General Administrative Regulations, Subpart V-Submission of Policies, Provisions of Policies, Rates of Premium, and Premium Reduction Plans, 41822-41924 [05-14037]

Agencies

• DEPARTMENT OF AGRICULTURE
• Federal Crop Insurance Corporation

[Federal Register Volume 70, Number 138 (Wednesday, July 20, 2005)]
[Rules and Regulations]
[Pages 41822-41924]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-14037]



[[Page 41821]]

-----------------------------------------------------------------------

Part II





Department of Agriculture





-----------------------------------------------------------------------



Federal Crop Insurance Corporation



-----------------------------------------------------------------------



7 CFR Part 400



General Administrative Regulations, Subpart V--Submission of Policies, 
Provisions of Policies, Rates of Premium, and Premium Reduction Plans; 
Interim Rule

Federal Register / Vol. 70, No. 138 / Wednesday, July 20, 2005 / 
Rules and Regulations

[[Page 41822]]


-----------------------------------------------------------------------

DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 400

RIN 0563-AB95


General Administrative Regulations, Subpart V--Submission of 
Policies, Provisions of Policies, Rates of Premium, and Premium 
Reduction Plans

AGENCY: Federal Crop Insurance Corporation, USDA.

ACTION: Interim rule.

-----------------------------------------------------------------------

SUMMARY: The Federal Crop Insurance Corporation (FCIC) amends the 
General Administrative Regulations to include provisions regarding the 
requests by approved insurance providers to implement the premium 
reduction plan authorized under section 508(e)(3) of the Federal Crop 
Insurance Act (Act) and the approval of the amount of a premium 
discount to be provided to farmers under the premium reduction plan.

DATES: Effective June 30, 2005.

FOR FURTHER INFORMATION CONTACT: For further information, contact Lee 
Ziegler, Economist, Reinsurance Services Division, Risk Management 
Agency, United States Department of Agriculture, 1400 Independence 
Avenue, Room 6739-S, Washington, DC 20250; telephone number (202) 720-
0191, e-mail address: lee.ziegler@rma.usda.gov.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined to be not significant for the 
purposes of Executive Order 12866.

Paperwork Reduction Act of 1995

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
Chapter 35), RMA's request for emergency approval on a new information 
collection, Premium Reduction Plan, was approved under OMB control 
number 0563-0079.

Government Paperwork Elimination Act (GPEA) Compliance

    In its efforts to comply with GPEA, FCIC requires all approved 
insurance providers delivering the crop insurance program to make all 
insurance documents available electronically and to permit producers to 
transact business electronically. Further, to the maximum extent 
practicable, FCIC transacts its business with approved insurance 
providers electronically.

Unfunded Mandates Reform Act of 1995

    Title II of the Unfunded Mandates Reform Act of 1995 (UMRA) 
establishes requirements for Federal agencies to assess the effects of 
their regulatory actions on State, local, and tribal governments and 
the private sector. This rule contains no Federal mandates (under the 
regulatory provisions of title II of the 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, on the 
relationship between the national government and the states, or on the 
distribution of power and responsibilities among the various levels of 
government.

Regulatory Flexibility Act

    FCIC certifies that this regulation will not have a significant 
economic impact on a substantial number of small entities. This action 
does not increase the burden on any entity because it merely clarifies 
the process to submit premium reduction plans to the FCIC Board of 
Directors for approval. The current requirements of the Standard 
Reinsurance Agreement (SRA) and procedures for premium reduction plans 
approved by the Board contain provisions to ensure that small entities 
have access to policies and plans of insurance, including premium 
reduction plans. The requirement to apply for a premium reduction plan 
is the same for small entities as it is for large entities. 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 (5 U.S.C. 605).

Federal Assistance Program

    This program is listed in the Catalog of Federal Domestic 
Assistance under No. 10.450.

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, unless otherwise specified in the rule. The 
appeals procedures at 7 CFR 400.169 and 7 CFR part 24 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, and safety. Therefore, 
neither an Environmental Assessment nor an Environmental Impact 
Statement is needed.

Background

    On February 24, 2005, FCIC published a notice of proposed 
rulemaking in the Federal Register at 70 FR 9001-9013 to revise 7 CFR 
part 400, subpart V, Submission of Policies, Provisions of Policies, 
Rates of Premium, and Premium Reduction Plans. Following publication of 
the proposed rule, the public was afforded 60 days to submit written 
comments and opinions. Approximately 1,900 comments were received from 
approved insurance providers, farmers, agents and other interested 
parties.
    After consideration of all the comments and the concerns expressed, 
FCIC realizes it needs to proceed cautiously to ensure the continued 
access of farmers to crop insurance and stability of the delivery 
system for the federal crop insurance program. Not publishing a rule is 
not an option because section 508(e)(3) of the Act states that FCIC 
shall consider all applications of the approved insurance providers to 
participate in the premium reduction plan. To allow such application 
without ensuring that premium reduction plans are fair and equitable 
and do not endanger the delivery system would jeopardize the program 
far more than implementing a rule intended to protect these principles.
    However, to allow itself the maximum flexibility in quickly making 
changes to the rule, should they become necessary, FCIC has elected to 
publish this rule as an interim rule. All the comments provided in 
response to the proposed rule were considered when developing

[[Page 41823]]

the interim rule. The Risk Management Agency (RMA), on behalf of FCIC, 
intends to operate the premium reduction plan program for the 2006 
reinsurance year under the interim rule. This will allow time to 
determine how effectively the premium reduction plan program is 
operating. After sufficient time to experience the operation of the 
program, RMA will publish a separate notice soliciting comments. Such 
comments will then be considered when making the rule final.
    When FCIC published the proposed rule, it specifically sought 
comments on certain provisions and proposals and sought comments on the 
proposed rule in general. The comments and responses have been 
categorized in accordance with the specific and general requests for 
comment. Further, RMA has used the term ``few'' to mean two commenters, 
``several'' to mean three to nineteen commenters, and ``many'' to mean 
20 or more commenters. These terms do not reflect the number of 
commenters in each category listed but the total for all categories.

