General Administrative Regulations, Submission of Policies, Provisions of Policies, Rates of Premium, and Premium Reduction Plans, 44222-44243 [05-15102]

Agencies

• DEPARTMENT OF AGRICULTURE
• Federal Crop Insurance Corporation

[Federal Register Volume 70, Number 147 (Tuesday, August 2, 2005)]
[Rules and Regulations]
[Pages 44222-44243]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-15102]


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DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 400

RIN 0563-AB84


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

AGENCY: Federal Crop Insurance Corporation, USDA.

ACTION: Final rule.

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SUMMARY: The Federal Crop Insurance Corporation (FCIC) amends the 
General Administrative Regulations, which implement the statutory 
mandates of the Agricultural Risk Protection Act of 2000 (ARPA) related 
to the submission of policies for approval for reinsurance and the 
reimbursement of research and development costs and maintenance costs.

DATES: Effective September 1, 2005.

FOR FURTHER INFORMATION CONTACT: For further information or a copy of 
the Cost-Benefit Analysis, contact Louise Narber, Risk Management 
Specialist, Research and Development, Product Development Division, 
Risk Management Agency, United States Department of Agriculture, 6501 
Beacon Drive, Stop 0812, Room 421, Kansas City, MO 64133-4676, 
telephone (816) 926-7730.

SUPPLEMENTARY INFORMATION:

Executive Order 12866

    This rule has been determined to be not significant for the 
purposes of Executive Order 12866 and, therefore, it

[[Page 44223]]

has not been reviewed by the Office of Management and Budget (OMB).

Cost-Benefit Analysis

    A Cost-Benefit Analysis has been completed and is available to 
interested persons at the Kansas City address listed above. In summary, 
the analysis finds that the guidelines contained in the regulation are 
administrative in nature and in most cases, dictated by statutory 
requirement. They are intended to facilitate the submission and review 
of policy terms and conditions, endorsements, actuarial documents, 
underwriting rules, administrative procedures, and rates of premium of 
new insurance products submitted to FCIC under section 508(h) of the 
Federal Crop Insurance Act (Act) for approval or disapproval by the 
FCIC Board of Directors (Board), as well as reimbursement of research 
and development costs, maintenance costs, and setting of user fees. 
This regulation also requires approved insurance providers, reinsured 
by FCIC, who develop and market non-reinsured supplemental (NRS) 
policies to submit them to FCIC for review to be in compliance with the 
Standard Reinsurance Agreement (SRA). These provisions provide uniform 
guidance for FCIC's review and approval of NRS policies to assure the 
orderly business transaction and vitality of the crop insurance market 
place.

Paperwork Reduction Act of 1995

    Pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. chapter 
35), the collections of information in this rule have been approved by 
the Office of Management and Budget (OMB) under control number 0563-
0064 through August 31, 2007.

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 policies, plans of insurance or rates of premium 
to the FCIC Board of Directors for approval for reinsurance and subsidy 
and the process to obtain reimbursement of research and development 
costs and maintenance costs. The effect on small and large entities 
would be the same because all entities must provide the same 
information. 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. With respect to any direct action taken by FCIC 
or to require the approved insurance provider to take specific action 
under the terms of the crop insurance policy, the administrative appeal 
provisions published at 7 CFR part 11 and 7 CFR part 400, subpart J for 
the informal administrative review process of good farming practices, 
as applicable, 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 Monday, July 16, 2001, FCIC published a proposed rule in the 
Federal Register at 66 FR 36951-36960 to revise 7 CFR part 400, subpart 
V, General Administrative Regulations; Submission of Policies, 
Provisions of Policies, and Rates of Premium. On July 24, 2001, 
Congress enacted section 2103 of the Supplemental Appropriations Act, 
2001, which exempted the implementation of section 522(b) of the Act, 
involving the reimbursement for products submitted under section 508(h) 
of the Act, from the rulemaking process. In response, on Monday, 
September 17, 2001, FCIC published an interim rule in the Federal 
Register at 66 FR 47949-47959 to revise 7 CFR part 400, subpart V, 
General Administrative Regulations; Submission of Policies, Provisions 
of Policies, and Rates of Premium. The interim rule was effective on 
September 17, 2001.
    Following publication of the proposed rule, the public was afforded 
30 days to submit written comments and opinions. Following publication 
of the interim rule, the public was afforded 60 days to submit written 
comments and opinions. A total of 79 comments were received from a 
university, legal counsels, insurance companies, an agricultural 
association, and an insurance service organization for both rules. The 
comments received and FCIC's responses are as follows:

Section 400.701

    Comment: A legal counsel stated the definition of ``actuarially 
appropriate'' should be amended to reflect the fact that 508(h) 
proposals often cover new and innovative concepts, or previously 
uncovered crops or risks for which underlying actuarial data might be 
scarce. The commenter stated Congress chose the lesser standard of 
``actuarially appropriate'' for submissions submitted

[[Page 44224]]

under section 508(h) of the Act as opposed to the requirement that 
rates for established crop insurance policies be ``actuarially sound.'' 
The commenter also stated the following clause should be added, 
``recognizing the potential relative scarcity of data for new or 
innovative coverages.''
    Response: While ``actuarially appropriate'' may not be as strict a 
requirement as ``actuarially sound,'' there must still be at least a 
reasonable certainty that the premiums charged will cover the 
anticipated losses. FCIC has clarified the definition of ``actuarially 
appropriate'' and added provisions regarding the possible scarcity of 
data for new products.
    Comment: An insurance service organization asked if there were any 
guidelines for determining a ``reasonable reserve'' in the definitions 
of ``actuarially appropriate'' and ``rate of premium'' such as from an 
actuarial society.
    Response: It would be impossible to list any specific amount for a 
``reasonable reserve'' for any submission submitted under this rule. 
The reasonable reserve is intended to cover unanticipated losses. The 
reliability of the data used to determine the expected losses is a 
factor that must be considered when setting the reserve. The less 
reliable the data, the higher the reasonable reserve must be. Since it 
is impossible to determine the type or reliability of data applicants 
will use, it is impossible to set one amount that would be appropriate 
to all submissions.
    Comment: An insurance service organization stated ``maintenance'' 
refers to the support and improvement of the policy or plan of 
insurance, including terms and conditions, rates, expansion, and other 
measures necessary to assure financial viability and actuarial 
soundness or to respond to statutory or regulatory changes. The 
commenter stated that by comparing other defined terms, this appears to 
include underwriting and loss adjustment procedures (the definition of 
``policy'' includes ``related materials,'' which in turn includes the 
actuarial documents, special provisions, and any underwriting or loss 
adjustment manuals, handbooks, forms or other materials), and this 
could be better clarified and the use of these terms be more 
consistent. The commenter stated the definitions for ``policy'' and 
``related materials'' include references to ``actuarial documents'' and 
as a result, the ``policy'' definition is redundant in referring to the 
actuarial documents for the insured commodity, and related materials. 
The inclusion of underwriting and loss adjustment materials is not 
clear or consistent in all of the references to the ``policy.''
    Response: FCIC agrees with the commenter and has revised the 
definitions of ``actuarial documents,'' ``policy,'' and ``related 
materials'' to ensure consistency among those provisions. FCIC has also 
revised the definitions of ``development,'' ``maintenance,'' 
``research,'' and ``research and development costs'' to eliminate the 
conflicts between those provisions and better reflect the activities 
associated with these processes.
    Comment: An insurance company stated the definition of 
``maintenance period'' states the period begins on the date the Board 
approves the submission and ends on the date that is not later than 
four reinsurance years after the date of Board approval. They suggested 
the regulation should address what will happen to the product and 
maintenance thereof if the submitting company that received approval of 
a product is no longer in business or is otherwise not able to fulfill 
the maintenance responsibilities before the expiration of the 
maintenance period.
    Response: The maintenance period begins the date the Board approves 
the submission for maintenance, not approval of the submission for 
reinsurance. Section 400.712(m) has been added to specify that once the 
applicant no longer performs the maintenance responsibilities as 
determined by FCIC, or gives FCIC notice they no longer wish to 
maintain the submission, maintenance of the approved submission may be 
assumed by FCIC or reinsurance by FCIC may be withdrawn.

Section 400.702

    Comment: An insurance company stated any reference to a 
competitor's product, including the Board meeting notices that announce 
the name of the submission, indicates key characteristics of the 
product and violates the principle of confidentiality and this 
regulation should prohibit the disclosure of such information.
    Response: FCIC agrees the name of a plan of insurance may indicate 
key characteristics of the product and may give competitors an idea of 
the product being considered by the Board. In the past, FCIC asked 
submitters if they wanted the name of their product used. A new 
paragraph (d) has been added to Sec.  400.702 to specify that the 
submission must state whether the name of the submission may be used. 
If the submission does not state the name may be used, it must remain 
confidential.

