Controlled Business Practice

Transcription

1 Controlled Business Practice MarketEdge Enhancement SURE Program Advantage ARMtech Insurance Services, Inc. recently accepted an invitation from the American Association of Crop Insurers to brief the United States Congress on the duties of Approved Insurance Providers (AIPs). During the 2008 Farm Bill negotiations, legislators focused much of their attention on farm subsidies and the administrative and operating (A&O) payments made to AIPs for delivering the federal crop insurance program. Questions involving the AIPs centered not so much on whether or not the partnership between the government and AIPs should remain intact (few people doubt that the private companies put forth a more comprehensive and detailed program than would the government), but rather on what services the AIPs provide in exchange for an A&O subsidy. In response to Congress s inquiries and in hopes of improving the level of communication between the AIPs and Congress, representatives from ARMtech delivered a pair of briefings on September 18 th and 19 th to staff members of both the House and Senate Agriculture Committees. continued on page 3 1

2 MAKE AN IMPRESSION ON YOUR INSUREDS! give them a personalized pocket sized map book Add value to your relationship with your insureds. Give them a pocket sized (4.25 wide x 5.5 tall) map book that has documentation of each of their fields of their farming operation. Grids are also included with the maps that allow the insured to input data, making it easier to complete their acreage report accurately. If you have mapped all of a policyholder s fields, you can request a pocket sized map book. additional book is $2.50. Each If you have any questions or would like to have an order form sent to you, please contact Kristie King at kking@armt.com or Agents (or subagents) may not receive any compensation (i.e. commission, profit sharing, bonus, etc.) for the sale or service of a policy or plan or plan of insurance offered under the Federal Crop Insurance Program if both of these conditions exist: 1) The Agent has a substantial beneficial interest, or a member of the Agent s immediate family has a substantial beneficial interest, in policies or plans of insurance; and 2) The total compensation to be paid to the Agent for any such policies exceeds 30 percent or the percentage specified in State law (whichever is less) of the total of all compensation for the reinsurance year. In other words, no more than 30 percent (less in some cases) of the Agent s commission can come from insurance policies written for the Agent or the Agent s immediate family. The Farm Bill defines Immediate Family as: Father Spouse Mother Spouse of the foregoing Stepfather Daughter-in-law Stepmother Son-in-law Brother Brother-in-law Sister Mother-in-law Stepbrother Father-in-law Stepsister Granddaughter Son Grandson Daughter Grandparent Stepson Stepdaughter ARMtech is in the process of creating a new Controlled Business Practice form, which must be signed by every Agent every year, beginning with the 2009 crop year. No later than 90 days after the annual settlement date, any Agent that received any compensation for the service or sale of any policy or plan of insurance shall certify to ARMtech that the compensation the Agent received was in compliance with these conditions. Sanctions for violations shall only apply to the Agents or entities directly responsible for the certification or the failure to comply with these requirements. Consequently, we are encouraging all of our Agents to analyze the composition of their book of business and ensure that they are in compliance with these provisions so that they will be eligible to receive their commissions. 2

3 continued on page 1 Led by President Sam Scheef and Chief Operation Officer Ted Etheredge, and with the help of Vice President Christie Bracey, Software Development Manager Jay Rushing, and Business Analyst Jake Rinehart, ARMtech outlined all of the steps involved in servicing a crop insurance policy and conveyed how detailed the AIPs must be in their deliverance, lest an error lead to a disruption in coverage and place a producer at risk. ARMtech's custom quoting system AgriNet MarketEdge has many new enhancements. We've taken our software to the next level by extending AgriNet MarketEdge with custom enhancements available only to ARMtech Agents, including: As a leader in the crop insurance industry, it is our belief that in the months and years to come, ARMtech will have similar opportunities to educate our legislators about crop insurance as we strive to continue to emphasize the importance of crop insurance as the primary risk management tool of the American farmer. To download and install this new version go to and click on the MarketEdge banner on the home page. At the bottom of that page there will be a Detailed instructions are provided for removing the old version and setting up the new AgriNet MarketEdge software on your machine. Please be advised that, depending on your Internet connection, the download and installation may take a few minutes, but this is a one-time installation, and going forward, all updates will install automatically when you replicate. In addition, AgriNet MarketEdge has been added to the terminal servers. If you connect to ARMtech using the ARMtech Icon, you will see a new MarketEdge icon. The program can be used through the terminal server and does not have to be downloaded to a computer. We d be delighted to hear your feedback on the new AgriNet MarketEdge. Please contact your marketing representative or to marketedge@armt.com. 3