A. Preamble

1. Alternative Proposal
    In the preamble to the proposed rule, RMA suggested an alternative 
proposal that would require the approved insurance providers to base 
any premium discount on actual cost savings for the reinsurance year 
instead of projected savings. The proposal would operate similar to a 
dividend program with premium discounts provided after the costs 
savings were determined, which would be after the end of the crop year. 
This meant farmers would be required to pay the full premium when due 
and receive the premium discount at a later time. RMA was particularly 
interested in comments that addressed the benefits of using actual 
versus projected costs, impacts on the workload of the approved 
insurance providers and RMA, market conduct oversight requirements that 
may be required, impacts on competition, the delay in the 
reimbursements to farmers, whether such reimbursements create any 
income tax issues, or any other substantial adverse or positive effect 
of this approach in contrast to the approach included in the proposed 
rule. The comments received and FCIC's responses are as follows:
    Comment: An agent commented that in a state that has a significant 
number of rebate laws, the alternate approach offered by RMA may raise 
issues about rebating. The commenter asks how this would affect 
implementation and assume RMA would resolve any rebate issue before 
implementation.
    Response: Whether the premium reduction plan may be a form of 
rebating that is prohibited under most state laws is not material. 
Under section 506(l) of the Act, any state law that is in conflict with 
the Act or any regulation promulgated by FCIC is preempted. Section 
508(e)(3) of the Act expressly authorizes approved insurance providers 
to pay premium discounts to farmers without reference to state law. 
This is in contrast to section 508(b)(5)(B) of the Act that authorizes 
cooperative and trade associations to pay all or a portion of the 
administrative fee on behalf of the farmer or provide a rebate as long 
as such rebate is permitted by the laws of the state. Since section 
508(e)(3) of the Act does not waive federal preemption, the fact that 
such discounts may be considered a prohibited rebate under state law or 
provided to farmers in a manner similar to dividends that are regulated 
by the state does not override the express authority in section 
508(e)(3) of the Act. The application of Federal preemption is 
consistent with section II.A.4. of the 2005 SRA and the approved 
procedures, which make it clear that state law only applies to rebating 
issues involving section 508(b)(5)(B) of the Act and that Federal 
preemption applies to all other aspects of rebating, including section 
508(e)(3) of the Act.
    Comment: Several agents, farmers, approved insurance providers and 
interested parties commented that any discount should be guaranteed up 
front and should be available to farmers whether or not the crop year 
is a good one or a bad one. Commenters state that if the discount is 
not guaranteed, farmers will not enter the program and farmers will not 
take the opportunity to increase coverage.
    Response: RMA understands the position of the commenters and took 
that position in the proposed rule. However, as expressed more fully 
below, it has considered the other comments and its own concerns 
regarding the complexity and burdens on approved insurance providers 
and RMA of having to establish and evaluate projected savings, and the 
impact on the program if such savings are not realized and determined 
that the difficulties in administering the program outweigh the effect 
on farmers of not having the premium discount guaranteed up front and, 
therefore, has elected to adopt the alternative proposal in the interim 
rule. In adopting the alternative proposal, RMA understands that the 
premium reduction plan will likely lose some of its attraction to 
farmers if it is not guaranteed up front. However, at least farmers 
will be guaranteed a stable delivery system with the possibility of a 
premium discount, which if not available to purchase additional 
coverage for the current year, could be used to increase coverage in 
subsequent crop years. Under the proposed system, if the commenters are 
correct, there could be instability introduced into the delivery 
system. RMA does agree that the premium discount should be available 
regardless of whether the farmer suffers a loss and this is included in 
the interim rule.
    Comment: Several agents, farmers, approved insurance providers and 
interested parties commented that farmers take enough risk with 
planting crops and hoping for a good crop year, so why should approved 
insurance providers who are experts at risk management, not be able to 
offer savings to farmers guaranteed upfront if they have the ability 
and option to do so. A commenter also stated that providing only the 
chance for discounts based on profitability will only confuse the 
farmers and open approved insurance providers to potential accounting 
irregularities to limit profits in order to avoid paying dividends.
    Response: RMA disagrees with the commenter that approved insurance 
providers are more likely to engage in accounting irregularities under 
the alternative. First, the payment of a premium discount is not 
conditioned upon profitability of the approved insurance provider. It 
is conditioned upon the approved insurance provider reducing its cost 
to deliver the program to an amount below the amount of administrative 
and operating (A&O) subsidy paid by RMA. Second, the requirement that 
the approved insurance provider must have an independent professional 
audit and certify actual cost efficiencies provides less opportunity 
for accounting irregularities than the use of projected cost 
efficiencies, as established under the proposed rule. RMA also 
understands there may be concerns that the alternative may lead to 
confusion for some farmers regarding whether they will receive a 
premium discount. To prevent such confusion, the interim rule places 
specific restrictions on the advertising or promotion of the premium 
reduction plan to prevent approved insurance providers or agents from 
making promises regarding the payment of premium discounts that the 
approved insurance provider may not be able to keep. While recognizing 
that the alternative approach does not have the guaranteed benefits 
that the proposed

[[Page 41824]]