Section 400.703

    Comment: An insurance company stated the requirement for the 
submission to be received a minimum of 180 days prior to the earliest 
proposed sales closing date translates to a March 30 deadline for 
winter crops and a September 15 deadline for spring crops. The 
commenter stated that while this may appear reasonable for a new 
complex plan of insurance, it appears arbitrarily lengthy for 
submissions categorized as non-significant.
    Response: In accordance with section 508(h)(4)(D) of the Act, the 
Board has 90 days to determine whether it will approve or disapprove a 
submission from the time it is accepted by the Board as a complete 
submission, unless additional time is negotiated with the applicant. 
While a single submission may be simple in design, the Board and Risk 
Management Agency (RMA) are frequently reviewing several submissions 
simultaneously. Given the workload issues, the Board may require all 90 
days to make its decision. If intent to disapprove is provided, the 
applicant can submit modifications, which must be reviewed by the Board 
within 30 days. In addition, there must be time to make any revisions 
to the policy or plan of insurance after its approval and prior to its 
release, train agents, and offer the product for sale. Based on these 
timelines, FCIC has determined that even 180 days does not provide 
sufficient time to review, approve and sell the product. Section 
400.703(c) has been revised to specify that a submission must be 
received at least 240 days prior to the earliest proposed sales closing 
date to be considered for sale in the requested crop year to allow the 
outside reviewers and FCIC a reasonable time to review and implement 
the submission. A new section (d) has been added to specify the Board, 
or RMA if authorized by the Board will determine when sales can begin 
for a submission approved by the Board.

Section 400.705

    Comment: An insurance company stated the requirement to furnish 
FCIC with seven identical copies of a submission should be eliminated 
because submissions that are major new plans of insurance or 
significant changes to an existing program, require a large amount of 
documentation, not all of the internal RMA reviewers will have need for 
a complete version of the submission, and shipping costs dramatically 
outweigh the costs of RMA preparing its own working copies. The 
commenter also stated limiting the

[[Page 44225]]