4 New Policyholder Access! how our insureds look up their policy information In a continuing effort to provide policyholders access to their policy information, ARMtech is in the process of making all policy books available online. Beginning with the 2009 crop year, policyholders will be able to view and print all of the documents included in a policy book directly from giving insureds access to their policy book information whenever they need it. Each insured will receive a letter that notifies them that their policy book is ready, and to access their books, policyholders can click the blue button in the upper right hand corner of our home page and log-in using the information included in the letter. To ensure the privacy of the data, policyholders will be required to enter their taxpayer information on their initial visit as verification of their identity. Electronic policy books is the first step in a concerted effort to improve communication between ARMtech and its policyholders by providing secure access to policy documents online. Why not handout a bag full of ARMtech items with space to include your own information? Packets include a customized cover sheet, notepad, pen, highlighter, gum or mint, ARMtech brochure and one other small goodie from our in-stock items (computer brush, letter opener, toothpick dispenser, to name a few). You can order these bags from the General Store. Simply go to and click on General Store. From there, you will go to Sales Material and Collateral. You can purchase as many bags as you need. They cost $1.50 each. Your co-op can be used as part of the payment. You have $300 annually for marketing co-op. We pay 50% of your costs up to $300. All marketing materials must be approved prior to run date or usage to qualify for co-op. We need at least 7 working days notice to fulfill your order. Once you place the order, please kking@armt.com with the date of your meeting so that it can be included on the cover sheet and we can also include your logo if you like. For questions or other details, contact Kristie King, kking@armt.com or Jennifer Redmond, jredmond@armt.com. 4

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6 In June of this year, after a long and tortured legislative path, the U.S. Congress enacted a 2008 Farm Bill (the Food, Conservation, and Energy Act of 2008), and with it a new standing disaster program for crop farmers called the pplemental venue Assistance Program or. This program is authorized to address whole-farm production and revenue losses for the 2008 through the 2011 crop years, and is, of course, designed to eliminate the need for any ad hoc disaster programs (i.e., programs enacted by Congress on an as-needed basis, as in the past) while SURE is in effect. Unless renewed by Congress, SURE expires after the 2011 crop year and new funding will need to be found to extend the program. While the goals and the basic design of SURE are sound in that it is structured to compliment existing programs (Crop Insurance and/or the Noninsured Assistance Program (NAP)) and is relatively simple in its approach, the program has been plagued by implementation issues since its enactment. In order to clear up some of the questions or problems, on September 29, 2008, Congress passed a technical corrections bill. President Bush is expected to sign this bill into law, thus clearing the way for other implementation decisions to be made by USDA in order to get this program running. The goal of this article is to explain what we know or what we think we know about the SURE program and how it will operate. Before launching into the explanation, however, it is important for the reader to be absolutely clear about three things., it should be understood that this new It is different in two very important and dramatic ways: (1) it is calculated on a whole farm basis rather than on a farm-by-farm (or tract-by-tract) basis, such that losses on one farm can be offset by decent crops on another farm under the whole farm umbrella, potentially precluding payments under the program; and (2) the portion of potential loss that might be covered is a percentage on top of what is purchased in crop insurance rather than what has in past disaster programs essentially been a replication of what is covered by crop insurance subject to a cap on overall benefits (so it eliminates the potential to pay twice on the same loss). Both of these changes are explained in greater detail below. 6 continued on page 8