approach had, RMA had to weigh the potential problems with basing 
premium discounts on projected costs instead of actual costs.
    Comment: An approved insurance provider commented that using 
appropriate business tools, approved insurance providers can accurately 
forecast (and demonstrate to the RMA) the amount of savings necessary 
to offer a premium reduction plan, and should be required to pass those 
savings--up-front--on to farmers. A commenter states that under the 
current structure, another core benefit to farmers is that competing 
approved insurance providers will market their various programs with 
specific discount information, thereby permitting farmers to make 
informed insurance purchasing decisions. The commenter states that the 
alternative approach eliminates this benefit.
    Response: RMA agrees that the alternative approach does not have 
the full benefit of allowing farmers know what their premium discount 
will be up front. However, RMA is not as confident as the commenter 
that approved insurance providers can accurately forecast their savings 
each year. Certain costs are fixed but other costs, such as loss 
adjustment expense, are not. In order to qualify to pay a premium 
discount, the approved insurance provider has to be operating below A&O 
subsidy. In unusually bad loss years, it is possible that some or all 
projected savings could be spent on additional loss adjustment 
expenses. To require approved insurance providers to pay premium 
discounts in such years could financially weaken the crop insurance 
delivery system.
    Comment: An interested party commented that there are problems with 
the alternative approach. The commenter states that farmers face too 
many other uncertainties and not knowing the savings until after the 
end of the end of the crop year just poses another one. The commenter 
also suggests that approved insurance providers would be reluctant to 
participate in the premium reduction plan because it could not use a 
specific discount when competing in the marketplace. The commenter 
suggested that RMA not publish the rule rather than risk the premium 
reduction plan undermining the delivery of the crop insurance program 
and fundamental principle of universal access.
    Response: RMA shares the concerns of these commenters with respect 
to the alternative proposal--that farmers will face yet another 
uncertainty and that an uncertain discount will reduce marketing 
opportunities. However, the premium discount program is totally 
voluntary based on whether the approved insurance provider determines 
it makes sound business sense. RMA cannot structure the program to 
provide an incentive for approved insurance providers to participate if 
there is a possibility that such incentive would prove detrimental in 
the long run. Further, as stated above, farmers will still be receiving 
a benefit if the approved insurance provider attains the necessary 
savings, which can still provide an inducement to purchase insurance 
with a specific approved insurance provider so approved insurance 
providers still have an incentive to participate in the premium 
reduction plan. In addition, approved insurance providers will be able 
to advertise premium discounts paid in the previous reinsurance year to 
give farmers an indication of what premium discount they may be able to 
expect, although such advertising will be accompanied by appropriate 
disclaimers. RMA believes that the advantages of the alternative 
proposal outweigh the disadvantages.
    With respect to not publishing the interim rule, section 508(e)(3) 
of the Act requires RMA to accept any request by an approved insurance 
provider to participate in the premium reduction plan. Not publishing 
the interim rule would mean that the premium reduction plan would 
continue under the existing RMA procedures--procedures that the FCIC 
Board of Directors (Board) has determined to be unsatisfactory--or 
revised procedures. RMA disagrees with the commenter that the interim 
rule would undermine the delivery of crop insurance and universal 
access. As outlined in RMA's responses to the other comments, the 
interim rule includes provisions that ensure universal access and 
protect the delivery of crop insurance.
    Comment: An approved insurance provider commented that a core 
benefit to the current structure is that it requires participating 
approved insurance providers to focus on administrative costs up front, 
to demonstrate savings that can be achieved, and to impose the 
necessary mechanisms to achieve them. The commenter states that the 
alternative structure eliminates this incentive and discourages 
providers from identifying, designing and implementing necessary cost-
saving mechanisms and practices before the savings can be realized.
    Response: While it may have been beneficial for RMA to know how 
approved insurance providers were cutting their costs when the premium 
discounts were based on projected costs, the same need does not exist 
under the alternative proposal. RMA will be looking at the cost savings 
after they have been realized. Further, it is up to the approved 
insurance provider with respect to whether its operation will support 
cost cutting measures sufficient to allow the payment of a premium 
discount. However, approved insurance providers that offer a premium 
discount plan but fail to deliver any premium discounts would likely 
find themselves losing business to approved insurance providers who do 
pay premium discounts. Therefore, there is still an incentive to 
implement the cost-saving measures.
    Comment: An agent commented that agents and approved insurance 
providers should not be given discretion over discounts. The commenter 
stated that other lines of insurance allow agents and approved 
insurance providers to price business based on the ``merits'' of the 
business. The commenter stated that pricing flexibility is not based on 
the merit of an account but used as a marketing tool. Once consumers 
make this discovery, then agents are pitted against each other from 
year to year when delivering proposals. The commenter stated this is 
not something likely to happen as it does not provide a documentable 
reason for the discount.
    Response: RMA agrees that the ability of an agent to use a 
projected premium discount, rather than a premium discount based on 
actual cost savings, raises a cause for concern with respect to the 
marketing of the agent's services. Under the alternative proposal 
adopted in the interim rule, agents would not be able to promise a 
premium discount. The agent could provide policyholders with a history 
of actual premium discount payments that have been documented by the 
approved insurance provider, but would be strictly prohibited from 
inferring that policyholders would, in fact, receive a premium discount 
in the future.
    Comment: An approved insurance provider commented that the 
alternative proposal was conceptually interesting, but inconsistent 
with prospective rating methods used for virtually all other insurance 
products. It would only be modestly easier to validate and assign a 
dollar value to efficiencies post-policy period as opposed to prior to 
it. The commenter stated that the plan would probably invite 
intimations during sales process of anticipated efficiencies at least 
as great as any other approved insurance provider--and if so would 
cause confusion to the farmer.
    Response: As an initial matter, the premium reduction plan has 
nothing to

[[Page 41825]]

