                                                           Board and will be given an
                                                                                                         Board, that can be charged to approved
                                                 premium paid by FCIC on behalf of the                                                                         identification number for tracking
                                                                                                         insurance provider for use of a policy or
                                                 insured.                                                                                                      purposes, unless the applicant advises
                                                                                                         plan of insurance once the period for
                                                    Sales closing date. A date contained                                                                       otherwise.
                                                                                                         maintenance has expired that only
                                                 in the Special Provisions by which an
                                                                                                         covers the expected maintenance costs                 § 400.703   Timing and format.
                                                 application must be filed and the last
                                                                                                         to be incurred by the submitter.                         (a) A 508(h) submission, concept
                                                 date by which the insured may change
                                                 the crop insurance coverage for a crop                    Viable. A determination by the Board                proposal, or index-based weather plan
                                                 year.                                                   that the concept proposal, index-based                of insurance may only be provided to
                                                    Secretary. The Secretary of the United               weather plan of insurance, or 508(h)                  FCIC during the first five business days
                                                 States Department of Agriculture.                       submission is or can be developed into                in January, April, July, and October.
                                                    Significant change. Any change to the                a policy or plan of insurance that can be                (b) A 508(h) submission, concept
                                                 policy or plan of insurance that may                    implemented by the delivery system                    proposal, or index-based weather plan
                                                 affect the rating and pricing                           with actuarially appropriate rates in                 of insurance must be provided as an
                                                 methodologies, the amount of subsidy                    accordance with Board procedures.                     electronic file to FCIC in Microsoft
                                                 owed, the amount of coverage, the                                                                             Office compatible format, sent to either
                                                                                                         § 400.702 Confidentiality and duration of
                                                 interests of producers, FCIC’s                          confidentiality.                                      the address in paragraph (d)(1) or (d)(2)
                                                 reinsurance risk, or any condition that                                                                       of this section by the due date in
                                                                                                            (a) Pursuant to section 508(h)(4)(A) of            paragraph (a) of this section. The
                                                 may affect liability or the amount of loss
                                                                                                         the Act, prior to approval by the Board,              electronic file must contain a document
                                                 to be paid under the policy.
                                                    Special Provisions. Has the same                     any 508(h) submission submitted to the                with a detailed index that, in sequential
                                                 meaning as the term in section 1 of the                 Board under section 508(h) of the Act,                order, references the location of the
                                                 Basic Provisions (7 CFR 457.8).                         concept proposal submitted under                      required information that may either be
                                                    Specialty crops. Fruits and vegetables,              section 522 of the Act, or index-based                contained within the document or in a
                                                 tree nuts, dried fruits, and horticulture               weather plan of insurance submitted                   separate file. The detailed index must
                                                 and nursery crops (including                            under section 523(i) of the Act,                      clearly identify each required section
                                                 floriculture).                                          including any information generated                   and include the page number if the
                                                    Socially disadvantaged producer. Has                 from the 508(h) submission, concept                   information is contained in the
                                                 the same meaning as section 2501(E) of                  proposal, or index-based weather plan                 document or file name if the
                                                 the Food, Agriculture, Conservation,                    of insurance, will be considered                      information is contained in a separate
                                                 and Trade Act of 1990 (7 U.S.C.                         confidential commercial or financial                  file; and
                                                 2279(e)).                                               information for purposes of 5 U.S.C.                     (c) Any 508(h) submission, concept
                                                    Standard Reinsurance Agreement                       552(b)(4) and will not be released by                 proposal, or index-based weather plan
                                                 (SRA). The reinsurance agreement                        FCIC to the public, unless the applicant              of insurance not provided within the
                                                 between FCIC and the approved                           authorizes such release in writing.                   first 5 business days of a month stated
                                                 insurance provider, under which the                        (b) Once the Board approves a 508(h)               in paragraph (a) of this section will be
                                                 approved insurance provider is                          submission or an index-based weather                  considered to have been provided in the
                                                 authorized to sell and service eligible                 plan of insurance, information provided               next month stated in paragraph (a). For
                                                 crop insurance contracts. For the                       with the 508(h) submission (including                 example, if an applicant provides a
                                                 purposes of this subpart, all references                information from the concept proposal)                508(h) submission on January 10, it will
                                                 to the SRA will also include any other                  or the index-based weather plan of                    be considered to have been received on
                                                 reinsurance agreements entered into                     insurance, or generated in the approval               April 1.
                                                 with FCIC, including the Livestock Price                process, may be released to the public,                  (d) Any 508(h) submission, concept
                                                 Reinsurance Agreement.                                  as applicable, including any                          proposal, or index-based weather plan
                                                    Submitter. Same meaning as                           mathematical modeling and data, unless                of insurance must be provided to one of
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                                                 applicant.                                              it remains confidential business                      the following addresses, but not both:
                                                    Sufficient quality. A determination                  information under 5 U.S.C. 552(b)(4).                    (1) By email to the Deputy
                                                 made by RMA and the Board that the                      While the expert reviews are releasable               Administrator for Product Management
                                                 material presented is clearly written in                once the 508(h) submission or an index-               (or successor) at DeputyAdministrator@
                                                 plain language in accordance with the                   based weather plan of insurance has                   rma.usda.gov; or
                                                 Plain Writing Act of 2010 (5 U.S.C. 301),               been approved, the names of the expert                   (2) By mail on a removable storage
                                                 unambiguous, and is supported by                        reviewers may be redacted to prevent                  device such as a compact disk or


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                                                 53676              Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations

                                                 Universal Serial Bus (USB) drive, sent to                 (e) An applicant must submit a non-                   (8) Any known or anticipated future
                                                 the Deputy Administrator for Product                    reinsured supplemental policy or                      expansion plans;
                                                 Management (or any successor                            endorsement to RMA in accordance                        (9) Identification, including names,
                                                 position), USDA/Risk Management                         with § 400.713.                                       addresses, telephone numbers, and
                                                 Agency, 2312 East Bannister Road,                                                                             email addresses, of the person(s)
                                                                                                         § 400.705 Contents for new and changed                responsible for:
                                                 Kansas City, MO 64131–3011.                             508(h) submissions, concept proposals,
                                                   (e) In addition to the requirements in                                                                        (i) Addressing questions regarding the
                                                                                                         and index-based weather plans of
                                                 paragraph (a) of this section, a 508(h)                 insurance.                                            policy, underwriting rules, loss
                                                 submission must be received not later                                                                         adjustment procedures, rate and price
                                                                                                            (a) A complete 508(h) submission
                                                 than 240 days prior to the earliest                                                                           methodologies, data processing and
                                                                                                         must contain the following material, as
                                                 proposed sales closing date to be                                                                             record-keeping requirements, and any
                                                                                                         applicable, submitted in accordance
                                                 considered for sale in the requested crop                                                                     other questions that may arise in
                                                                                                         with § 400.703(b). A complete 508(h)
                                                 year.                                                   submission must be a viable and                       implementing or administering the
                                                   (f) To be offered for sale in a crop                  marketable insurance product that                     program if it is approved; and
                                                 year, there must be at least sixty days                                                                         (ii) Annual reviews to ensure
                                                                                                         protects the interests of producers, is
                                                 between the date the policy is ready to                                                                       compliance with all requirements of the
                                                                                                         actuarially appropriate and ensures
                                                 be made available for sale and the                                                                            Act, this subpart, and any agreements
                                                                                                         program integrity. The material must
                                                 earliest sales closing date, unless this                                                                      executed between the applicant and
                                                                                                         contain adequate information as
                                                 requirement is expressly waived by the                  required in this section, that is                     FCIC;
                                                 Board.                                                                                                          (10) A statement of whether the
                                                                                                         presented clearly to ensure the Board
                                                   (g) Notwithstanding, paragraph (f) of                                                                       508(h) submission will be filed with the
                                                                                                         and RMA can determine whether RMA
                                                 this section, the Board, or RMA if                                                                            applicable office responsible for
                                                                                                         and the delivery system have the
                                                 authorized by the Board, shall                                                                                regulating insurance in each state
                                                                                                         resources to implement, administer, and
                                                 determine when sales can begin for a                                                                          proposed for insurance coverage, and if
                                                                                                         deliver the 508(h) submission
                                                 508(h) submission approved by the                                                                             not, reasons why the 508(h) submission
                                                                                                         effectively and efficiently. Calculations,
                                                 Board after consideration of the analysis                                                                     will not be filed for review; and
                                                                                                         procedures and methodologies must be                    (11) A statement of whether the
                                                 provided by the applicant AIP of the                    consistent throughout the submission
                                                 impact of the proposed implementation                                                                         submitter wants the 508(h) submission
                                                                                                         and appropriate for the commodity and                 to remain confidential.
                                                 date on the delivery system.                            the risks covered.                                      (c) The second section must contain
                                                                                                            (b) The first section will contain                 the benefits of the plan, including, as
                                                 § 400.704   Covered by this subpart.
                                                                                                         general information numbered as                       applicable, a summary that includes:
                                                    (a) An applicant may submit to the                   follows (1, 2, 3, etc.), including, as
                                                 Board, in accordance with § 400.705, a                                                                          (1) How the 508(h) submission offers
                                                                                                         applicable:                                           coverage or other benefits not currently
                                                 508(h) submission that is:                                 (1) The applicant’s name(s), address
                                                                                                                                                               available from existing public or private
                                                    (1) A policy or plan of insurance not                or primary business location, phone
                                                                                                                                                               programs;
                                                 currently reinsured by FCIC;                            number, and email address;                              (2) How the 508(h) submission meets
                                                    (2) One or more proposed revisions to                   (2) The type of 508(h) submission (see
                                                                                                                                                               public policy goals and objectives
                                                 a policy or plan of insurance authorized                § 400.704) and a notation of whether or
                                                                                                                                                               consistent with the Act and other laws,
                                                 under the Act; or                                       not the 508(h) submission was approved
                                                                                                                                                               as well as policy goals supported by
                                                    (3) Rates of premium for any policy or               by the Board as a concept proposal;
                                                                                                            (3) A statement of whether the                     USDA and the Federal Government; and
                                                 plan of insurance authorized under the                                                                          (3) A detailed description of the
                                                 Act.                                                    applicant is requesting:
                                                                                                            (i) Reinsurance;                                   coverage provided by the 508(h)
                                                    (b) An applicant must submit to the                                                                        submission and its applicability to all
                                                 Board, any significant change to a                         (ii) Risk subsidy;
                                                                                                            (iii) A&O subsidy;                                 producers, including targeted
                                                 previously approved 508(h) submission,                                                                        producers.
                                                                                                            (iv) Reimbursement for research and
                                                 including requests for expansion, prior                                                                         (d) Except as provided in this section,
                                                                                                         development costs, as applicable and, if
                                                 to making the change in accordance                                                                            the third section must contain the
                                                                                                         the 508(h) submission was previously
                                                 with § 400.705.                                                                                               policy, that is clearly written in plain
                                                                                                         submitted as a concept proposal, the
                                                    (c) An applicant may submit a                        amount of the advance payment for                     language in accordance with the Plain
                                                 concept proposal to the Board prior to                  expected research and development                     Writing Act of 2010 (5 U.S.C. 301) such
                                                 developing a full 508(h) submission, in                 costs; or                                             that producers will be able to
                                                 accordance with this subpart and the                       (v) Reimbursement for expected                     understand the coverage being offered.
                                                 Procedures Handbook 17030—                              maintenance costs, if applicable;                     The policy language permits actuaries to
                                                 Approved Procedures for Submission of                      (4) The proposed agricultural                      form a clear understanding of the
                                                 Concept Proposals Seeking Advance                       commodities to be covered, including                  payment contingencies for which they
                                                 Payment of Research and Development                     types, varieties, and practices covered               will set rates. The policy language does
                                                 Costs, which can be found on the RMA                    by the 508(h) submission;                             not encourage an excessive number of
                                                 Web site at www.rma.usda.gov.                              (5) The crop or insurance year and                 disputes or legal actions because of
                                                    (d) An applicant who is an approved                  reinsurance year in which the 508(h)                  misinterpretations.
                                                 insurance provider may submit an                        submission is proposed to be available                  (1) If the 508(h) submission involves
                                                 index-based weather plan of insurance                   for purchase by producers;                            a new insurance policy or plan of
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                                                 for consideration as a pilot program in                    (6) The proposed sales closing date, if            insurance:
                                                 accordance with this subpart and the                    applicable, or the sales window or the                  (i) All applicable policy provisions;
                                                 Procedures Handbook 17050—                              earliest date the applicant expects to                and
                                                 Approved Procedures for Submission of                   release the product to the public;                      (ii) A list of any additional coverage
                                                 Index-based Weather Plans of Insurance,                    (7) The proposed states and counties               that may be elected by the insured in
                                                 which can be found on the RMA Web                       where the plan of insurance is proposed               conjunction with the 508(h) submission
                                                 site at www.rma.usda.gov.                               to be offered;                                        such as applicable endorsements