7 From the Desk of Sam Scheef: For several years now, we have been singing the praises of the Comprehensive Information Management System (CIMS) and the unprecedented opportunities for quality assurance its full implementation will provide Approved Insurance Providers (AIPs) in the deliverance of the federal crop insurance program. Unfortunately, after six and a half years of waiting and still no access to CIMS, the words are beginning to sound hollow, and the needs of the American farmer have taken a back seat to incessant posturing and political wrangling on the part of various governmental bodies, whose apparent lack of cooperation has resulted in setback after setback, indefinitely postponing the full implementation of CIMS. The list of delays is far too long to include in its entirety, but to give you a feel for the type of political obstacles CIMS must overcome, we wanted to briefly mention a few of the most recent. On February 15 th of this year, in the midst of the 2008 Farm Bill negotiations, the United States Court of Appeals issued a ruling against the USDA in which it ordered the FSA to release 13 databases, claiming the information contained therein should be disclosed under the Freedom of Information Act. This ruling seemingly sealed the deal for CIMS as the courts ordered that most of the FSA data be included in the new system be made public. However, in the weeks that followed, Section 1619 appeared in the Farm Bill and directly contradicted the court s ruling by prohibiting the disclosure of that same FSA information. The incongruity between these two incidents forced the Office of the Inspector General to revisit all of the regulations surrounding the release of the CIMS data and has necessitated the drafting of a new Non-Disclosure Statement and a Data Sharing Memorandum of Understanding, both of which must be completed before the release of CIMS. Officially, CIMS is currently in an evaluation status, pending Office of the Chief Information Officer s (OCIO) approval, meaning that the RMA and FSA are to test CIMS and ensure that it meets their needs. According to the RMA, the system works well, and the RMA has already signed off on the system; but as of the first of September, the FSA had yet to complete its testing, preventing the OCIO from submitting its final approval, which is required for the release of CIMS. continued on page 12 7

8 , and most important, it should be understood that and handbooks for this program that will explain exactly how it is to be implemented, and so the explanations contained herein are only meant to be advisory and are subject to change., it should be noted that the crop and beyond. The differences are noted throughout the explanation below, but the primary issue is the fact that, because the SURE was enacted after the crop insurance sales closing dates for almost all 08 crops had closed, a buy in was structured to allow producers to make themselves eligible for SURE and get credit for a minimal CAT or NAP policy if they had not covered all the productive acreage on their farms. With these three provisos, let s now discuss what we know, or what we think we know, about the workings of the SURE Program. : As noted above, SURE is designed to compliment and encourage better use of existing federal crop insurance products. It does this by essentially stacking a potential benefit on top of whatever level of crop insurance is purchased by the producer. Since this stacked potential benefit is percentage-based (the guarantee is defined in the statute as 115% of insured revenue), the more crop insurance coverage you buy, the more protection you get from SURE (e.g., if insurance covers $400 per acre, SURE guarantee would be calculated at $460 per acre, a $60 difference; if insurance covers $600 per acre, the SURE guarantee would be $690, a $90 difference). It is important to note that SURE would only cover this difference between the enhanced guarantee and the producer s actual revenue, and it only covers a portion (60%) of that difference. The formula applicable to most circumstances is as follows: The defined as the sum of % of insured revenue (yield X insurance coverage level X applicable price election) for each insurable crop and unit with yield adjustments (detailed below), and % of NAP yield protection using 100% of applicable NAP price (Note: guarantee cannot exceed 90% of whole farm s expected revenue) defined as the sum of 1. Actual Revenue calculated as received for the crop (adjusted for any quality losses), 2. Any received, 3. Any based benefits received, and 4. 15% of any received Continued on page 9 8