number of copies required will reduce development costs for new 
submissions and will also reduce the reimbursement for research and 
development costs, therefore, a larger amount of money will remain in 
the fund to reimburse other submissions that are approved.
    Response: FCIC agrees there is a cost for persons to supply RMA 
with seven identical copies of a submission. However, the seven copies 
are necessary. Five of the copies go to the five external reviewers, 
one copy goes to the RMA Deputy Administrator, in Kansas City, 
Missouri, and one copy goes to the FCIC Administrator in Washington DC. 
All of these people must receive the full copy of the submission. RMA 
makes working copies for RMA internal reviewers, Board members, and 
legal counsel. Receiving seven copies expedites the review of 
submissions, assures necessary and appropriate personnel of RMA and the 
Board receive all of the applicable materials. However, Sec. Sec.  
400.703(a), 400.705, and 400.713 have been revised to allow submissions 
to be sent in an electronic format in accordance with the Freedom to E-
File Act (Pub. L. 106-222). They must contain all the information 
required of hard copy documents and be in the same order. However, this 
should substantially reduce the costs of transmitting such submissions.
    Comment: An insurance company stated the word ``or'' in Sec.  
400.705(a)(3)(iii), redesignated as Sec.  400.705(b)(3)(ii), of the 
proposed rule should be deleted because it indicates an applicant must 
select either reimbursement for research and development or 
reimbursement for maintenance, but not both, and this is inconsistent 
with the Act and other relevant sections of the proposed rule.
    Response: Since requests for reinsurance, reimbursement for 
research and development, and reimbursement for maintenance is at the 
discretion of the applicant, the use of the term ``and'' would not be 
appropriate. Therefore, the word ``or'' is correct. However, nothing 
precludes the applicant from requesting reimbursement for both research 
and development and maintenance in the first year, just as nothing 
precludes the applicant from requesting reinsurance and reimbursement 
for research and development. The term ``or'' implies the term ``and'' 
unless its usage indicates otherwise, which is not the case with these 
provisions.
    Comment: An insurance company stated Sec.  400.705(a)(8), 
redesignated as Sec.  400.705(b)(8), should be clarified to indicate 
any required marketing plan be limited solely to the intentions of the 
applicant, if the applicant is an approved insurance provider or an 
entity representing or affiliated with an approved insurance provider. 
The commenter also stated there does not appear to be a requirement in 
the Act for an applicant to demonstrate any capacity to market the new 
insurance product.
    Response: To be approved for reinsurance, there is no need for the 
applicant to demonstrate the policy or plan of insurance is marketable. 
However, in accordance with section 522(b)(3) of the Act, if the 
applicant wants to be reimbursed for research and development or 
maintenance costs, the applicant must demonstrate the policy or plan of 
insurance is marketable. The applicant is responsible for developing 
the marketing plan. If the applicant is not an approved insurance 
provider, the applicant must show that it has a commitment from an 
approved insurance provider to deliver the policy or plan of insurance. 
The definitions of ``marketable'' and ``marketing plan'' and 
redesignated Sec.  400.705(e) have been revised to add to and clarify 
the information to be included in the marketing plan and the standards 
used in evaluating whether a product or plan of insurance is 
marketable.
    Comment: An insurance service organization stated Sec.  
400.705(a)(10)(i), redesignated as Sec.  400.705(b)(10)(i), requires 
contact information for those who can answer questions regarding the 
policy, underwriting rules and procedures, rate and price 
methodologies, data processing and record keeping requirements, and any 
other questions. The commenter states that if the underwriting rules 
and procedures are listed separately from the policy, it seems loss 
adjustment procedures should be listed as well.
    Response: FCIC agrees and has added the phrase ``loss adjustment'' 
before the word ``procedures'' in redesignated Sec.  400.705(b)(10)(i).
    Comment: An insurance company stated language in Sec.  
400.705(b)(2), redesignated as Sec.  400.705(c)(2) should specify in 
detail what constitutes ``verifiable evidence of demand'' because costs 
for market research will increase submission costs considerably if more 
than simple requests from producers, producer groups, or agents are 
mandated. The commenter also stated credentialed marketing studies 
should be discouraged, as their increased costs will inevitably lead to 
higher reimbursement appropriations.
    Response: When developing a product that will be accepted and 
bought by producers, market research must be completed to determine 
what is needed or what is desired. If the producers do not see a 
benefit, they will not purchase the policy. Provisions have been added 
to the definition of ``marketing plan'' and redesignated Sec.  
400.705(e) to specify that focus group results, market research 
studies, qualitative market estimates, correspondence from producers 
expressing the need for such policy or plan of insurance, responses 
from a reasonable representative cross-section of producers to be 
affected by the product or plan of insurance and commitments from 
approved insurance providers to sell and support the policy or plan of 
insurance must be included in the submission. While market research 
studies may increase the costs and reimbursements, at a time when 
resources are scarce and the systems are straining to handle the 
existing product load, the information obtained will be invaluable to 
ensuring that only marketable products are offered.
    Comment: An insurance service organization stated Sec. Sec.  
400.705(c)(1)(i) and (ii), redesignated as Sec. Sec.  400.705(d)(1)(i) 
and (ii), indicates what needs to be provided as part of the ``policy'' 
but makes no mention of the underwriting and loss adjustment procedures 
that are considered part of the policy according to the ``policy'' 
definition. Section 400.705(e), redesignated as Sec.  400.705(f), 
mentions ``underwriting'' information but only touches briefly on loss 
adjustment examples in Sec.  400.705(e)(5), redesignated as Sec.  
400.705(f)(5). The commenters state that this raises concerns relating 
to past problems with new products that are issued before their loss 
adjustment procedures are developed and issued. To be more consistent 
with the ``policy'' definition, the commenter suggests it might help to 
clarify that paragraph (c) deals only with the policy provisions and 
endorsements, and that paragraph (e) addresses both underwriting and 
loss adjustment information.
    Response: FCIC agrees and has revised the provisions to clarify 
that paragraph (c) involves the policy provisions related to the terms 
of insurance and paragraph (e) involves the underwriting and loss 
adjustment information.
    Comment: An insurance company stated language in Sec.  
400.705(c)(2), redesignated as Sec.  400.705(d)(2), should be clarified 
by defining ``impact'' of changes to cut down on procedural delay since 
assumptions made by the applicant may not be sufficient for RMA 
reviewers.
    Response: It is impossible to define the impact of the change 
because it will be dependent on the type of change.