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                                                                    Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations                                        53677

                                                 (include a description of the coverage                  sessions held, where they were held,                     (ii) An assessment of whether AIPs
                                                 and how such coverage may be                            when they were held, the number of                    and their agents will want to sell and
                                                 obtained).                                              attendees at each session, the attendees              service the proposed 508(h) submission;
                                                    (2) If the 508(h) submission involves                affiliation (producer, agent or other),                  (iii) An assessment of the risks
                                                 a change to a previously approved                       and specific feedback from the attendees              associated with the proposed 508(h)
                                                 policy, plan of insurance, or rates of                  regarding levels of coverage the product              submission and its likely effect under
                                                 premium, the proposed revisions,                        should include to cover anticipated                   the SRA;
                                                 rationale for each change, data and                     risks or perils encountered, the range of                (iv) Estimated computer system
                                                 analysis supporting each change, the                    costs the producer is willing to pay,                 impacts and costs;
                                                 impact of each change, and the impact                   what coverages the producers are                         (v) Estimated administrative and
                                                 of all changes in aggregate.                            specifically looking for and an                       training requirement and costs;
                                                    (e) The fourth section must contain                  assessment of whether that coverage can                  (vi) An analysis of the complexity of
                                                 the following:                                          be provided at the price the producers                the product; and
                                                    (1) Potential impacts the 508(h)                     are willing to pay, what shortfall or gap                (vii) What, if any, efficiency will be
                                                 submission may have on producers both                   in risk protection the product may                    gained or potential effects on the
                                                 where the new plan will and will not be                 address, tolerance of risk, perceptions of            workload of AIPs or others participating
                                                 available (include both positive and                    other similar products, policy features               in the program.
                                                 negative impacts) and if applicable, the                producers may desire, and quality                        (f) The fifth section must contain the
                                                 reasons why the 508(h) submission is                    issues;                                               information related to the underwriting
                                                 not being proposed for other areas                         (ii) Other evidence the proposed                   and loss adjustment of the 508(h)
                                                 producing the commodity;                                508(h) submission will be positively                  submission, prepared in accordance
                                                    (2) The amount of commodity (acres,                  received by producers, agents, lending                with the RMA–14050 Risk Management
                                                 head, board feet, etc.), the amount of                  institutions, and other interested                    Agency External Standards Handbook
                                                 production, and the value of each                       parties, including correspondence from                located at http://www.rma.usda.gov/
                                                 agricultural commodity proposed to be                   producers, agents, grower organizations,              handbooks/14000/index.html, including
                                                 covered in each proposed county and                     or other stakeholders expressing the                  as applicable:
                                                 state;                                                  need for a certain risk management                       (1) An underwriting guide that
                                                    (3) A reasonable estimate of the                     strategy, desired coverage for perils                 includes:
                                                 expected number of potential buyers,                    faced, and willingness to provide                        (i) A table of contents and
                                                 liability and premium for each proposed                 critical information for developing a                 introduction;
                                                 county and state, total expected liability              product;                                                 (ii) A section containing
                                                 and premium by crop year based on the                      (iii) An assessment of factors that                abbreviations, acronyms, and
                                                 detailed assessment of producer                         could negatively or adversely affect the              definitions;
                                                 interest, including a description of the                market and responses from a reasonable                   (iii) Relevant dates, including as
                                                 number of producers involved in the                     representative cross-section of                       applicable, sales closing, cancellation,
                                                 development of the product, their level                 producers or significant market segment               termination, earliest planting, final
                                                 of participation, their type of                         to be affected by the policy or plan of               planting, acreage reporting, premium
                                                 participation, how many producers have                  insurance; and                                        billing, and end of insurance;
                                                 provided data to assist the submitter in                   (iv) For 508(h) submissions proposing                 (iv) A section containing insurance
                                                 the development of the product, and a                   products for specialty crops a                        contract information (insurability
                                                 comparison with other similar products,                 consultation report must be provided                  requirements; producer elections, Crop
                                                 including differences between the                       that includes a summary and analysis of               Provisions not applicable to
                                                 508(h) submission and the similar                       discussions with groups representing                  Catastrophic Risk Protection, specific
                                                 products that may make participation                    producers of those agricultural                       unit division guidelines, etc.);
                                                 different;                                              commodities in all major producing                       (v) Detailed rules for determining
                                                    (4) If available, any insurance                      areas for commodities to be served or                 insurance eligibility, including all
                                                 experience for each year and in each                    potentially impacted, either directly or              producer reporting requirements;
                                                 proposed county and state in which the                  indirectly, and the expected impact of                   (vi) All form standards needed for
                                                 policy has been previously offered for                  the proposed 508(h) submission on the                 inspections and producer certifications,
                                                 sale including an evaluation of the                     general marketing and production of the               plus detailed instructions for their use
                                                 policy’s performance and, if data are                   crop from both a regional and national                and completion;
                                                 available, a comparison with other                      perspective including evidence that the                  (vii) Step-by-step examples of the data
                                                 similar insurance policies reinsured                    508(h) submission will not create                     and calculations needed to establish the
                                                 under the Act;                                          adverse market distortions; and                       insurance guarantee (liability) and
                                                    (5) Market research studies; ‘‘market                   (6) A marketability assessment from                premium per acre or other unit of
                                                 research’’ is the systematic gathering                  the applicant AIP who is part of the                  measure, including worksheets that
                                                 and interpretation of information about                 applicant and from at least one other                 provide the calculations in sufficient
                                                 individuals or organizations using                      AIP. If a marketability assessment is not             detail and in the same order as
                                                 statistical and analytical methods and                  provided by a separate AIP who is not                 presented in the policy to allow
                                                 techniques of the applied social                        part of the applicant, the applicant must             verification that the premiums charged
                                                 sciences to gain insight or support                     provide information regarding the                     for the coverage are consistent with
                                                 decision making, and that must include:                 names of the persons and AIPs                         policy provisions;
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                                                    (i) Focus group results (both positive               contacted and the basis for their refusal                (viii) A section containing any special
                                                 and negative reactions) where a                         to provide the marketability assessment.              coverage information (i.e., replanting,
                                                 discussion is facilitated amongst a group               The marketability assessment will                     tree replacement or rehabilitation,
                                                 of stakeholders in order to gain insight                include:                                              prevented planting, etc.), as applicable;
                                                 into their perceptions, opinions, beliefs,                 (i) An assessment of whether                       and
                                                 and attitudes towards a product, which                  producers will buy the proposed 508(h)                   (ix) A section containing all
                                                 must include the number of focus group                  submission;                                           applicable reference material (i.e.,


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                                                 53678              Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations

                                                 minimum sample requirements, row                           (3) A detailed description of the                  after all policy materials are released to
                                                 width factors, etc.).                                   pricing and rating methodologies,                     the public by RMA, unless otherwise
                                                    (2) Any statements to be included in                 including:                                            specified by the Board;
                                                 the actuarial documents including any                      (i) Supporting documentation needed                   (2) An explanation of any provision of
                                                 intended Special Provisions statements                  for the rate methodology;                             the policy not authorized under the Act
                                                 that may change any underlying policy                      (ii) All mathematical formulas and                 and identification of the portion of the
                                                 terms or conditions; and                                equations;                                            rate of premium due to these provisions;
                                                    (3) The loss adjustment standards                       (iii) Data and data sources used in                and
                                                 handbook for the policy or plan of                      determining rates and prices and a                       (3) Agent and loss adjuster training
                                                 insurance that includes:                                detailed assessment of the data                       plans, except for 508(h) submissions
                                                                                                         (including availability, access, long term            proposing only changes to rates of
                                                    (i) A table of contents and
                                                                                                         reliability, and the percentage of the                premium to an existing policy.
                                                 introduction;                                                                                                    (i) The eighth section must contain a
                                                                                                         total commercial production that the
                                                    (ii) A section containing                            available data represents) and how it                 statement from the submitter that, if the
                                                 abbreviations, acronyms, and                            supports the proposed rates and prices;               508(h) submission is approved, the
                                                 definitions;                                               (iv) A detailed explanation of how the             submitter will work with RMA and its
                                                    (iii) A section containing insurance                 rates account for each of the risks                   computer programmers as needed to
                                                 contract information (insurability                      covered by the policy; and                            assure an effective and efficient
                                                 requirements; Crop Provisions not                          (v) A detailed explanation of how the              implementation process. This section
                                                 applicable to catastrophic risk                         prices are applicable to the policy;                  must also contain a description of any
                                                 protection; specific unit division                         (4) An example of both a rate                      expected implementation or
                                                 guidelines, if applicable; notice of                    calculation and a price calculation;                  administration issues. The applicant
                                                 damage or loss provisions; quality                         (5) A discussion of the applicant’s                must consult with RMA prior to
                                                 adjustment provisions; etc.);                           objective evaluation of the accuracy of               providing the 508(h) submission to
                                                    (iv) A detailed description of the                   the data, the short and long term                     determine whether or not the 508(h)
                                                 causes of loss covered by the policy or                 availability of the data, and how the                 submission can be effectively and
                                                 plan of insurance and any causes of loss                data will be obtained (if the data source             efficiently implemented and
                                                 excluded;                                               is confidential or proprietary explain                administered through the current
                                                    (v) A section that thoroughly explains               the cost of obtaining the data); and                  information technology systems and
                                                 appraisal methods, if applicable;                          (6) An analysis of the results of                  that all reporting requirements,
                                                    (vi) Illustrative samples of all the                 simulations or modeling showing the                   terminology, and dates conform to
                                                 applicable forms needed for insuring                    performance of proposed rates and                     USDA standards and initiatives.
                                                 and adjusting losses in regards to the                  commodity prices, as applicable, based                   (1) If FCIC approves the 508(h)
                                                 508(h) submission in a format                           on one or more of the following (Such                 submission and determines that its
                                                 compatible with the Document and                        simulations must use all years of                     information technology systems have
                                                 Supplemental Standards Handbook                         experience available to the applicant                 the capacity to implement and
                                                 (FCIC 24040) located at http://                         and must reflect both partial losses and              administer the 508(h) submission, the
                                                 www.rma.usda.gov/handbooks/24000/                       total losses):                                        applicant must provide a document
                                                 index.html, plus detailed instructions                     (i) A recalculation of total premium               detailing acceptable computer
                                                 for their use and completion;                           and losses compared to a similar or                   processing requirements consistent with
                                                    (vii) Instructions, step-by-step                     comparable insurance plan offered                     those used by RMA as shown on the
                                                 examples of calculations used to                        under the authority of the Act with                   RMA Web site in the Appendix III/M–
                                                 determine indemnity payments for all                    modifications, as needed, to represent                13 Handbook. This information details
                                                 probable situations where a partial or                  the components of the 508(h)                          the acceptable computer processing
                                                 total loss may occur, and loss                          submission;                                           requirements in a manner consistent
                                                 adjustment procedures that are                             (ii) A simulation that shows liability,            with that used by RMA to facilitate the
                                                 necessary to establish the amounts of                   premium, indemnity, and loss ratios for               acceptance of producer applications and
                                                 coverage and loss;                                      the proposed insurance product based                  related data.
                                                                                                         on the probability distributions used to                 (2) Any computer systems,
                                                    (viii) A section containing any special
                                                                                                         develop the rates and commodity prices,               requirements, code and software must
                                                 coverage information (i.e., replanting,
                                                                                                         as applicable, including sensitivity tests            be consistent with that used by RMA
                                                 tree replacement or rehabilitation,
                                                                                                         that demonstrate price or yield                       and comply with the standards
                                                 prevented planting, etc.), as applicable;
                                                                                                         extremes, and the impact of                           established in Appendix III/M–13
                                                 and
                                                                                                         inappropriate assumptions; or                         Handbook, or any successor document,
                                                    (ix) A section containing all                           (iii) Any other comparable simulation              of the SRA or other reinsurance
                                                 applicable reference material (i.e.,                    that provides results indicating both                 agreement as specified by FCIC.
                                                 minimum sample requirements, row                        aggregate and individual performance of                  (3) These requirements are available
                                                 width factors, etc.).                                   the 508(h) submission including                       from the USDA/Risk Management
                                                    (g) The sixth section must contain                   expected liability, premium, indemnity,               Agency, 2312 East Bannister Road,
                                                 information related to prices and rates                 and loss ratios for the proposed                      Kansas City, MO 64131–3011, or on
                                                 of premium, including, as applicable:                   insurance product, under various                      RMA’s Web site at http://
                                                    (1) A detailed description of the                    scenarios depicting good and poor                     www.rma.usda.gov/data/m13, or a
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                                                 premium rating methodology proposed                     actuarial experience.                                 successor Web site.
                                                 to be used and the basis for selection of                  (h) The seventh section must contain                  (j) The ninth section submitted on
                                                 the rating methodology;                                 the following:                                        separate pages and in accordance with
                                                    (2) A list of all assumptions made in                   (1) A statement certifying that the                § 400.712 and any applicable Board
                                                 the premium rating and commodity                        submitter and any approved insurance                  procedures must specify:
                                                 pricing methodologies, and the basis for                provider or its affiliates will not solicit              (1) The following amounts, which
                                                 these assumptions;                                      or market the 508(h) submission until                 may be limited to the amount originally


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                                                                    Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations                                       53679

                                                 estimated in the submission, unless the                   (1) Adequate experience in                          be complete for the start of the 120 day
                                                 applicant can justify the additional                    underwriting and administering policies               time-period for approval);
                                                 costs:                                                  or plans of insurance that are                           (2) Unless the 508(h) submission
                                                    (i) For new products, the amount                     comparable to the proposed policy of                  makes non-significant changes to a
                                                 received for an advance payment, and a                  plan of insurance;                                    policy or plan of insurance, or involves
                                                 detailed estimate of the total amount of                  (2) Sufficient assets or reinsurance to             policy provisions that have already
                                                 reimbursement for research and                          satisfy the underwriting obligations of               undergone expert review, forward the
                                                 development costs; or                                   the approved insurance provider, and a                complete 508(h) submission to at least
                                                    (ii) For products that are within the                sufficient insurance credit rating from               five expert reviewers to review the
                                                 maintenance period, an estimate for                     an appropriate credit rating bureau; and              508(h) submission:
                                                 maintenance costs for the year that the                   (3) Applicable authority and approval                  (i) Of the five expert reviewers, no
                                                 508(h) submission will be effective; and                from each State in which the approved                 more than one will be employed by the
                                                    (2) A detailed estimate of                           insurance provider intends to sell the                Federal Government, and none may be
                                                 maintenance costs for future years of the               insurance product.                                    employed by any approved insurance
                                                 maintenance period and the basis that                                                                         provider or their representative; and
                                                 such maintenance costs will be                          § 400.706    Review.                                     (ii) The expert reviewers will each
                                                 incurred, including, but not limited to:                   (a) Prior to providing a 508(h)                    provide their individual assessment of
                                                    (i) Any anticipated expansion;                       submission, concept proposal, or index-               whether the 508(h) submission:
                                                    (ii) Anticipated changes or updates to               based weather plan of insurance to the                   (A) Protects the interests of
                                                 policy materials;                                       Board, RMA will:                                      agricultural producers and taxpayers;
                                                    (iii) The generation of premium rates;                  (1) Review the 508(h) submission,                     (B) Is actuarially appropriate;
                                                    (iv) The determination of prices; and                concept proposal, or index-based                         (C) Follows recognized insurance
                                                    (v) Any other costs that the applicant               weather plan of insurance to determine                principles;
                                                 anticipates will be requested for                       if all required documentation is                         (D) Meets the requirements of the Act;
                                                 reimbursement of maintenance costs or                   included in accordance with § 400.705;                   (E) Does not contain excessive risks
                                                 expenses;                                                  (2) Review the 508(h) submission,                  (risks may be considered excessive if
                                                    (k) The tenth section must contain                   concept proposal, or index-based                      they encourage adverse selection, moral
                                                 executed (signed) certification                         weather plan of insurance to determine                hazard, or if premium rates cannot be
                                                 statements in accordance with the                       whether it is of sufficient quality to                adequately or appropriately
                                                 following:                                              conduct a meaningful review such that                 determined);
                                                    (1) ‘‘{Applicant’s Name} hereby claim                the Board will be able to make an                        (F) Follows sound, reasonable, and
                                                 that the basis and amounts set forth in                 informed decision regarding approval or               appropriate underwriting principles;
                                                 this section and § 400.712 are correct                  disapproval;                                             (G) Will provide a new kind of
                                                 and due and owing to {Applicant’s                          (3) In accordance with section                     coverage that is likely to be viable and
                                                 Name} by FCIC under the Federal Crop                    508(h)(1)(B) of the Act, at its sole                  marketable;
                                                 Insurance Act’’; and                                    discretion, determine if the policy or                   (H) Will provide crop insurance
                                                    (2) ‘‘{Applicant Name} understands                   plan of insurance:                                    coverage in a manner that addresses a
                                                 that, in addition to criminal fines and                    (i) Will likely result in a viable and             clear and identifiable flaw or problem in
                                                 imprisonment, the 508(h) submission of                  marketable policy;                                    an existing policy;
                                                 false or fraudulent statements or claims                   (ii) Will provide crop insurance                      (I) Will provide a new or improved
                                                 may result in civil and administrative                  coverage in a significantly improved                  coverage for a commodity that
                                                 sanctions.’’                                            form; and                                             previously had no available crop
                                                    (l) The contents required for concept                   (iii) Adequately protect the interests             insurance, or has demonstrated a low
                                                 proposals are found in the Procedures                   of producers.                                         level of participation or coverage level
                                                 Handbook 17030—Approved                                    (4) RMA may reject and return any                  under existing coverage;
                                                 Procedures for Submission of Concept                    508(h) submission, concept proposal, or                  (J) May have a significant adverse
                                                 Proposals Seeking Advance Payment of                    index based weather plan of insurance                 impact on the crop insurance delivery
                                                 Research and Development Costs. In                      that:                                                 system;
                                                 addition, the proposal must provide a                      (i) Is not complete;                                  (K) The marketability assessment
                                                 detailed description of why the concept                    (ii) Is unlikely to result in a viable and         reasonably demonstrates the product
                                                 provides insurance:                                     marketable policy;                                    would be viable and marketable (if the
                                                    (1) In a significantly improved form;                   (iii) Will not provide crop insurance              applicant cannot obtain a marketability
                                                    (2) To a crop or region not                          coverage in a significantly improved                  assessment by another AIP, the Board
                                                 traditionally served by the Federal crop                form; and                                             shall presume that the submission is
                                                 insurance program; or                                      (iv) Will not adequately protect the               unmarketable);
                                                    (3) In a form that addresses a                       interests of producers.                                  (L) If applicable, contains a
                                                 recognized flaw or problem in the                          (5) Except as provided in paragraph                consultation report that provides
                                                 program;                                                (a)(4) of this section, forward the 508(h)            evidence the 508(h) submission will not
                                                    (m) The contents required for index-                 submission, concept proposal, or index-               create adverse market distortions; and
                                                 based weather plans of insurance are                    based weather plan of insurance, and                     (M) Meets any other criteria the Board
                                                 found in the Procedures Handbook                        the results of RMA’s initial review, to               may deem necessary;
                                                 17050—Approved Procedures for                           the Board for its determination of                       (3) Return to the applicant any 508(h)
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                                                 Submission of Index-based Weather                       completeness and quality.                             submission the Board determines is not
                                                 Plans of Insurance. In accordance with                     (b) Upon the Board’s receipt of a                  complete, along with an explanation of
                                                 the Board approved procedures, the                      508(h) submission, the Board will:                    the reason for the determination and:
                                                 approved insurance provider that                           (1) Determine if the 508(h) submission                (i) With respect to 508(h) submissions
                                                 submits the index-based weather plan of                 is complete (the date the Board votes to              developed from approved concept
                                                 insurance must provide evidence they                    contract with expert reviewers is the                 proposals, the provisions in
                                                 have:                                                   date the 508(h) submission is deemed to               § 400.712(c)(1) shall apply; and