do with the rating methodology. The dollar amount of premium to cover 
the risk of loss and a reasonable reserve remains unchanged. The only 
thing that may change is that portion of the premium paid by the 
farmer. Under the alternative adopted in the interim rule, the farmer 
would pay the entire amount of the farmer paid portion and later 
receive a discount from the approved insurance provider. Further, it 
would be much simpler to validate the savings after they have been 
achieved. First, the total A&O costs reported on the Expense Exhibits 
to the SRA is compared with the amount of A&O subsidy received to 
determine whether the approved insurance provider is eligible to pay a 
premium discount. This would permit approved insurance providers whose 
current A&O costs exceed the A&O subsidy to still request to 
participate in the premium reduction plan because the payment of a 
premium discount is contingent upon the approved insurance provider 
sufficiently reducing its costs. This cost accounting is simple and 
avoids the need to demonstrate up front that the approved insurance 
provider will reduce costs sufficiently to be able to pay a premium 
discount.
    Second, the interim rule contains mechanisms to place all costs 
into one of three categories. Based on the category, the costs are 
allocated proportionally to the net book premium in the state or are 
reported in the Expense Exhibits by state. This process provides a 
simple transparent means to allocate costs and determine the amount of 
premium discount that can be paid in each state.
    Third, as stated above, the interim rule contains restrictions on 
the manner in which the premium reduction plan can be promoted or 
advertised. Approved insurance providers will only be able to advertise 
actual premium discounts paid in the past reinsurance year and even 
those must be accompanied by a disclaimer that there is no guarantee 
such premium discount will be paid in the future.
    Comment: Several interested parties commented that the alternative 
had too many loopholes, there were no controls over false promises or 
deceptive marketing practices, and there were no penalties for such 
conduct.
    Response: RMA disagrees with the comment that the alternative has 
too many loopholes. By requiring that premium discounts come from 
realized and certified cost efficiencies, the alternative in the 
interim rule is less subject to loopholes that the program outlined in 
the proposed rule, which permits premium discounts based on forecasts 
that might not be realized.
    RMA agrees with the comments that false promises and potentially 
deceptive marketing practices are more likely to emerge from the 
alternative structure outlined in the interim rule than from the 
structure outlined in the proposed rule. As stated above, to address 
this, the interim rule incorporates specific marketing prohibitions. 
The interim rule also indicates that state insurance departments will 
be enlisted to play a role in the enforcement of market conduct. These 
departments currently have structured market conduct standards and 
enforcement arms, and can ensure that deceptive practices are 
identified, investigated, and penalties assessed to those who engage in 
them.
    Comment: An agent asked if RMA is going to require all approved 
insurance providers to form into a mutual approved insurance provider 
so the insureds can receive the dividend. Minnesota has this 
requirement that for an insurance customer to qualify for a dividend 
they must be part of a mutual approved insurance provider. The 
commenter stated that most approved insurance providers in the MPCI 
market place now are private approved insurance providers and it is 
unlikely they would want to change to a mutual approved insurance 
provider.
    Response: Neither the interim rule nor any other provision in 
section 508(e)(3) of the Act requires that approved insurance providers 
become mutual insurance companies to qualify for the premium reduction 
plan. Although state law may require insurance companies to be mutual 
insurance companies to be able to distribute dividends, the premium 
discount plan authorizes the payment of premium discounts, not 
dividends, even though they may be paid at a similar time as a 
dividend. Further, section 508(e)(3) of the Act provides RMA with the 
authority to allow approved insurance providers to offer premium 
discounts without being a mutual insurance company and such authority 
will preempt state law in accordance with section 506(l) of the Act.
    Comment: An interested party commented that dividend plans may have 
an adverse impact on approved insurance provider participation if the 
procedures established by RMA enable one or more approved insurance 
providers to obtain a competitive advantage over the other approved 
insurance providers. Dividend plans may also adversely affect customer 
service if the efficiencies are achieved through reductions in training 
or other service related functions.
    Response: Although similar to a dividend plan in other lines of 
insurance, the premium reduction plan is not a dividend plan. The 
premium reduction plan is a plan that offers a premium discount to 
farmers based on the efficiencies attained by the approved insurance 
provider. Further, under the alternative approach, approved insurance 
providers are placed in a more equal position because they will not 
have to prove up front that they can deliver the program for less than 
their A&O subsidy. This means that all approved insurance providers can 
request to participate in the premium reduction plan although only 
those approved insurance providers that attain sufficient savings can 
provide a premium discount under such a plan. In addition, under either 
approach, service and training cannot be reduced below what is 
necessary to meet the requirements in the SRA regarding service, which 
are generally contained in procedures such as the Crop Insurance 
Handbook and the Loss Adjustment Manual, and training requirements that 
are generally contained in Appendix IV to the SRA. This is the minimum 
level of service that RMA determines is necessary to properly deliver 
the crop insurance program. To the extent that service currently 
exceeds these standards, RMA cannot take any action against any 
approved insurance providers who do not participate in the premium 
reduction plan and who reduce such service to the level required to 
comply with the SRA and approved procedures. There is no difference 
under the premium reduction plan. RMA will be looking at whether 
approved insurance providers are violating the standards of service 
required by the SRA. If such a violation occurs, RMA can withdraw its 
determination that an approved insurance provider is eligible to 
participate in the premium reduction plan or approval of a premium 
discount, or take such other action as authorized under the SRA.
    Comment: Several interested parties commented that while the 
dividend plan approach is more workable than the up-front premium 
discount approach, both approaches suffer from some of the same 
difficulties. A commenter states that the same issues with 
recordkeeping, accounting practices, and monitoring issues still exist 
with the alternative. A commenter stated that after further review, the 
dividend plan approach should not be pursued at this time, and that RMA 
should conduct additional study to more carefully evaluate whether 
these difficulties can be resolved through careful design of any 
procedures used to

[[Page 41826]]

