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PIA National Meets With Federal Crop Insurance Officials, Advises Discount Plans Must Be Regulated

WASHINGTON, May 10, 2004 - The National Association of Professional Insurance Agents (PIA) has held meetings with federal crop insurance officials at their request, providing...
May 10, 2004

USDA-RMA Requests PIA Input in Draft of Standard Reinsurance Agreement (SRA)

WASHINGTON, May 10, 2004 - The National Association of Professional Insurance Agents (PIA) has held meetings with federal crop insurance officials at their request, providing suggestions and filing comments as a revised Standard Reinsurance Agreement (SRA) is drafted. 

PIA is working with the crop carriers, their trade representatives, other insurance groups and Federal Crop Insurance Corporation (FCIC) and the USDA's Risk Management Agency (RMA) to secure changes and improvements to the draft SRA to protect the interests of PIA agents and the farmers who depend on them for crop insurance. At the request of RMA, PIA met with David C. Hatch, RMA Associate Administrator and federal officials on March 29 and April 28 to offer suggestions. On April 29 PIA filed written comments with the agency.

"Independent insurance agencies engaged in federal crop insurance have a great deal on the line in terms of the expanded reach the proposed 2005 SRA agreement makes over them that include, but go well beyond, the classic issues of reimbursement ratios," said Larry McGillis, a member of the PIA's national crop insurance task force.

"We appreciate the issues that cause FCIC/RMA to expand oversight and take more direct measures, such as guarding against another crop insurance program insolvency and being sure the unique insurer-entity arrangements offering federal crop insurance are accountable to FCIC/RMA individually and collectively for their joint actions," McGillis said. "However, the current draft language and expressed actions need to mature more fully in order for them to be clear, effective and work successfully and compatibly with existing insurance state statutes and common law provisions."

PIA is documenting how, inadvertently, proposed SRA provisions introduce legal complications for agents and their carriers, overreaches in terms of the ownership and control rights concerning their business, sharpens state-federal law conflicts that will catch PIA agencies in the middle, and does not have enough state-specific adjustments to the multi-tiered assessment formulas, especially for states with multi-crop farmers and several years of losses such as North Dakota, Oklahoma, Kansas, Texas and others. 

"PIA believes that our farmers should have choice, quality insurers, excellent products and good government oversight," said Kent Olson, executive vice president of PIA of North Dakota. "They should be served by persons and programs that respect their insurance needs as professionals in the business of farming, including their federal crop insurance policies. So it is our job to improve the result of the 2005 SRA for our farmers, carriers and PIA members, and realize that this is only the beginning of our activism in the administrative law process that oversees this program."

Changes to the Standard Reinsurance Agreement are being considered against the backdrop of a mandate from the federal Office of Management and Budget (OMB) to significantly reduce expenditures by the federal crop insurance program. While PIA members are all for improved efficiencies and working smarter, most costs in the system are neither caused by, nor in the control of, PIA agencies.

"Crop insurers and their reinsurers are not immune from the overall P&C surplus/capacity squeeze that could be further exacerbated if Congress doesn't extend the Terrorism Risk Insurance Act (TRIA)," said PIA National Senior Vice President Patricia A. Borowski. "We appreciate efforts thus far to lower the original proposed financial 'hit' to the program, but high loss crop states reflect fewer carriers offering federal crop insurance, as well as all lines of P&C.  That is a system-wide problem that makes cuts in federal funding affect us a lot harder than prior to September 11."

In a May 3 speech to PIA crop agents in Bismarck, North Dakota, Borowski outlined the steps the association is taking to ensure that agents and their customers continue to have access to insurance products to meet their needs.

"To all of us in the crop insurance area, it's more important to engage our energies across the entire system in a comprehensive fashion, including Congress, the federal agency process and the Administration, as well as our state officials," Borowski said. "This means providing written suggestions for specific SRA changes that federal crop officials can actually use in their redrafting efforts. No question, it is much more demanding to work your way inside the process. It requires you to present substantive legal, regulatory and business arguments that carry weight. PIA believes this is the way to affect positive change, rather than to remain on the outside of the process throwing rocks at the windows."

On the matter of the Premium Discount Programs and sections in the SRA addressing rebating and oversight of dividend programs, PIA suggested that the wording in the first draft SRA on these matters was clearer, and underscored the need for state law to govern, as it does now, for any entity in matters of insurance rebates, group P&C laws and insurance and equity dividend programs.  PIA noted in its filed comments that currently, state farmer cooperatives that offer insurance and security programs to their members must abide by these state requirements now for such offerings for the protection of the farmers' interests, and sees no reason why federal crop insurance schemes should be exempt from these. 

"PIA does not believe our farmers are well served by others that see the federal crop insurance program as merely an inconsequential doormat they can step on in order to access their real sought after mother-load of their profit motive - selling products other than crop insurance to farmers," Borowski said.

"In addition, PIA appreciates that while federal crop insurance is a federal program, it is still insurance," Borowski said. "The federal crop insurance program must coordinate and complement this state system.  We were pleased to hear the FCIC/RMA officials agree with us on this point and underscore the active role they expect the state insurance departments to play in oversight.  So we don't believe anyone wishes to see inartful SRA drafting unwittingly create broad exceptions and complications because a group of people wants special treatment. Exceptions cannot be drafted for use by them alone, and that is where problems can and do arise. PIA's concern is that the possible structure of potential entities forming discount programs now or in the future could technically, under state insurance law, be unauthorized insurance entities."

PIA went on to point out that the SRA, properly drafted and applied, can form the single, central, common basis for equitable, successful oversight, making a PRP/PDP a filed option of a SRA-insurer's federal crop insurance offerings,  like any other insurance discount program is handled.  They do not and should not be treated as two separate, unequal and opposed offerings for farmers.

RMA confirmed that PIA's comments will be considered and resulting modifications may be made.  PIA's meetings with Gov. John Hoeven (R-North Dakota) included the issue on his agenda, noting North Dakota's particular market issues.

Founded in 1931, PIA is a national trade association that represents member insurance agents and their employees who sell and service all kinds of insurance, but specialize in coverage of automobiles, homes and businesses.