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                                                 53680              Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations

                                                    (ii) Except for 508(h) submissions                   section 508(h) (if the applicant cannot                  (e) All comments and evaluations will
                                                 developed from concept proposals, if                    obtain a marketability assessment by                  be provided to the Board by a date
                                                 the 508(h) submission is resubmitted at                 another AIP, the Board shall presume                  determined by the Board to allow the
                                                 a later date, it will be considered a new               that the submission is unmarketable);                 Board adequate time for review.
                                                 508(h) submission solely for the                           (5) At its sole discretion, determine                 (f) The Board will consider all
                                                 purpose of determining the amount of                    whether the concept proposal, if                      comments, evaluations, and
                                                 time that the Board must take action;                   developed into a policy or plan of                    recommendations in its review process.
                                                 and                                                     insurance would meet the requirement                  Prior to making a decision, the Board
                                                    (4) For complete 508(h) submissions:                 of providing coverage:                                may request additional information
                                                    (i) Request review by RMA to provide                    (i) In a significantly improved form;              from RMA, OGC, the expert reviewers,
                                                 its assessment of whether the 508(h)                       (ii) To a crop or region not                       or the applicant.
                                                 submission:                                             traditionally served by the Federal crop                 (g) In considering whether to approve
                                                    (A) Meets the criteria listed in                     insurance program; or                                 policies or plans of insurance and when
                                                 subsections (b)(2)(ii)(A) through (M);                     (iii) In a form that addresses a                   such policies or plans of insurance will
                                                    (B) Is consistent with USDA’s public                 recognized flaw or problem in the                     be offered for sale, the Board will:
                                                 policy goals;                                           program;                                                 (1) First, consider policies or plans of
                                                    (C) Does not increase or shift risk to                  (6) Determine whether the proposed                 insurance that address underserved
                                                 any other FCIC reinsured policy;                        budget and timetable are reasonable;                  commodities, including commodities
                                                    (D) Can be implemented,                                                                                    for which there is no insurance;
                                                                                                            (7) Determine whether the concept
                                                 administered, and delivered effectively                                                                          (2) Second, consider existing policies
                                                                                                         proposal meets all other requirements
                                                 and efficiently using RMA’s information                                                                       or plans of insurance for which there is
                                                                                                         imposed by the Board or as otherwise
                                                 technology and delivery systems; and                                                                          inadequate coverage or there exists low
                                                                                                         specified in Procedures Handbook
                                                    (E) Contains requested amounts of                                                                          levels of participation; and
                                                                                                         17030—Approved Procedures for
                                                 government reinsurance, risk subsidy,                                                                            (3) Last, consider all policies or plans
                                                                                                         Submission of Concept Proposals
                                                 and administrative and operating                                                                              of insurance submitted to the Board that
                                                                                                         Seeking Advance Payment of Research
                                                 subsidies that are reasonable and                                                                             do not meet the criteria described in
                                                                                                         and Development Costs; and
                                                 appropriate for the type of coverage                                                                          paragraph (g)(1) or (2) of this section.
                                                 provided by the policy; and                                (8) Provide a date by which the 508(h)                (h) At any time an applicant may
                                                    (ii) Seek review from the Office of the              submission must be provided in                        request a time delay after the 508(h)
                                                 General Counsel (OGC) to determine if                   consultation with the applicant.                      submission, concept proposal, or index-
                                                 the 508(h) submission conforms to the                      (d) Upon the Board’s receipt of an                 based weather plan of insurance has
                                                 requirements of the Act and all                         index-based weather plan of insurance,                been placed on the Board meeting
                                                 applicable Federal statutes and                         the Board will:                                       agenda. The Board is not required to
                                                 regulations.                                               (1) Determine whether the index-                   agree to such an extension.
                                                    (c) Upon the Board’s receipt of a                    based weather plan of insurance is                       (1) With respect to 508(h) submissions
                                                 concept proposal, the Board will:                       complete (the date the Board votes to                 from concept proposals approved by the
                                                    (1) Determine whether the concept                    contract with expert reviewers is the                 Board for advanced payment, the
                                                 proposal is complete (the date the Board                date the index-based weather plan of                  applicant must provide good cause why
                                                 votes to contract with expert reviewers                 insurance is deemed to be complete for                consideration should be delayed.
                                                 is the date the concept proposal is                     the start of the 120-day time-period for                 (2) Any requested time delay is not
                                                 deemed to be a complete concept                         approval);                                            limited in the length of time unless a
                                                 proposal for the start of the 120 day                      (2) If determined to be complete,                  date is set by the Board by which all
                                                 time-period for approval);                              contract with five expert reviewers and               revisions to the 508(h) submission,
                                                    (2) If complete, forward the concept                 review the index-based weather plan of                concept proposal or index-based
                                                 proposal to at least two expert reviewers               insurance in accordance with section                  weather plan of insurance must be
                                                 with underwriting or actuarial                          523(i) of the Act, this subpart, and                  made. However, delays may make
                                                 experience to review the concept in                     Procedures Handbook 17050—                            implementation of the 508(h)
                                                 accordance with section 522(b)(2) of the                Approved Procedures for Submission of                 submission for the targeted crop year
                                                 Act, this subpart, and Procedures                       Index-based Weather Plans of Insurance;               impractical or impossible as determined
                                                 Handbook 17030—Approved                                    (3) Return to the applicant any index-             by the Board.
                                                 Procedures for Submission of Concept                    based weather plan of insurance the                      (3) The time period during which the
                                                 Proposals Seeking Advance Payment of                    Board determines is not complete, along               Board will make a decision to approve
                                                 Research and Development Costs;                         with an explanation of the reason for the             or disapprove the 508(h) submission,
                                                    (3) Return to the applicant any                      determination (if the index-based                     concept proposal or index-based
                                                 concept proposal the Board determines                   weather plan of insurance is                          weather plan of insurance shall be
                                                 is not complete, along with an                          resubmitted at a later date, it will be               extended commensurately with any
                                                 explanation of the reason for the                       considered a new index-based weather                  time delay requested by the applicant.
                                                 determination (If the concept proposal                  plan of insurance solely for the                         (i) The applicant may withdraw a
                                                 is resubmitted at a later date, it will be              purposes of determining the amount of                 508(h) submission, concept proposal,
                                                 considered a new concept proposal                       time that the Board must take action);                index-based weather plan of insurance,
                                                 solely for the purposes of determining                  and                                                   or a portion of a 508(h) submission or
                                                 the amount of time that the Board must                     (4) Give the highest priority for                  concept proposal, at any time by
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                                                 take action);                                           approval of index-based weather plans                 presenting a request to the Board. A
                                                    (4) Determine whether the concept                    of insurance that provide a new kind of               withdrawn 508(h) submission, concept
                                                 proposal, if developed into a policy or                 coverage for specialty crops and                      proposal or index-based weather plan of
                                                 plan of insurance would, in good faith,                 livestock commodities that previously                 insurance that is resubmitted will be
                                                 would meet the requirement of being                     had no available crop insurance, or have              deemed a new 508(h) submission,
                                                 likely to result in a viable and                        demonstrated a low level of                           concept proposal, or index-based
                                                 marketable policy consistent with                       participation under existing coverage.                weather plan of insurance solely for the


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                                                                    Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations                                        53681