implement the premium reduction language in the Act.
    Response: As stated above, while similar to a dividend plan, the 
premium reduction plan is not a dividend plan. Approved insurance 
providers will be offering premium discounts. Further, the interim rule 
simplifies many of the recordkeeping and accounting practices that 
would have been required under the approach included in the proposed 
rule. Savings and the amount of any premium discount will be determined 
using the Expense Exhibits provided with the SRA each reinsurance year. 
Further, the procedures accompanying the interim rule contains specific 
allocation requirements for certain costs that will simplify the 
determination of whether a premium discount can be paid. There still 
will be monitoring requirements but the accounting and recordkeeping 
burdens are greatly reduced. RMA intends to test this concept out 
through the interim rule and then seek additional comments to determine 
if further refinement is required.
    Comment: Several agents, approved insurance providers and 
interested parties commented that an approach using ``projected 
savings'' should not be implemented. Approved insurance providers that 
want to participate in a premium reduction plan should be required to 
``show'' rather than ``project'' they can achieve cost savings while 
maintaining necessary service levels. A commenter stated that a 
dividend plan approach would have no effect on data collection, 
reporting, or reinsurance payments. Commenters stated that using actual 
costs evens the playing field, simplifies the program, eliminates 
unfair discrimination and stabilizes the program. A commenter stated 
that it is unlikely any approved insurance provider can accurately 
project costs. A commenter stated the alternative proposal will reduce 
the chance that approved insurance providers will not meet their 
projections and cause market disruption. A commenter stated that by 
delaying the payment until the full year results for the approved 
insurance provider were known, RMA could evaluate a proposal to pay 
dividends based on the financial condition of the approved insurance 
provider. For instance, RMA could elect to deny all dividend payments 
unless the approved insurance provider was profitable on an aggregate 
basis. A commenter stated that use of projected costs will open RMA up 
to the overestimation of savings that can be used to cherry pick 
farmers.
    Response: As stated above, while similar to a dividend plan, the 
premium reduction plan is not a dividend plan. Approved insurance 
providers will be offering premium discounts. RMA believes that a rule 
based on actual cost efficiencies has both advantages and disadvantages 
over the current premium reduction plan based on projected savings that 
must be later confirmed with actual costs. As stated more fully above, 
RMA agrees with the commenters that the interim rule should be based on 
actual rather than, as it is currently operating, projected savings. 
RMA also agrees that the alternative will reduce the chance that 
approved insurance providers will not meet their projections and cause 
market disruption and that the delay in approving the premium discount 
would give RMA time to determine that all requirements in the rule were 
satisfied and to evaluate the financial condition of the approved 
insurance provider. RMA agrees that by using actual rather the 
projected costs, the verification burden placed on RMA would be 
reduced; that the potential for accounting manipulations would be 
reduced; and that the program would be simplified and more stable. 
However, RMA is uncertain whether using actual rather than projected 
costs would necessarily even the playing field or eliminate unfair 
discrimination. Under either approach RMA would have to monitor the 
performance of approved insurance providers to ensure that all farmers 
in the states in which the premium reduction plan will be made 
available have access to the plan.
    Comment: Several interested parties and approved insurance 
providers suggested that the alternative approach is similar to a 
dividend plan, which is common in the insurance industry. A commenter 
stated that distributing costs savings at the beginning of the policy 
year adds elements of uncertainty into the rate setting process because 
it is impossible for an approved insurance provider to know in advance 
what its actual costs savings will be and the alternative eliminates 
the uncertainty. A commenter stated this should not be allowed because 
farmers could not plan or budget for the discount. A commenter stated 
that any pre-advertised premium reduction plan which is based upon 
projected cost savings will lead to unfair discrimination by approved 
insurance providers, agencies, and agents.
    Response: As stated above, while similar to a dividend plan, the 
premium reduction plan is not a dividend plan. Approved insurance 
providers will be offering premium discounts. Further, RMA does not 
agree that basing the premium reduction plan on projected costs would 
unsettle rate setting because rates are based on expected losses and a 
reasonable reserve and premium discounts allowed under the Act are 
based on the reduction in costs below the amount of A&O subsidy paid by 
RMA. RMA understands the concerns of the commenter that the alternative 
proposal would not allow the farmer to plan or budget for the premium 
discount. However, as stated above, RMA believes that the advantages of 
using the projected cost approach are more than offset by the 
disadvantages. RMA also agrees that the alternative proposal will 
reduce the ability of approved insurance providers and agents to 
discriminate against small, limited resource, women or minority farmers 
because they cannot offer a guaranteed premium discount as an 
inducement to large farmers to purchase insurance. Further, the interim 
rule specifically requires that the approved insurance provider develop 
a separate marketing plan demonstrating how it will reach such farmers 
in addition to the efforts of its agents.
    Comment: Several interested parties and approved insurance 
providers commented that dividends would not need changes to accounting 
rules. A commenter stated that marketing of historical performance of 
efficiency efforts would also be more straightforward and provide an 
incentive for approved insurance providers to maintain the efficiencies 
over time, instead of focusing on marketing efficiencies it may expect 
to achieve in the future. A commenter stated this also encourages 
farmer interest in using and supporting the automation approved 
insurance providers will need to implement for further savings in the 
costs of signup and claim settlement processes. A commenter asks if 
purchasing a policy under such a plan gives part ownership.
    Response: As stated above, while similar to a dividend plan, the 
premium reduction plan is not a dividend plan. Approved insurance 
providers will be offering premium discounts. While the alternative 
proposal would not require complex accounting rules, some rules will 
still need to be developed in order to allocate actual costs reported 
on a national basis to a state basis. RMA has elected to base such 
allocation on the percentage of net book premium for the state. For 
example, if the total net book premium for the approved insurance 
provider is $100 million and the net book premium in state A is $15 
million, 15 percent of the total costs reported on a national basis 
would be allocated to State A. The same allocation will be used to 
determine the amount of premium discounts allowed in the state in order 
to ensure compliance with the

[[Page 41827]]