9 Before a farm can even be eligible to go through the above calculation and potentially receive SURE benefits, the farm must first meet two basic requirements. The farm can become eligible in one of two ways 1. Part of the farm must be (or an adjacent county) as designated by the Secretary, the farm must have experienced at least a of economic significance (this last requirement was added by the 9/29 technical corrections bill); or 2. The farm sustained greater than In addition to building on top of Crop Insurance and NAP, the SURE program actually requires the purchase of at least the minimal levels of coverage for eligibility. This was originally interpreted by US- DA to mean that all land including pasture land, which is of an agricultural use, had to be covered. However, in the Congress revised this requirement to include the following exceptions: 1. Only in on-farm livestock feeding are considered crops which must be covered, and pasture or grazing lands are specifically excluded from the purchase requirement for SURE; and 2. is excluded from risk management purchase requirement under two circumstances: (1) if the crop in question is not a crop of economic significance (defined at 7 U.S.C (b)(7)(b) as a crop expected to contribute 10% or more of total value of all crops grown by a producer); or (2) if the administrative fee for purchasing NAP coverage for the crop exceeds 10% of the applicable coverage. Note: de minimis acres are also dropped from any calculations of guarantees or revenues under the program. With a basic understanding of the conditions for eligibility and the general calculation of benefits, we then come to the details that make the implementation of this program particularly challenging. While some of these details and questions have been addressed by Congress in the 9/29 technical corrections bill, most are still subject to USDA rulemaking. In any case, we attempt to provide the best understanding of the issues at this time below. SURE defines the farm as in relation to an on a farm, the sum of all crop acreage in all counties that is planted or intended to be planted for harvest by the eligible producer. An can be a person or entity that assumes the production and market risks and must be: a citizen or a resident alien; a partnership of citizens; or a corporation, LLC, or other farm organizational structures organized under state law. Thus, it would seem that SURE would view the whole farm as all the acreage being farmed by a particular entity, and thus an individual who might be farming some land as a sole proprietorship and other land in a partnership would have two separate tests for the separate entities. However, USDA will need to present rules on this subject. Continued on page 10 9

10 For setting the SURE guarantee, for each insurable crop, 115% is multiplied by the adjusted payment yield (according to level of crop insurance purchased) which is then multiplied by the acreage for that unit and the This language allows for the tailoring of SURE guarantees according to the type of crop insurance product purchased (whether an APH policy, or CRC or RA with pricing options). However, there are many details and pricing options available, and so how exactly the final rules will handle this is yet to be determined. SURE guarantee, the adjusted payment yield is defined as In the same formula for determining the The adjusted APH would only be different from the actual APH in cases where plugs have been used in the actual APH calculation. The APH adjustment drops all plugs but allows a producer with 4 years or less of history to drop the lowest yield if it had been plugged. The idea behind this section was to give some help to producers who have had multiple years of loss and declining APH. Anticipating the fact that certain insurance products do not really fit into the formula either because they do not use APH or do not have a price election per se, Congress included a section entitled, Equitable Treatment for Non- Yield based Policies, not directing but giving discretion to the Secretary to do just as the title would suggest. This will presumably include different calculations for AGR, AGR Lite, GRP, GRIP and other similar plans of insurance. This is still unclear, and will be determined in the USDA rules. USDA historically determines a season average price based on marketings over the 12 month period after a crop is harvested. If this method is used for SURE, then payments for the 2008 crop could not be made until the fall of However, USDA has used earlier estimates in the past, and would seem to have the discretion to do so here as well. The overall payment limitation is set at $100,000. As clarified in the 9/29 technical corrections bill, current AGI and payment limit rules will apply for the 2008 crop. For 2009 and beyond, the changes to direct attribution, etc. that are part of the 2008 Farm Bill will also apply to disaster. This is yet unknown, but this will make a significant difference in potential benefits under SURE. The legal language which lays out the formula for calculating actual revenue which is then compared to the guarantee does not specifically say to subtract crop insurance premiums paid from the revenue, but USDA, in past disaster programs, has established a precedent and policy for doing so. The netting out of premiums paid would be a significant benefit to producers and would be consistent with the intent of SURE in that it would be an additional inducement for producers to buy-up insurance coverage and better protect themselves through crop insurance. 10 Continued on page 11