                                                 purposes of determining the amount of                   decision to approve or disapprove the                 respond within the 30-day period, the
                                                 time that the Board must take action.                   508(h) submission.                                    Board will send the applicant a letter
                                                    (j) The Board will render a decision                    (l) The Board may disapprove a                     stating the 508(h) submission or index-
                                                 on a 508(h) submission or index-based                   concept proposal if it determines:                    based weather plan of insurance is
                                                 weather plan of insurance, with or                         (1) The concept, in good faith, will               disapproved.
                                                 without revision or give notice of intent               not likely result in a viable and                        (p) If the applicant elects to modify
                                                 to disapprove within 90 days after the                  marketable policy consistent with                     the 508(h) submission or index-based
                                                 date the 508(h) submission or index-                    section 508(h);                                       weather plan of insurance:
                                                 based weather plan of insurance is                         (2) At the sole discretion of the Board,
                                                 considered complete by the Board,                       the concept, if developed into a policy                  (1) The applicant must advise the
                                                 unless the Board agrees to a time delay                 and approved by the Board, would not                  Board of a date by which the modified
                                                 in accordance with paragraph (h) of this                provide crop insurance coverage:                      508(h) submission or index-based
                                                 section.                                                   (i) In a significantly improved form;              weather plan of insurance will be
                                                    (k) The Board may provide a notice of                   (ii) To a crop or region not                       presented to the Board; and
                                                 intent to disapprove a 508(h)                           traditionally served by the Federal crop                 (2) The remainder of the time left
                                                 submission if it determines:                            insurance program; or                                 between the Board’s notice of intent to
                                                    (1) The interests of producers and                      (iii) In a form that addresses a                   disapprove and the expiration of the
                                                 taxpayers are not protected, including                  recognized flaw or problem in the                     120-day deadline is paused until the
                                                 but not limited to:                                     program;                                              modified 508(h) submission or index-
                                                    (i) The 508(h) submission does not                      (3) The proposed budget and                        based weather plan of insurance is
                                                 provide adequate coverage or treats                     timetable are not reasonable, as                      received by the Board.
                                                 producers disparately;                                  determined by the Board; or
                                                                                                                                                                  (3) The Board will disapprove a
                                                    (ii) The applicant has not presented                    (4) The concept proposal fails to meet
                                                                                                                                                               modified 508(h) submission or index-
                                                 sufficient documentation that the 508(h)                one or more requirements established by
                                                                                                                                                               based weather plan of insurance if the:
                                                 submission will provide a new kind of                   the Board.
                                                 coverage that is likely to be viable and                   (m) The Board shall provide a notice                  (i) Causes for disapproval stated by
                                                 marketable (if the applicant cannot                     of intent to disapprove an index-based                the Board in its notification of intent to
                                                 obtain a marketability assessment by                    weather plan of insurance if it                       disapprove the 508(h) submission or
                                                 another AIP, the Board shall presume                    determines there is not:                              index-based weather plan of insurance
                                                 that the submission is unmarketable);                      (1) Adequate experience in                         are not satisfactorily addressed;
                                                    (iii) Coverage would be similar to                   underwriting and administering policies                  (ii) Board determines there is
                                                 another policy or plan of insurance that                or plans of insurance that are                        insufficient time for the Board to finish
                                                 has not demonstrated a low level of                     comparable to the proposed policy or                  its review before the expiration of the
                                                 participation or does not contain a clear               plan of insurance;                                    120-day deadline for disapproval of a
                                                 and identifiable flaw, and the producer                    (2) Sufficient assets or reinsurance to            508(h) submission or index-based
                                                 would not significantly benefit from the                satisfy the underwriting obligations of               weather plan of insurance, unless the
                                                 508(h) submission;                                      the approved insurance provider, and                  applicant grants the Board an extension
                                                    (iv) The 508(h) submission may create                possess a sufficient insurance credit                 of time to adequately consider the
                                                 adverse market distortions or adversely                 rating from an appropriate credit rating              modified 508(h) submission or index-
                                                 impact other crops or agricultural                      bureau, in accordance with Board                      based weather plan of insurance (If an
                                                 commodities if marketed;                                procedures; and                                       extension of time is agreed upon, the
                                                    (v) The 508(h) submission will have a                   (3) Applicable authority and approval              time period during which the Board
                                                 significant adverse impact on the                       from each State in which the approved                 must act on the modified 508(h)
                                                 private delivery system;                                insurance provider intends to sell the                submission or index-based weather plan
                                                    (vi) The 508(h) submission cannot be                 insurance product.                                    of insurance will paused during the
                                                 implemented, administered, and                             (n) Unless otherwise provided for in               extension); or
                                                 delivered effectively and efficiently                   this section:
                                                                                                            (1) If the Board intends to disapprove                (iii) Applicant does not present a
                                                 using RMA’s information technology                                                                            modification of the 508(h) submission
                                                 and delivery systems;                                   a 508(h) submission or index-based
                                                                                                         weather plan of insurance, the Board                  or index-based weather plan of
                                                    (vii) The 508(h) submission contains                                                                       insurance to the Board on the date the
                                                 flaws that may encourage adverse                        will provide the applicant with a
                                                                                                         written explanation outlining the basis               applicant specified and the applicant
                                                 selection or moral hazard; or                                                                                 does not request an additional time
                                                    (viii) The 508(h) submission contains                for the intent to disapprove; and
                                                                                                            (2) Any approval or disapproval of a               delay.
                                                 vulnerabilities that allow indemnities to
                                                 exceed the value of the crop;                           508(h) submission, concept proposal, or                  (q) If the Board fails to render a
                                                    (2) The premium rates are not                        index-based weather plan of insurance                 decision on a new 508(h) submission or
                                                 actuarially appropriate;                                must be made by the Board in writing                  index-based weather plan of insurance
                                                    (3) The 508(h) submission does not                   not later than 120 days after the Board               within the time periods specified in
                                                 conform to sound insurance and                          has determined it to be complete.                     paragraph (j) or (n) of this section, such
                                                 underwriting principles;                                   (o) If a notice of intent to disapprove            508(h) submission or index-based
                                                    (4) The risks associated with the                    all or part of a 508(h) submission or                 weather plan of insurance will be
                                                 508(h) submission are excessive or it                   index-based weather plan of insurance                 deemed approved by the Board for the
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                                                 increases or shifts risk to another                     has been provided by the Board, the                   initial reinsurance year designated for
                                                 reinsured policy;                                       applicant must provide written notice to              the 508(h) submission or index-based
                                                    (5) The 508(h) submission does not                   the Board not later than 30 days after                weather plan of insurance. The Board
                                                 meet the requirements of the Act; or                    the Board provides such notice if the                 must approve the 508(h) submission or
                                                    (6) The 90-day deadline under                        508(h) submission or index-based                      index-based weather plan of insurance
                                                 subsection (j) will expire before the                   weather plan of insurance will be                     for it to be available for any subsequent
                                                 Board has time to make an informed                      modified. If the applicant does not                   reinsurance year.


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                                                 53682              Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations

                                                 § 400.707 Presentation to the Board for                 to all interested parties through its                 no later than 180 days prior to the
                                                 approval or disapproval.                                official issuance system will result in               earliest contract change date for the
                                                   (a) The Board will inform the                         the denial of reinsurance, risk subsidy,              commodity in all counties or states in
                                                 applicant of the date, time, and place of               and A&O subsidy for those policies                    which the policy or plan of insurance is
                                                 the Board meeting.                                      affected; and                                         sold; and
                                                   (b) The applicant will be given the                      (5) The property rights to the 508(h)                 (ii) Significant changes will be
                                                 opportunity and is encouraged to                        submission will automatically transfer                considered a new 508(h) submission;
                                                 present the 508(h) submission, concept                  to FCIC if the applicant elects not to                   (3) Except as provided in paragraph
                                                 proposal, or index-based weather plan                   maintain the 508(h) submission under                  (a)(4) of this section, the applicant is
                                                 of insurance to the Board in person. The                § 400.712(a)(3) or fails to notify FCIC of            solely liable for any mistakes, errors, or
                                                 applicant must confirm in writing,                      its decision to elect or not elect                    flaws in the submitted policy, plan of
                                                 email or fax whether the applicant will                 maintenance of the program under                      insurance, their related materials, or the
                                                 present in person to the Board.                         § 400.712(l).                                         rates of premium that have been
                                                   (c) If the applicant elects not to                       (b) Requirements and procedures for                approved by the Board unless, or until,
                                                 present the 508(h) submission, concept                  approved index-based weather plans of                 the policy or plan of insurance is
                                                 proposal, or index-based weather plan                   insurance are contained in Procedures                 transferred to FCIC in accordance with
                                                 of insurance to the Board, the Board will               Handbook 17050—Approved                               § 400.712(l) (the applicant remains
                                                 make its decision based on the                          Procedures for Submission of Index-                   liable for any mistakes, errors, or flaws
                                                 information provided in accordance                      based Weather Plans of Insurance. In                  that occurred prior to transfer of the
                                                 with § 400.705 and § 400.706.                           accordance with the Board approved                    policy or plan of insurance to FCIC);
                                                                                                         procedures, index-based weather plans                    (4) If the mistake, error, or flaw in the
                                                 § 400.708   Post approval.                                                                                    policy, plan of insurance, their related
                                                                                                         of insurance are not eligible for federal
                                                    (a) After a 508(h) submission is                     reinsurance, but may be approved for                  materials, or the rates of premium is
                                                 approved by the Board, and prior to it                  risk subsidy and A&O subsidy.                         discovered more than 45 days prior to
                                                 being made available for sale to                                                                              the cancellation or termination date for
                                                 producers:                                              § 400.709    Roles and responsibilities.              the policy or plan of insurance, the
                                                    (1) The following must be executed,                     (a) With respect to the applicant:                 applicant may request in writing that
                                                 as applicable:                                             (1) The applicant is responsible for:              FCIC withdraw the approved policy,
                                                    (i) If required by FCIC, an agreement                   (i) Preparing and ensuring that all                plan of insurance, or rates of premium:
                                                 between the applicant and FCIC that                     policy documents, rates of premium,                      (i) Such request must state the
                                                 specifies:                                              prices, and supporting materials,                     discovered mistake, error, or flaw in the
                                                    (A) In addition to the requirements in               including actuarial documents, are                    policy, plan of insurance, or rates of
                                                 § 400.709, responsibilities of each with                submitted by the deadline specified by                premium, and the expected impact on
                                                 respect to the implementation, delivery                 FCIC, in the form approved by the                     the program; and
                                                 and maintenance of the 508(h)                           Board, and are in compliance with                        (ii) For all timely received requests for
                                                 submission; and                                         section 508 of the Rehabilitation Act;                withdrawal, no liability will attach to
                                                    (B) The required timeframes for                         (ii) Annually updating and providing               such policies, plans of insurance, or
                                                 submitting any information and                          maintenance changes no later than 180                 rates of premium that have been
                                                 documentation needed to administer the                  days prior to the earliest contract change            withdrawn and no producer, approved
                                                 approved 508(h) submission;                             date for the commodity in all counties                insurance provider, or any other person
                                                    (ii) A reinsurance agreement if the                  or states in which the policy or plan of              will have a right of action against the
                                                 approved submission does not meet, or                   insurance is sold;                                    applicant;
                                                 is not expected to perform in a financial                  (iii) Timely addressing questions,                    (5) Notwithstanding the policy
                                                 manner consistent with the terms and                    problems or clarifications in regard to a             provisions regarding cancellation, any
                                                 conditions of the Standard Reinsurance                  policy or plan of insurance (all such                 policy, plan of insurance, or rates of
                                                 Agreement or any other existing                         resolutions for approved 508(h)                       premium that have been withdrawn by
                                                 reinsurance agreement offered by FCIC                   submissions will be communicated to                   the applicant, in accordance with
                                                 in effect for the crop year, and that                   all approved insurance providers                      paragraph (a)(4) of this section is
                                                 considers the interests of all                          through FCIC’s official issuance system);             deemed canceled and applications are
                                                 participating AIPs; and                                 and                                                   deemed not accepted as of the date that
                                                    (iii) A training package to facilitate                  (iv) If requested by the Board,                    FCIC publishes the notice of withdrawal
                                                 implementation of the approved 508(h)                   providing an annual review of the                     on its Web site at www.rma.usda.gov.
                                                 submission;                                             policy’s performance, in writing to the                  (i) Approved insurance providers will
                                                    (2) The Board may limit the                          Board, 180 days prior to the contract                 be notified in writing by FCIC that the
                                                 availability of coverage, for any policy                change date for the plan of insurance                 policy, plan of insurance, or premium
                                                 or plan of insurance developed under                    (The first annual report will be                      rates have been withdrawn; and
                                                 the authority of the Act and this                       submitted one full year after                            (ii) Producers will have the option of
                                                 regulation, on any farm or in any county                implementation of an approved policy                  selecting any other policy or plan of
                                                 or area;                                                or plan of insurance, as agreed to by the             insurance authorized under the Act that
                                                    (3) A 508(h) submission approved by                  submitter and RMA);                                   is available in the area by the sales
                                                 the Board under this subpart will be                       (2) Only the applicant may make                    closing date for such policy or plan of
                                                 made available to all approved                          changes to the policy, plan of insurance,             insurance; and
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                                                 insurance providers under the same                      or rates of premium approved by the                      (6) Failure of the applicant to perform
                                                 reinsurance, subsidy, and terms and                     Board:                                                all of the applicant’s responsibilities
                                                 conditions as received by the applicant;                   (i) Any changes to approved 508(h)                 may result in the withdrawal of
                                                    (4) Any solicitation, sales, marketing,              submissions, both non-significant and                 approval for the policy or plan of
                                                 or advertising of the approved 508(h)                   significant, must be submitted to FCIC                insurance.
                                                 submission by the applicant before FCIC                 in the form of a 508(h) submission for                   (b) With respect to FCIC:
                                                 has made the policy materials available                 review in accordance with this subpart                   (1) FCIC is responsible for:


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                                                                    Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations                                        53683

                                                    (i) Conducting a review in accordance                local taxation. This preemption does not                 (2) Reimbursement of research and
                                                 with § 400.706 and providing its                        apply to index-based weather plans of                 development costs or maintenance costs
                                                 recommendations to the Board;                           insurance approved for premium                        will be considered as payment in full by
                                                    (ii) With respect to 508(h)                          subsidy or A&O subsidy under this part.               FCIC for the 508(h) submission, and no
                                                 submissions:                                                                                                  additional amounts will be owed to the
                                                    (A) Ensuring that all approved                       § 400.711 Right of review, modification,              applicant if the 508(h) submission is
                                                                                                         and the withdrawal of approval.
                                                 insurance providers receive the                                                                               transferred to FCIC in accordance with
                                                 approved policy or plan of insurance,                     (a) At any time after approval, the                 paragraph (l) of this section; and
                                                 and related material, for sale to                       Board may review any policy, plan of                     (3) If the applicant elects at any time
                                                 producers in a timely manner (All such                  insurance, related material, or rates of              not to continue to maintain the 508(h)
                                                 information shall be communicated to                    premium approved under this subpart,                  submission, it will automatically
                                                 all approved insurance providers                        including index-based weather plans of                become the property of FCIC and the
                                                 through FCIC’s official issuance system);               insurance and request additional                      applicant will no longer have any
                                                    (B) As applicable, ensuring that                     information to determine whether the                  property rights to the 508(h) submission
                                                 approved insurance providers receive                    policy, plan of insurance, related                    and will not receive any user fees for the
                                                 reinsurance under the same terms and                    material, or rates of premium comply                  plan of insurance;
                                                 conditions as the applicant (Approved                   with the requirements of this subpart.                   (b) The Board approved procedures
                                                 insurance providers should contact                        (b) The Board will notify the                       and time-frames must be followed, or
                                                 FCIC to obtain and execute a copy of the                applicant of any problem or issue that                research and development costs and
                                                 reinsurance agreement) if required; and                 may arise and allow the applicant an                  maintenance costs may not be
                                                    (C) Reviewing the activities of                      opportunity to make any needed                        reimbursed.
                                                 approved insurance providers, agents,                   change. If the contract change date has                  (1) After a 508(h) submission has been
                                                 loss adjusters, and producers to ensure                 passed, the applicant will be liable for              approved by the Board for reinsurance,
                                                 that they are in accordance with the                    such problems or issues for the crop                  to be considered for reimbursement of:
                                                 terms of the policy or plan of insurance,               year in accordance with § 400.709 until                  (i) Research and development costs,
                                                 the reinsurance agreement, and all                      the policy may be changed.                            the applicant must submit the total
                                                                                                           (c) The Board may withdraw approval                 amount requested and all supporting
                                                 applicable procedures;
                                                    (2) FCIC will not be liable for any                  for the applicable policy, plan of                    documentation to FCIC by electronic
                                                 mistakes, errors, or flaws in the policy,               insurance or rate of premium, including               method or by hard copy and such
                                                 plan of insurance, their related                        index-based weather plans of insurance,               information must be received by FCIC
                                                 materials, or the rates of premium and                  as applicable, if:                                    on or before August 1 immediately
                                                                                                           (1) The applicant fails to perform the              following the date the 508(h)
                                                 no cause of action may be taken against
                                                                                                         responsibilities stated under                         submission was released to approved
                                                 FCIC as a result of such mistake, error,
                                                                                                         § 400.709(a);                                         insurance providers through FCIC’s
                                                 or flaw in a 508(h) submission or index-                  (2) The applicant does not timely and
                                                 based weather plan of insurance                                                                               issuance system; or
                                                                                                         satisfactorily provide materials or                      (ii) Maintenance costs, the applicant
                                                 submitted under this subpart;                           resolve any issue to the Board’s
                                                    (3) If at any time prior to the                                                                            must submit the total amount requested
                                                                                                         satisfaction so that necessary changes                and all supporting documentation to
                                                 cancellation date, FCIC discovers there
                                                                                                         can be made prior to the earliest                     FCIC by electronic method or by hard
                                                 is a mistake, error, or flaw in the policy,
                                                                                                         contract change date;                                 copy and such information must be
                                                 plan of insurance, their related                          (3) The Board determines the
                                                 materials, or the rates of premium, or                                                                        received by FCIC on or before August 1
                                                                                                         applicable policy, plan of insurance or               of each year of the maintenance period.
                                                 any other reason for withdrawal of                      rate of premium, including index-based
                                                 approval contained in § 400.706(k)                                                                               (2) Given the limitation on funds,
                                                                                                         weather plans of insurance is not in                  regardless of when the request is
                                                 exists, FCIC will withdraw reinsurance                  conformance with the Act, these
                                                 for such policy or plan of insurance to                                                                       received, no payment will be made prior
                                                                                                         regulations or the applicable                         to September 15 of the applicable fiscal
                                                 all AIPs for the subsequent crop year (If               procedures;
                                                 reinsurance is denied, a written notice                                                                       year.
                                                                                                           (4) The policy, plan of insurance, or                  (c) Applicants submitting a concept
                                                 will be provided on RMA’s Web site at                   rates of premium are not sufficiently
                                                 www.rma.usda.gov);                                                                                            proposal may request an advance
                                                                                                         marketable according to the applicant’s               payment of up to 50 percent of the
                                                    (4) If maintenance of the policy or                  estimate or fails to perform sufficiently
                                                 plan of insurance is transferred to FCIC                                                                      projected total research and
                                                                                                         as determined by the Board; or                        development costs, and after the
                                                 in accordance with § 400.712(l), FCIC                     (5) The interest of producers or tax
                                                 will assume liability for the policy or                                                                       applicant has begun research and
                                                                                                         payers is not protected or the                        development activities, the Board may,
                                                 plan of insurance for any mistake, error,               continuation of the program raises
                                                 or flaw that occur after the date the                                                                         at its sole discretion, provide up to an
                                                                                                         questions or issues of program integrity.             additional 25 percent advance payment
                                                 policy is transferred.
                                                    (c) If approval by the Board is                      § 400.712 Research and development                    of the estimated research and
                                                 withdrawn or reinsurance is denied for                  reimbursement, maintenance                            development costs, if the requirements
                                                 any 508(h) submission, RMA will                         reimbursement, advance payments for                   in the definition of advance payment are
                                                 provide such notice on its Web site and                 concept proposals, and user fees.                     met and the additional advance
                                                 the approved insurance provider must                       (a) For 508(h) submissions approved                payment is requested in accordance
                                                 cancel the policy or plan of insurance in               by the Board for reinsurance under                    with Procedures Handbook 17030—
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                                                 accordance with its terms.                              section 508(h) of the Act:                            Approved Procedures for Submission of
                                                                                                            (1) The 508(h) submission may be                   Concept Proposals Seeking Advance
                                                 § 400.710   Preemption and premium                      eligible for a one-time payment of                    Payment of Research and Development
                                                 taxation.                                               research and development costs and                    Costs.
                                                   A policy or plan of insurance that is                 reimbursement of maintenance costs for                   (1) If a concept proposal is approved
                                                 approved by the Board for FCIC                          up to four reinsurance years, as                      by the Board for advance payment, the
                                                 reinsurance is preempted from state and                 determined by the Board;                              applicant is responsible for