corresponding requirement in section 508(e)(3) of the Act. RMA agrees 
that marketing should be limited to the historical premium discount 
payments made, with appropriate disclaimers, to ensure that there is no 
impression provided that premium discounts are guaranteed. RMA agrees 
that the alternative proposal may provide a greater incentive for 
approved insurance providers to institutionalize the cost saving 
measures to achieve the cost savings each year instead of projecting 
costs up front and then trying to implement cost saving measures to 
meet the projections each year. Although it is unclear how the 
alternative proposal might encourage farmer interest in supporting 
information technology, RMA would agree that such a result would be 
desirable.
    In response to the question on part ownership, the alternative 
proposal provided for in the interim rule would not include legal 
ownership rights in the approved insurance provider. The premium 
reduction plan is not creating mutual insurance companies and the 
approved insurance providers are paying premium discounts, not 
dividends. The premium discount is simply a benefit provided by the 
approved insurance provider in the event it can deliver the crop 
insurance program for less than the A&O subsidy.
    Comment: Several approved insurance providers, interested parties 
and agents commented that to allow approved insurance providers under 
the alternative proposal to refer to historical reimbursements in their 
marketing is also problematic. Commenters asked how RMA and approved 
insurance providers could be assured that farmers would not be misled 
into the perception that a dividend or a return in premium was likely 
to occur if they transferred their coverage to approved insurance 
provider X, when in fact, it was very unlikely. Commenters stated that 
if an approved insurance provider has historically been unable to 
operate within the expense reimbursement, there should be no rational 
expectation the approved insurance provider will be able to operate 
below the expense reimbursement level into the future. A commenter 
states that historical reimbursement levels are not necessarily a 
strong indication of what a farmer will receive in the form of a 
discount in the upcoming year. Market conditions change from year to 
year, and an approved insurance provider that achieves savings in one 
year might not achieve them in the next year. It would also allow an 
approved insurance provider who achieves savings one year to market 
based on those savings the following year, even though it has no 
intention of implementing the necessary measures to achieve them in 
that year.
    Response: As stated above, while similar to a dividend plan, the 
premium reduction plan is not a dividend plan. Approved insurance 
providers will be offering premium discounts. RMA shares the concerns 
of the commenters that under the interim rule, farmers might be mislead 
by the promise of a premium discount that might not be realized and 
that complaints of misconduct might increase. To address these 
concerns, the interim rule incorporates specific marketing prohibitions 
that limit advertising or promotions to actual premium discounts paid 
in the past reinsurance year, and requires a clear disclaimer, the 
wording of which contained in the interim rule or must be approved by 
RMA in advance, that past results do not guarantee a future payment. As 
stated above, states will also be involved in the enforcement of market 
conduct.
    The commenter is correct that some approved insurance providers may 
elect to eligible to participate in the premium reduction plan even 
though it is unlikely that they will achieve the necessary savings to 
provide a premium discount or they do not intend to take any costs 
saving measures. RMA cannot prevent such conduct. However, the market 
itself should eliminate such behavior because farmers are not likely to 
remain with an approved insurance provider that claims it is eligible 
to offer a premium discount plan but never pays a premium discount.
    Comment: Several approved insurance providers, interested parties 
and agents commented that the subsequent failure of the approved 
insurance provider to deliver upon promises made will bring about 
financial hardship for the approved insurance provider itself, a market 
disruption due to an unfair trade practice, and a black-eye for the 
entire crop insurance delivery system including RMA. A commenter stated 
that this approach reduces the likelihood of reduced services to the 
farmer because if that is the approach used to secure the premium 
reimbursement then the farmer will not select that insurer in the 
future. A commenter stated that capping the approved insurance provider 
for the following year or perhaps even the next three years as a 
penalty would help to discourage this practice, but it would not 
necessarily remedy in the meantime the harm caused to reputable 
competitors. A commenter also expressed concerns about whether the 
audits by RMA would be performed a long time after the fact.
    Response: RMA agrees that making false promises of a premium 
discount would be detrimental to the crop insurance program so, as 
stated above, it has placed limitations on any advertising or promotion 
of the premium reduction plan. RMA also agrees that there is unlikely 
to be a reduction in service because RMA would be in a position to 
discover an infraction of FCIC service requirements before approving 
any premium discount and it is unlikely that approved insurance 
providers would jeopardize their SRAs by failing to comply with the 
service requirements contained in the SRA and approved procedures.
    With respect to RMA audits, RMA does not anticipate conducting 
audits under the alternative proposal. Audits of the approved insurance 
providers and their cost efficiencies would be conducted and certified 
by independent certified public accountants with experience in the 
insurance accounting at the expense of the approved insurance provider. 
RMA would verify that these audits met the standards established under 
the interim rule. Clearly RMA could not evaluate the Expense Exhibits, 
audit and proposed premium discount until such information is provided 
after the annual settlement, as required in the interim rule. RMA will 
review the documents and approve or disapprove any premium discount as 
expeditiously as possible after receiving these documents.
    Comment: A few agents and interested parties commented that RMA 
should adopt a dividend program because: farmers will benefit by 
increased competition because approved insurance providers and the 
agent force will seek out cost savings on their own in order to stay 
profitable and also seek to provide the best dividend track record to 
farmers. A commenter also stated that: (1) Farmers will benefit by 
added value because farmers will benefit directly by dividends 
proportionate to their size and also from their ability to select from 
a variety of benefits; (2) there will emerge a broad range of approved 
insurance provider-agent combinations offering various mixes of service 
and dividends to farmers; (3) the crop insurance delivery system will 
not be damaged because approved insurance providers and the agent force 
will not be directly penalized for providing highly skilled and 
personal service to the insured farmer; (4) benefits that are of no 
value to the insured farmers will be purged in order to maintain 
profitability and also

[[Page 41828]]