[[Page 44226]]

However, the applicant must consider all possible impacts, including on 
the policy, participants and the crop insurance program. If all impacts 
are considered and addressed, there should not be any procedural 
delays. However, if reviewers question some important aspect of the 
change that has not been identified, the applicant will be required to 
respond or take the chance of the submission being disapproved. 
Therefore, no change has been made.
    Comment: An insurance company stated language in Sec.  
400.705(d)(3), redesignated as Sec.  400.705(e)(3), should be amended 
to include regions or other geographic areas that may apply to a 
particular plan of insurance.
    Response: Since the premiums are generally calculated on a county 
basis, FCIC usually requires the expected liability and premium for 
each county and state be listed rather than by large areas such as 
multi-state regions or geographic areas. If the information is desired 
by region or geographical area it would be simple to derive from county 
and state data. Therefore, no change has been made.
    Comment: An insurance company stated language in Sec.  
400.705(d)(5), redesignated as Sec.  400.705(e)(5) of the proposed rule 
is redundant with paragraphs (e) and (f), redesignated as paragraphs 
(f) and (g) respectively, and should be eliminated.
    Response: The language in the proposed rule was changed in the 
interim rule so the request was not redundant. Redesignated paragraph 
(e) contains information related to the marketing of the policy or plan 
of insurance, redesignated paragraph (f) contains information related 
to underwriting and loss adjustment, and redesignated paragraph (g) 
contains information related to prices and rates of premium. To clarify 
the information required, FCIC removed Sec.  400.705(d)(5) of the 
interim rule and added paragraph (g)(6) to the final rule, which will 
require a simulation of expected losses capturing both a probable loss 
and a total loss.
    Comment: An insurance company stated language in Sec.  
400.705(e)(1) in the interim rule is unnecessary for the purpose of 
reviewing the submission and impractical for the applicant because it 
would necessitate additional cost on the part of the applicant to 
produce marketing materials that may become obsolete before the 
submission is approved. Providing a sample of each document that will 
be used raises the prospect that FCIC must approve all marketing 
materials. The commenter also asked what the implications are of 
developing and using additional marketing materials after approval of 
the submission.
    Response: FCIC agrees advertising material and brochures do not 
need to be included in the submission. Therefore, Sec.  400.705(e)(1) 
of the interim rule has been removed.
    Comment: An insurance company stated language in Sec.  
400.705(e)(5) in the interim rule is overreaching as it is impossible 
to anticipate every unique situation. It would be much more reasonable 
to require an acceptable and reasonable number of examples to most 
probable situations.
    An insurance service organization also asked how many unique 
situations occur and if FCIC considers all possible unique situations 
now.
    Response: FCIC agrees with the comment. The applicant should 
determine all the probable situations there may be. The language in 
Sec.  400.705(e)(5) of the interim rule, redesignated as (f)(4) in the 
final rule has been revised accordingly.
    Comment: An insurance company stated language in Sec.  
400.705(f)(4), redesignated as 400.705(g)(4), is impractical for 
applicant response because anticipating the questions of internal RMA 
and external contract reviewers is unlikely and will be unnecessarily 
burdensome. The commenter stated most applicants are expected to have a 
high degree of faith in the reliability of the data used.
    Response: Redesignated section 400.705(g)(4) does not require the 
applicant to anticipate questions of the reviewers. As stated above, 
there will be situations where the data will be scarce or related data 
will be used. This section requires the applicant to objectively 
evaluate the quality, quantity and applicability of the data relied 
upon in the submission to assess its reliability and provide that 
assessment in its submission. Since the amounts and types of data can 
differ widely between submissions, the submitter is in the best 
position to make this assessment. Further, this provides the applicant 
an opportunity to explain why they have a high degree of faith in the 
reliability of the data used. The provision has been revised to clarify 
that an objective assessment of the data is required.
    Comment: An insurance company stated language in Sec.  
400.705(f)(5)(i), redesignated as Sec.  400.705(g)(5)(i), raises 
questions regarding whether coverage of the same crop constitutes 
``similar or comparable'' insurance plans and what would be the 
necessity in conducting calculations comparing a new submission with 
every product available for a crop. The commenter stated the review 
process is meant to ensure the interests of producers are protected, 
the interests of the public are protected, the submission is compliant 
with the Act, is actuarially appropriate and complies with industry 
standards and practices. Comparison outside this realm of review may be 
inappropriate or unnecessary.
    Response: Redesignated Sec.  400.705(g)(5)(i) requests a 
recalculation of total premium and losses compared to a similar or 
comparable insurance plan offered under the authority of the Act. It 
does not ask for a comparison with every product available for a crop. 
Further, the applicant is not required to conduct this analysis. 
Redesignated Sec.  400.705(g)(5) only requires that one or more of the 
three analyses be performed. If the analysis in redesignated Sec.  
400.705(g)(5)(i) is chosen, the applicant must determine which 
insurance plan offered under the Act is the most similar or comparable 
to the applicant's submission so an analysis can be made on the 
proposed premium rates and commodity prices, as applicable. Such 
analysis is necessary for FCIC in its evaluation of whether the 
interests of producers are protected, the interests of the public are 
protected, the submission is compliant with the Act, is actuarially 
appropriate, and does not introduce any program vulnerabilities. 
Therefore, no change has been made.
    Comment: An insurance company and an insurance service organization 
suggested FCIC require detailed loss adjustment procedures/forms be 
included with the initial submission and subject to the same approval 
scrutiny as the policy provisions, rates, etc. The commenter stated 
major problems have been incurred in the past because claims-handling 
procedures were not finalized until after a product had been sold.
    Response: FCIC agrees loss adjustment procedure should be included 
with the initial submission. FCIC has revised redesignated Sec.  
400.705(f) accordingly and has also added a new Sec.  400.705(l) so 
approved insurance providers will have the information available to 
immediately train personnel, including loss adjusters, on loss 
adjustment procedures.
    Comment: An insurance company stated language in Sec.  
400.705(i)(4), redesignated as Sec.  400.705(j)(4), which requires the 
applicant's legal counsel to certify compliance with the Act, 
applicable regulations, and the SRA, is not necessary because the Board 
relies solely on the Office of General Counsel (OGC) for legal 
recommendations and it is difficult to see any value to the applicant, 
FCIC, or the public. The