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                                                 53684              Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations

                                                 independently developing a 508(h)                       of reimbursement determined                              (ii) Travel and transportation (One
                                                 submission that is complete as specified                reasonable by the Board; or                           line per event, include the job title,
                                                 in this subpart by the deadline set by                     (2) Exceed the amount authorized by                destination, purpose of travel, lodging
                                                 the Board.                                              law, each applicant’s reimbursement                   cost, mileage, air or other identified
                                                    (i) If an applicant fails to fulfill the             determined reasonable by the Board will               transportation costs, food and
                                                 obligation to provide a 508(h)                          be determined by dividing the total                   miscellaneous expenses, other costs,
                                                 submission that is complete by the                      amount of each individual applicant’s                 and the total cost);
                                                 deadline set by the Board, the Board                    reimbursable costs authorized in                         (iii) Software and computer
                                                 shall provide a notice of non-                          paragraphs (e) through (j) of this section            programming developed specifically to
                                                 compliance to the applicant and allow                   by the total amount of the aggregate of               determine appropriate rates, prices, or
                                                 not less than 30 days for the applicant                 all applicants’ reimbursable costs                    coverage amounts (Identify the item,
                                                 to respond;                                             authorized in paragraphs (e) through (j)              include the purpose, and provide
                                                    (ii) If the applicant fails to respond, to           for the year and multiplying the result               receipts or contract or straight-time
                                                 the satisfaction of the Board, with just                by the amount of reimbursement                        hourly wage, hours, and total cost.
                                                 cause as to why a 508(h) submission                     authorized under the Act.                             Software developed to send or receive
                                                 that is complete was not provided by                       (e) The amount of reimbursement for                data between the producer, agent,
                                                 the deadline set by the Board, the                      research and development costs and                    approved insurance provider or RMA or
                                                 applicant shall return the amount of the                maintenance costs requested by the                    such other similar software may not be
                                                 advance payment plus interest at the                    applicant may be reduced as necessary                 included as an allowable cost);
                                                 rate of 1.25 percent simple interest per                when the requested amount is not                         (iv) Miscellaneous expenses such as
                                                 calendar month;                                         commensurate with the complexity or                   postage, telephone, express mail, and
                                                    (iii) If the applicant responds, to the              the size of the area proposed to be                   printing (Identify the item, cost per unit,
                                                 satisfaction of the Board, with just cause              covered.                                              number of items, and total dollars); and
                                                 as to why a 508(h) submission that is                      (f) Research and development costs                    (v) Training costs expended to
                                                 complete was not provided by the                        and maintenance costs must be                         facilitate implementation of a new
                                                 deadline set by the Board, the applicant                supported by itemized statements and                  approved 508(h) submission (Include
                                                 will be given a new deadline by which                   supporting documentation (copies of                   instructor(s) hourly rate, hours, and cost
                                                 to provide a 508(h) submission that is                  contracts, billing statements, time                   of materials and travel) conducted at a
                                                 complete; and                                           sheets, travel vouchers, accounting                   national level, directed to all approved
                                                    (iv) If the applicant fails to provide a             ledgers, etc.).                                       insurance providers interested in selling
                                                 508(h) submission that is complete by                      (1) Actual costs submitted will be                 the 508(h) submission, and approved
                                                 the deadline, no additional extensions                  examined for reasonableness and may                   prior to the training by RMA).
                                                 will be approved by the Board and the                   be adjusted at the sole discretion of the                (3) The following expenses are
                                                 applicant shall return the amount of the                Board.                                                specifically not eligible for research and
                                                 advance payment plus interest at the                       (2) Allowable research and                         development and maintenance cost
                                                 rate of 1.25 percent simple interest per                development costs and maintenance                     reimbursement:
                                                 calendar month.                                         costs (directly related to research and                  (i) Copyright fees, patent fees, or any
                                                    (2) If an applicant receives an advance              development or maintenance of the                     other charges, costs or expenses related
                                                 payment for a portion of the expected                   508(h) submission only) may include                   to the use of intellectual property;
                                                 research and development costs for a                    the following:                                           (ii) Training costs, excluding training
                                                 concept proposal that is developed into                    (i) Wages and benefits, exclusive of               costs to facilitate implementation of the
                                                 a 508(h) submission and determined by                   bonuses, overtime pay, or shift                       approved 508(h) submission in
                                                 the Board to be complete, but the 508(h)                differentials;                                        accordance with subsection (f)(2)(v);
                                                                                                                                                                  (iii) State filing fees and expenses;
                                                 submission is not approved by the                          (A) One line per employee or
                                                                                                                                                                  (iv) Normal ongoing administrative
                                                 Board following expert review, the                      contractor, include job title, total hours,
                                                                                                                                                               expenses or indirect overhead costs (for
                                                 Board will not:                                         and total dollars;
                                                                                                                                                               example, costs associated with the
                                                    (i) Seek a refund of any advance                        (B) The rates charged must be                      management or general functions of an
                                                 payments for research and development                   commensurate with the tasks performed                 organization, such as costs for internet
                                                 costs; and                                              (For example, a person performing the                 service, telephone, utilities, and office
                                                    (ii) Make any further research and                   task of data entry should not be paid at              supplies);
                                                 development cost reimbursements                         the rate for performing data analysis);                  (v) Paid or incurred losses;
                                                 associated with the 508(h) submission.                     (C) The wage rate and benefits shall                  (vi) Loss adjustment expenses;
                                                    (d) Under section 522 of the Act, there              not exceed two times the hourly wage                     (vii) Sales commission;
                                                 are limited funds available on an annual                rate plus benefits provided by the                       (viii) Marketing costs;
                                                 fiscal year basis to pay for                            Bureau of Labor Statistics; and                          (ix) Lobbying costs;
                                                 reimbursements of research and                             (D) The applicant must report any                     (x) Product or applicant liability
                                                 development costs (including advance                    familial or business relationship that                resulting from the research,
                                                 payments for concept proposals) and                     exists between the applicant and the                  development, preparation or marketing
                                                 maintenance costs. Consistent with                      contractor or employee (Reimbursement                 of the policy;
                                                 paragraphs (e) through (j) of this section              may be limited or denied if the                          (xi) Copyright infringement claims
                                                 if all applicants’ requests for                         contractor or employee is associated to               resulting from the research,
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                                                 reimbursement of research and                           the applicant and they may be                         development, preparation or marketing
                                                 development costs (including advance                    considered as one and the same. This                  of the policy;
                                                 payments for concept proposals) and                     includes a separate entity being created                 (xii) Costs of making program changes
                                                 maintenance costs in any fiscal year:                   by the applicant to conduct research                  as a result of any mistakes, errors or
                                                    (1) Do not exceed the maximum                        and development. Reimbursement may                    flaws in the policy or plan of insurance;
                                                 amount authorized by law, the                           be limited or denied if the contractor is                (xiii) Costs associated with building
                                                 applicants may receive the full amount                  paid a salary or other compensation);                 rents or space allocation;


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                                                                    Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations                                          53685