maximize potential dividends (The most capable of attaining the proper 
benefits mix to insured farmers will benefit from added business); and 
(5) competition could be further fostered because by moderately 
increasing the A&O levels to approximately 23-24%, new entrants into 
the shrinking list of approved insurance providers would be promoted 
(If approved insurance provider innovators are allowed into the crop 
insurance delivery system, eventual cost cutting spurred by dividend 
competition will again benefit farmers with added dividends).
    Response: As stated above, while similar to a dividend plan, the 
premium reduction plan is not a dividend plan. Approved insurance 
providers will be offering premium discounts. RMA agrees with the 
commenter that the alternative proposal has significant potential 
advantages. The potential advantages listed by this commenter, as well 
as other advantages identified by other commenters, have prompted RMA 
to incorporate that alternative proposal into the interim rule.
    Comment: Several approved insurance providers, agents and 
interested parties commented that the burdens placed on RMA would be 
reduced by a system that is based on actual cost savings because RMA 
would not be compelled to evaluate the credibility of projections and 
predictions which, as the proposed rule acknowledges, ``may not be 
realized.'' Commenters stated that a mechanism that is predicated on 
the existence of actual cost savings enables RMA to analyze concrete 
and ``easily verifiable'' figures to determine whether an approved 
insurance provider realized an expected efficiency and diminishes the 
likelihood of creative accounting and similar chicanery. A commenter 
stated that the alternative proposal is easier to administer, monitor 
and regulate. A commenter stated that evaluation of the efficiencies at 
a more detailed level such as by state, crop, plan, and coverage level 
would be possible, but not with the same degree of reliability.
    Response: RMA agrees that the burdens placed on it to determine an 
approved insurance provider eligible to participate in the premium 
reduction plan are greatly reduced from the burdens under the proposed 
rule. RMA also agrees that it will be easier to analyze the actual 
costs and that it reduces the possibility of creative accounting, 
especially since RMA will be using the actual Expense Exhibits provided 
with the SRA to approve or disapprove any premium discount. Having such 
Expense Exhibits audited and certified by an independent certified 
accountant will also reduce the burden on RMA. RMA has determined that 
it is possible to evaluate such costs on a state basis and will provide 
simple allocation procedures to accompany the interim rule. Evaluation 
of the efficiencies at a crop, plan, and coverage level would require 
relatively more complex accounting and cost allocation rules.
    Comment: Several approved insurance providers, agents and 
interested parties commented that a dividend plan approach would also 
have the advantage of eliminating the need for the financial reserve 
plan as described in the proposed rule.
    Response: As stated above, while similar to a dividend plan, the 
premium reduction plan is not a dividend plan. Approved insurance 
providers will be offering premium discounts. RMA agrees that basing a 
premium discount on the actual cost savings achieved by the approved 
insurance provider eliminates the need for a financial reserve plan and 
this requirement has been removed from the rule.
    Comment: An approved insurance provider commented that RMA has also 
stated that the approved insurance providers would not be able to 
market the premium reduction plan ``based on a guaranteed amount of 
premium reimbursement.'' It is unclear whether the RMA is contemplating 
a prohibition against any marketing, even of potential savings, or only 
guaranteed savings. The commenter stated that if approved insurance 
providers are allowed to market potential savings, it could allow or 
even encourage such providers to make unrealistic or exaggerated 
projections about their anticipated savings in order to attract or keep 
their customers in a price competitive market. Not only will this cause 
competitive injury to providers attempting to compete fairly based on 
real cost savings and reasonable projections of such savings, but it 
will inevitably harm farmers who are lured by the potential of large 
cost savings that prove to be illusory in the end. The commenter stated 
that even if RMA's intent is to prohibit marketing of even potential 
savings, how could such a prohibition be enforced and whether the RMA 
has or is willing to commit the kind of resources necessary to enforce 
this market conduct requirement. In the absence of strict enforcement, 
unscrupulous approved insurance providers will inevitably boast 
exaggerated, illusory savings in order to attract market share.
    Response: RMA is not precluding any marketing of the premium 
reduction plan. Approved insurance providers will be able to advertise 
that they are participating in the premium reduction plan and the 
amount of any premium discount paid by the approved insurance provider 
in previous reinsurance years, accompanied by the appropriate 
disclaimers. However, approved insurance providers and agents will be 
prohibited from stating that any premium discount will be provided or 
promising any amount of premium discount. RMA agrees that enforcement 
is important and it will monitor the conduct of the approved insurance 
providers and agents and will collaborate with states that also 
regulate such market conduct issues.
    Comment: An approved insurance provider commented that, in response 
to the RMA's specific question as to provider workload, the workload to 
demonstrate savings up front is not materially greater than the 
workload to demonstrate savings after the fact. A commenter stated that 
dividend plans would still need to be reviewed for reasonableness, and 
approved insurance provider requests to make dividend payments would 
need to be carefully scrutinized prior to approval. RMA would also need 
to develop extensive procedures to evaluate the proposals and to 
establish standards for acceptability. Concerns regarding adverse 
market behavior would still exist under a dividend approach. A 
commenter stated that these should not be considered to be 
insignificant issues.
    Response: As stated above, while similar to a dividend plan, the 
premium reduction plan is not a dividend plan. Approved insurance 
providers will be offering premium discounts. RMA disagrees that the 
workload to demonstrate savings up front is not materially greater than 
the workload to demonstrate savings after the fact. RMA has revised the 
provisions to eliminate much of the up front reporting requirements. 
RMA's evaluation of the request to participate in the premium reduction 
plan will be based on the evaluation of the marketing plan to ensure 
that all farmers in the states in which the premium reduction plan will 
be offered have equal access to the plan. Since premium discounts are 
based on actual savings, RMA does need to know the specifics of how the 
approved insurance provider intends to achieve the savings. RMA agrees 
that there needs to be careful scrutiny of the cost accounting by the 
approved insurance providers on their Expense Exhibits. However, cost 
allocation procedures will be included in procedures to accompany the 
interim rule and are simple. Further, a certification by an independent 
certified public accountant

[[Page 41829]]

will add credibility to the amounts reported. As stated more fully 
above, RMA has added provisions regarding market conduct and will 
enlist the assistance of the states to ensure proper conduct by agents 
and approved insurance providers.
    Comment: An approved insurance provider commented that market 
conduct oversight may be required, especially with respect to 
monitoring competitor assertions of projected savings, impacts on 
competition, and income tax issues, which presumably would simply 
reduce ``insurance expense'' on farmer's income statement.
    Response: RMA agrees that market conduct oversight is required and 
will enlist the assistance of the states to ensure proper conduct by 
agents and approved insurance providers. Further, since premium 
discounts are now based on actual savings and the type of assertions 
that can be made are so limited, the burden on such monitoring should 
be reduced.
    Comment: A few interested parties and approved insurance providers 
recommend that if RMA chooses to implement the premium reduction plan 
using a dividend concept, it should prohibit insurers or insurance 
producers from marketing dividends by guaranteeing them in advance. RMA 
should also prohibit insurers from using policy renewal as a condition 
for receiving a dividend for a prior policy year. A commenter stated it 
does not object to an approved insurance provider notifying insureds 
(and potential insureds) that it has applied for a premium reduction 
plan. A commenter stated that any approved insurance provider that 
violates the restrictions on advertising should be barred from 
submitting a premium reduction plan for a period of two reinsurance 
years.
    Response: As stated above, while similar to a dividend plan, the 
premium reduction plan is not a dividend plan. Approved insurance 
providers will be offering premium discounts. RMA agrees that approved 
insurance providers and their agents should be prohibited from 
marketing practices such as guaranteeing or projecting an amount of the 
premium discount to farmers in advance of the determination of the 
actual premium discount. As stated above, provisions have been added 
that regulate such market conduct. RMA also agrees that premium 
discounts should not be tied to policy renewals because they are based 
on the cost savings attained for the current reinsurance year in which 
the farmer is a policyholder, not the subsequent reinsurance year when 
the farmer may not. RMA has added provisions to the interim rule to 
prevent such conduct. RMA agrees with, and the interim rule allows, an 
approved insurance provider to notify existing and prospective 
policyholders that it is participating in the premium reduction plan. 
RMA agrees that sanctions should accompany violations of advertising 
prohibitions. One potential sanction is to disqualify an approved 
insurance provider or agent from participating in the premium reduction 
plan for a duration commensurate with the offense.
    Comment: An agent suggests dividend restrictions include: (1) 
Requiring approved insurance providers to post March 15 business 
accounting and analysis for the prior crop year netting total actual 
A&O costs versus annual revenue, which would be approved annually by 
RMA for each approved insurance provider; (2) requiring each approved 
insurance provider to be responsible for their annual audit; (3) RMA 
setting an annual industry cap on percentage of dividends payable; and 
(4) not having the dividends contingent on a farmer continuing a policy 
into the next crop year (as in policy loss payments).
    Response: As stated above, while similar to a dividend plan, the 
premium reduction plan is not a dividend plan. Approved insurance 
providers will be offering premium discounts. RMA agrees that approved 
insurance providers should be responsible for the annual audit, there 
should be a cap on the percentage of premium discounts that can be paid 
by any approved insurance provider, and that premium discounts must not 
be contingent upon renewal of the policy and has revised the rule 
accordingly. However, with respect to the accounting used to determine 
a premium discount, RMA will be using the Expense Exhibits provided 
with the Plan of Operations, including an estimate of outstanding 
costs.
    Comment: A few approved insurance providers commented that although 
the determination of whether an approved insurance provider realized 
any cost savings will not occur until after the end of the reinsurance 
year and may take several months to occur, a deadline must be imposed 
on RMA for rendering such determination. Unlike the compliance process, 
the period afforded RMA to evaluate the premium reduction plan 
submissions cannot be limitless. A commenter stated that even if RMA 
was timely, it takes months and even years after the crop season to 
close controversial or disputed claims to determine year-end results. 
The commenter also stated that if the audit showed discrimination of 
some type, it seems likely that RMA would be very vulnerable to 
negative reactions.
    Response: RMA agrees that specific deadlines be imposed on RMA for 
determining whether an approved insurance provider is eligible to 
participate in the premium reduction plan. However, a deadline cannot 
be imposed on the evaluation of the Expense Exhibits to determine 
whether to approve a premium discount. RMA must have the time to 
properly evaluate such Exhibits and it is impossible at this time to 
determine the requisite amount of time. When finalizing the rule, RMA 
will determine whether such a deadline is appropriate. However, RMA 
will expedite its review of the Expense Exhibits. Disputed claims 
should not require adjusting the approval of a premium discount since 
they involve the cost of delivery not the amount of claims, unless the 
resolution of such claims will increase the cost of delivery. To avoid 
having to adjust a premium discount, approved insurance providers could 
hold back some savings achieved to cover such contingent costs.
    Assuming that the commenter is referring to the cost efficiency 
audit in the alternative proposal, it is unclear to RMA how such a 
purely financial audit would reveal discrimination. RMA agrees, 
however, that routine reviews or specific investigations of an approved 
insurance provider by RMA may reveal discrimination which would require 
action by RMA and may produce negative reactions from some quarters.
    Comment: An approved insurance provider commented that although an 
alternative delivery mechanism would be a departure from the proposed 
rule, FCIC does not have to publish a proposed rule describing this 
mechanism. In this regard, the proposed rule provides notice that a 
change is possible, and the public ``reasonably should have filed their 
comments on the subject during the notice-and-comment period.''
    Response: RMA agrees with the commenter.
    Comment: An approved insurance provider commented that the 
alternative proposal warrants further consideration but requires an 
indefinite extension of the comment period and rulemaking procedure 
since no rules have been proposed.
    Response: RMA disagrees that an indefinite extension of the comment 
period is warranted. RMA specifically sought comments on the 
alternative proposal and informed the public it was considering 
including the alternative in the final rule. Therefore, RMA has 
complied with the notice and comment