11 In the formula for determining the SURE guarantee, prevented planting acres are counted just the same as planted acres (and, of course, they have to be insured). However, a special section in the law is included to say that the adjusted insurance guarantee shall be the basis for determining the disaster assistance program guarantee as well. With the unusually volatile weather that was experienced during planting season across much of the U.S., many questions have been asked about the treatment of uninsurable crops (i.e. 2nd crops planted behind failed crops; crops planted after late plant period on prevented planted acreage; etc.). The 9/29 technical corrections bill makes clear that these crops are to be treated as ghost crops, counting neither toward the guarantee, nor the actual revenue on the farm. Assuming the technical corrections bill will be signed into law, USDA will have to provide guidance on this. Though many details have been addressed in this summary of what we know or think we know about the SURE program, there are many more details both in the law and in the development of regulations that have not been touched upon. Accordingly, it is most important to work closely with state and local FSA offices to determine the precise policy for particular situations. As for timing, the FSA is working to get guidance and regulations out to the field, with national training beginning in early October. Regulations are making their way through the grinding process in Washington and are expected to be published in late October. Finally, to become more familiar with how generally the calculations for SURE work on a whole farm basis, there is an excellent calculator that has been developed by Texas Agrilife Extension in coordination with the Plains Cotton Growers, Inc. This tool is available at: --Tom Sell Tom Sell is partners with former House Agriculture Committee Chairman Larry Combest in the firm, Combest, Sell & Associates, LLC which provides consulting and lobbying for the crop insurance industry through CIPA. ARMtech is an Allied Member and supporter of the CIPA. 11

12 From the Desk of Sam Scheef...con t As a money-saving measure, Congress included a provision in the Farm Bill that denies federal payments to farms with 10 or fewer acres. Understandably, this provision upset many of America s smallest farmers, so Congress has since indicated that it intended for the USDA to allow these farms to combine acres to satisfy the 10 acre requirement. The USDA has refused to allow the farms to combine, so Congress is trying to pass HR-6849, which establishes a two-year moratorium on the 10 acre provision. This legislative fix will cost $20 million, and the House Ag Committee plans to at least partially offset the cost by reducing the amount of information technology money previously granted to the RMA in the Farm Bill. Should the legislation pass, the RMA has warned that the reduction of funds will prohibit the full implementation of CIMS. Perhaps the most disturbing aspect of this whole ordeal is the fact that CIMS already exists. For over 4 years, the Center for Agribusiness Excellence (CAE) at Tarleton State University has maintained the CIMS database, and each year, ARMtech attends conferences at which we hear presentations on how the RMA is data mining the CIMS database to combat fraud, waste, and abuse. Wouldn t it make more sense to provide that same CIMS information to AIPs so that many instances of fraud, waste, and abuse could be prevented? Data mining is proof that CIMS works, and feedback from the CAE is helpful in detecting informational discrepancies and ensuring the integrity of the industry s data; but as enlightening as it is, the detection comes far too late because if the AIPs are given access to CIMS, inconsistent information could be identified while there is still time to correct it rather than months, or even years, after the fact. That said, despite the squabbling and despite the fact that the system is in place but inaccessible, we at ARMtech still have confidence in the potential of CIMS. CIMS will revolutionize the crop insurance industry as a vast repository of information that instantaneously compares data, thereby improving cooperation between various entities and greatly reducing the likelihood American farmers find themselves at risk due to data discrepancies. ARMtech has committed significant development resources and countess man hours enhancing AgriNet in order to ensure that ARMtech customers can benefit from CIMS as soon as possible once it goes online, and we anxiously await the day CIMS finally becomes a reality for the crop insurance industry. Sincerely, Sam Scheef President ARMtech Insurance Services 12