                                                    (xiv) Costs in paragraphs (i) and (j) of                (l) Not later than 180 days prior to the           reimbursement for maintenance
                                                 this section determined by the Board to                 end of the last reinsurance year in                   previously received, the number of
                                                 be ineligible for reimbursement; and                    which a maintenance reimbursement                     policies, the number of approved
                                                    (xv) Local, State, or Federal taxes.                 will be paid for the approved 508(h)                  insurance providers, and the expected
                                                    (g) Requests for reimbursement of                    submission, the applicant must notify                 total amount of user fees to be received
                                                 maintenance costs must be supported by                  FCIC in writing regarding its decision                in any reinsurance year.
                                                 itemized statements and supporting                      on future ownership and maintenance                      (8) A user fee unnecessarily inhibits
                                                 documentary evidence for each                           of the policy or plan of insurance.                   the use of a policy or plan of insurance
                                                 reinsurance year in the maintenance                        (1) The applicant must notify FCIC in              if it is so high that approved insurance
                                                 period.                                                 writing whether it intends to:                        providers will not sell the policy, or the
                                                    (1) Actual costs submitted will be                      (i) Continue to maintain the policy or             user fee represents an unreasonable
                                                 examined for reasonableness and may                     plan of insurance and charge approved                 portion of the A&O subsidy paid to the
                                                 be adjusted at the sole discretion of the               insurance providers a user fee to cover               AIP such that it prevents the AIP from
                                                 Board.                                                  maintenance expenses for all policies                 meeting its other obligations under the
                                                    (2) Maintenance costs for the                        earning premium; or                                   SRA.
                                                 following activities may be reimbursed:                    (ii) Transfer responsibility for                      (9) The user fee charged to each
                                                    (i) Expansion of the original 508(h)                 maintenance to FCIC.                                  approved insurance provider will be
                                                 submission into additional crops,                          (2) If the applicant fails to notify FCIC          considered payment in full for the use
                                                 counties or states;                                     in writing by the deadline, the policy or             of such policy, plan of insurance or rate
                                                    (ii) Non-significant changes to the                  plan of insurance will automatically                  of premium for the reinsurance year in
                                                 policy and any related material;                        transfer to FCIC beginning with the next              which payment is made.
                                                    (iii) Non-significant or significant                 reinsurance year.                                        (10) It is the sole responsibility of the
                                                                                                            (3) If the applicant elects to:                    applicant to collect such fees from an
                                                 changes to the policy as necessary to
                                                                                                            (i) Continue to maintain the policy or             approved insurance provider and any
                                                 protect program integrity or as required
                                                                                                         plan of insurance, the applicant must                 indebtedness for such fees must be
                                                 by Congress; and
                                                                                                         submit a request for approval of the user             resolved by the applicant and approved
                                                    (iv) Any other activity that qualifies as
                                                                                                         fee by the Board at the time of the                   insurance provider.
                                                 maintenance.
                                                                                                         election; or                                             (i) Applicants may request that FCIC
                                                    (h) Projected costs for research and                    (ii) Transfer the policy or plan of                provide the number of policies sold by
                                                 development for concept proposals shall                 insurance to FCIC, FCIC may at its sole               each approved insurance provider.
                                                 be based on a detailed estimate of the                  discretion, continue to maintain the                     (ii) Such information will be provided
                                                 costs allowed in paragraph (f) of this                  policy or plan of insurance or elect to               not later than 90 days after such request
                                                 section. Since costs are one                            withdraw the availability of the policy               is made or not later than 90 days after
                                                 measurement of the viability to develop                 or plan of insurance.                                 the requisite information has been
                                                 an efficient policy, the Board may limit                   (4) Requests for approval of the user              provided to FCIC by the approved
                                                 reimbursements for research and                         fee must be accompanied by written                    insurance provider, whichever is later.
                                                 development to the estimated costs                      documentation to support the amount                      (11) Every two years after approval of
                                                 contained in the concept proposal,                      requested will only cover direct costs to             a user fee, or if the applicant has made
                                                 unless the submitter can justify a higher               maintain the plan of insurance. Costs                 a significant change to the approved
                                                 reimbursement in accordance with                        that are not eligible for research and                508(h) submission, applicants must
                                                 Board procedures.                                       development and maintenance                           submit documentation to the Board for
                                                    (i) If a 508(h) submission is                        reimbursements under this section are                 review in determining if the user fee
                                                 determined to be incomplete and is                      not eligible to be considered for                     should be revised.
                                                 subsequently resubmitted and                            determining the user fee.                                (12) The Board may review the
                                                 approved, the costs to perfect the 508(h)                  (5) The Board will approve the                     amount of the user fee at any time at its
                                                 submission may not be considered                        amount of user fee, including the                     sole discretion.
                                                 reimbursable costs depending on the                     maximum amount of total maintenance                      (m) The Board may consider
                                                 level of insufficiency or incompleteness                that may be collected per year, that is               information from the Equal Access to
                                                 of the 508(h) submission, as determined                 payable to the applicant by approved                  Justice Act, 5 U.S.C. 504, the Bureau of
                                                 at the sole discretion of the Board.                    insurance providers unless the Board                  Labor Statistic’s Occupational
                                                    (j) Reimbursement of costs associated                determines that the user fee charged:                 Employment Statistics Survey, the
                                                 with addressing issues raised by the                       (i) Is unreasonable in relation to the             Bureau of Labor Statistic’s Employment
                                                 Board, expert reviewers and RMA will                    maintenance costs associated with the                 Cost Index, and any other information
                                                 be evaluated based on the substance of                  policy or plan of insurance; or                       determined applicable by the Board, in
                                                 the issue and the amount of time                           (ii) Unnecessarily inhibits the use of             making a determination whether to
                                                 reasonably necessary to address the                     the policy or plan of insurance by                    approve a 508(h) submission for
                                                 specific issue. Delays and additional                   approved insurance providers.                         reimbursement of research and
                                                 costs caused by the inability or refusal                   (6) If the total user fee exceeds the              development costs, maintenance costs,
                                                 to adequately address issues may not be                 maximum amount determined by the                      or user fees.
                                                 considered reimbursable, as determined                  Board, the maximum amount                                (n) For purposes of this section, rights
                                                 at the sole discretion of the Board.                    determined by the Board will be divided               to, or obligations of, research and
                                                    (k) If the Board withdraws its                       by the number of policies earning                     development cost reimbursement,
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                                                 approval for reinsurance at any time                    premium to determine the amount to be                 maintenance cost reimbursement, or
                                                 during the period that reimbursement                    paid by each approved insurance                       user fees cannot be transferred from any
                                                 for maintenance is being made or user                   provider.                                             individual or entity unless specifically
                                                 fees are being collected, no maintenance                   (7) Reasonableness of the initial                  approved in writing by the Board.
                                                 reimbursement shall be made nor any                     request to charge a user fee will be                     (o) Applicants requesting
                                                 user fee be owed after the date of such                 determined by the Board based on a                    reimbursement for research and
                                                 withdrawal.                                             comparison of the amount of                           development costs, maintenance costs,


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                                                 53686              Federal Register / Vol. 81, No. 156 / Friday, August 12, 2016 / Rules and Regulations

                                                 or user fees, may present their request                    (c) RMA will review the NRS policy.                rights of the insured with respect to the
                                                 in person to the Board prior to                         If any of the conditions found in                     underlying policy or plan of insurance
                                                 consideration for approval.                             paragraphs (c)(1) through (5) of this                 if RMA determines it affects, alters,
                                                   (p) Index-based weather plans of                      section are found to occur, FCIC will                 preempts, or undermines the terms or
                                                 insurance are not eligible for                          notify the AIP that submitted the NRS                 conditions of the underlying policy or
                                                 reimbursement from FCIC for                             policy that if they sell the NRS policy,              procedures issued by FCIC.
                                                 maintenance costs or research and                       it will result in denial of reinsurance,                 (3) The NRS disrupts the marketplace.
                                                 development costs. Submitters of                        A&O subsidy, and risk subsidy on all                  An NRS policy will be considered to
                                                 approved index-based weather plans of                   underlying FCIC reinsured policies,                   disrupt the marketplace if RMA
                                                 insurance may collect user fees from                    unless the underlying FCIC policy was                 determines it encourages planting more
                                                 other approved insurance providers in                   sold by another AIP. If the underlying                acres of the insured commodity in
                                                 accordance with Procedures Handbook                     FCIC reinsured policy is sold by another              excess of normal market demand,
                                                 17050—Approved Procedures for                           AIP, the AIP that sold the NRS may be                 adversely affects the sales or
                                                 Submission of Index-based Weather                       required to pay FCIC an amount equal                  administration of reinsured policies,
                                                 Plans of Insurance.                                     to the reinsurance, A&O subsidy, and                  undermines producers’ confidence in
                                                                                                         risk subsidy on the underlying FCIC                   the Federal crop insurance program, or
                                                 § 400.713 Non-reinsured supplemental
                                                 (NRS) policy.
                                                                                                         policy.                                               harms public perception of the Federal
                                                                                                            (1) If the NRS policy materially                   crop insurance program.
                                                    (a) Unless otherwise specified by                    increases or shifts risk to the underlying
                                                 FCIC, any NRS policy that covers the                                                                             (4) The NRS is an impermissible
                                                                                                         policy or plan of insurance reinsured by
                                                 same agricultural commodity as any                                                                            rebate. An NRS may be considered to be
                                                                                                         FCIC.
                                                 policy reinsured by FCIC under the Act                     (i) An NRS policy will be considered               an impermissible rebate if RMA
                                                 must be provided to RMA to ensure it                    to materially increase or shift risk to the           determines that the premium rates
                                                 does not shift any loss or risk that does               underlying policy or plan of insurance                charged are insufficient to cover the
                                                 not exist under the FCIC reinsured                      reinsured by FCIC if RMA determines it:               expected losses and a reasonable reserve
                                                 policy. Failure to provide such NRS                        (A) Creates a moral hazard, such as a              or it offers other benefits that are
                                                 policy or endorsement to RMA prior to                   financial incentive for the policyholder              generally provided at a cost.
                                                 its issuance shall result in the denial of              to behave in a way that increases the                    (5) The NRS policy is conditioned
                                                 reinsurance, A&O subsidy, and risk                      number or size of losses;                             upon or provides incentive for the
                                                 subsidy on all underlying FCIC                             (B) Results in the underlying FCIC                 purchase of the underlying policy or
                                                 reinsured policies unless the underlying                policy either triggering a loss sooner, or            plan of insurance reinsured by FCIC
                                                 FCIC policy was sold by another AIP. If                 paying a larger indemnity than would                  with a specific agent or approved
                                                 the underlying FCIC reinsured policy is                 otherwise be allowed by the terms and                 insurance provider.
                                                 sold by another AIP, the AIP that sold                  conditions of the underlying reinsured                   (d) RMA will respond not less than 75
                                                 the NRS may be required to pay FCIC                     policy; or                                            days before the first sales closing date or
                                                 an amount equal to the reinsurance,                        (C) Allows for combined indemnities                provide notice why RMA is unable to
                                                 A&O subsidy, and risk subsidy on the                    between the underlying FCIC reinsured                 respond within the time frame allotted.
                                                 underlying FCIC policy.                                 policy and the NRS that are in excess of                 (e) NRS policies reviewed by RMA
                                                    (b) An electronic copy in Microsoft                  the value a producer would reasonably                 will need to be submitted once every
                                                 Office compatible format, of the new or                 expect to receive for the insured                     five years unless a change is made to the
                                                 revised NRS policy and related                          commodity if a normal crop was                        NRS or the underlying policy. Once any
                                                 materials must be submitted at least 150                produced and sold at a reasonable                     changes are made to either policy, or the
                                                 days prior to the first sales closing date              market price.                                         five year period has concluded, the NRS
                                                 applicable to the NRS policy. At a                         (ii) The NRS must include language                 must be resubmitted for review.
                                                 minimum, examples that demonstrate                      that clearly states no indemnity will be
                                                 how liability and indemnities are                       paid in excess of the initial value of the              Signed in Washington, DC, on August 2,
                                                 calculated under differing scenarios                    insured commodity.                                    2016.
                                                 must be included. Electronic copies of                     (2) The NRS reduces or limits the                  Timothy J. Gannon,
                                                 the NRS must be sent to the Deputy                      rights of the insured with respect to the             Acting Manager, Federal Crop Insurance
                                                 Administrator for Product Management                    underlying policy or plan of insurance                Corporation.
                                                 (or successor) at DeputyAdministrator@                  reinsured by FCIC. An NRS policy will                 [FR Doc. 2016–18743 Filed 8–11–16; 8:45 am]
                                                 rma.usda.gov.                                           be considered to reduce or limit the                  BILLING CODE 3410–08–P
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Document Created: 2018-02-09 11:32:49
Document Modified: 2018-02-09 11:32:49
CategoryRegulatory Information
CollectionFederal Register
sudoc ClassAE 2.7:
GS 4.107:
AE 2.106:
PublisherOffice of the Federal Register, National Archives and Records Administration
SectionRules and Regulations
ActionFinal rule.
DatesThis rule is effective September 12, 2016.
ContactTim Hoffmann, Product Administration and Standards Division, Risk Management Agency, United States Department of Agriculture, Beacon Facility, Stop 0812, Room 421, P.O. Box 419205, Kansas City, MO 64141-6205, telephone (816) 926-7730.
FR Citation81 FR 53658 
RIN Number0563-AC46
CFR AssociatedAdministrative Practice and Procedure and Crop Insurance

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