[[Page 41830]]

rulemaking requirements. However, RMA acknowledges that the alternative 
presents a significant change and it would like an opportunity to test 
this proposal and give the public another opportunity to comment before 
finalizing the rule. That is one reason RMA has elected to make this 
rule an interim rule.
2. State Variability
    In the preamble to the proposed rule, RMA stated that the majority 
of approved insurance providers that had submitted premium reduction 
plans for 2005 had planned to offer the premium reduction plan only in 
certain states and had included variability in the amount of premium 
discount between states as prominent features. RMA further indicated 
that it had several major concerns regarding these proposals. 
Specifically, RMA identified the potential for competitive harm; 
difficulty in administration; and the potential for variability in 
service and treatment of farmers as potential problems if approved 
insurance providers were permitted to select states in which to offer 
the premium reduction plan and to vary the amount of discounts by 
state.
    Consequently, the proposed rule required that the same premium 
discount be offered in all states in which the approved insurance 
provider did business. However, RMA also indicated that it was seeking 
comments on its analysis of the above stated potential problems and 
whether procedures could be developed that would be consistent with the 
principles that allowing approved insurance providers to select states 
and vary the premium discount between states, would not cause 
competitive harm, would be relatively simple to administer, and would 
ensure that service would not be reduced.
    RMA received comments that supported the proposed rule and its 
requirements to offer the same premium discount to all farmers and in 
all states in which the approved insurance provider does business. 
However, comments were also provided in favor of allowing the selection 
of states and variability of premium discounts between states. The key 
reason most often cited for allowing approved insurance providers to 
select states was that not allowing such selection could cause some 
approved insurance providers to leave certain high-risk or low volume 
states rather than being required to provide a premium discount in such 
states. The reason given was that it would no longer be economically 
feasible for the approved insurance provider to operate in such states.
    Another concern of these commenters was that there was significant 
variability in program delivery costs between states and that a one 
size premium discount would not fit all. Commenters were concerned that 
service in certain states could be jeopardized if the approved 
insurance provider was required to reduce costs in those states in 
order to qualify for offering a premium discount.
    RMA has carefully reviewed these comments, especially within the 
context of other changes made to the proposed rule as a result of 
comments being sought. From this review, RMA has determined that the 
concerns identified in its original analysis can be adequately 
addressed and that both the selection of and variability of premium 
discounts between states can be incorporated into the interim rule 
without jeopardizing the integrity of the crop insurance program.
    The most important factor contributing to this determination is, as 
explained more fully above, that RMA has elected to adopt the 
alternative proposal in the interim rule. Compared to the operation of 
the premium reduction plan described in the proposed rule, which 
required that specific premium discounts be guaranteed up front and 
approved insurance providers would make adjustments to their operation 
in an attempt to achieve the necessary cost savings, the alternative 
proposal requires that premium discounts be provided to farmers only 
after actual cost savings have been achieved and verified.
    This alternative method of operating the premium reduction plan 
significantly reduces the administrative requirements of both the 
approved insurance provider and RMA and the likely impact on service 
and business practices of approved insurance providers. These changes, 
in turn, significantly reduce the potential for problems that might 
arise from either state selection or variation of premium discounts, as 
outlined below:
    a. The concern that state variability might cause competitive harm 
in the marketplace. In the proposed rule, RMA was concerned that any 
procedure it devised to accommodate state selection or va