[[Page 44227]]

commenter also asked what the implications are of a conflict between 
the certification and the opinions of OGC.
    Response: The goal is for the submission to be as accurate, 
comprehensible, and complete as possible. Requiring the applicant's 
legal counsel to review the submission allows the applicant to revise 
the submission if necessary before it is submitted to FCIC. This 
requirement should improve the quality of the product and expedite the 
review process by identifying and resolving issues prior to submitting 
the product. OGC provides advice to the Board; it does not make 
decisions for the Board. Regardless of whether there is a conflict 
between the opinions of counsel, OGC will continue to provide its 
advice and the Board will make its decision based on all the 
information it receives. Therefore, no change has been made.
    Comment: An insurance company and an insurance service organization 
stated it is imperative that the submission fit into the existing Data 
Acceptance System, so accurate programming may be accomplished by other 
approved insurance providers with minimal time and expense.
    Response: Redesignated Sec.  400.705(k) requires the submission to 
comply in all respects with the standards established for processing 
and acceptance of data as specified in the FCIC Data Acceptance System 
Handbook (Appendix III), unless otherwise authorized by FCIC. New 
provisions have also been added to require applicants to provide the 
system or software necessary to allow FCIC to implement the product as 
part of the research and development of such product. If the applicant 
has the ability to deliver the policy or plan of insurance and has 
developed a new system for processing and data acceptance that is 
functional with FCIC, FCIC cannot limit the availability of innovative 
products that may be advantageous to producers solely on the basis of 
the time required for other approved insurance providers to program 
data automation systems in order to sell and service the product. 
However, the key is that any new system is functional and this will be 
taken into consideration by FCIC and the Board when determining 
reasonable timeframes for program implementation. Therefore, no change 
has been made.
    Comment: An insurance company stated this regulation does nothing 
to minimize the burden of preparing a submission on the part of the 
applicant, it will lengthen the time required to develop a submission 
which will drive up costs significantly, the complexity required will 
prove a hindrance to anyone desiring to casually submit a plan of 
insurance and it will limit the opportunity to respond to last minute 
market indications with any degree of flexibility.
    Response: This regulation was designed to specify the information 
necessary to properly evaluate a submission to ensure the interests of 
producers are protected, the interests of the public are protected, the 
submission is compliant with the Act, is actuarially appropriate, and 
does not introduce any program vulnerabilities. While this may appear 
burdensome and complex, the information requested should already have 
been developed and considered by the applicant in the development of 
the policy or plan of insurance. The costs associated with providing 
such information are much less than the costs the program could incur 
if a flawed policy or plan of insurance were offered to the 
marketplace. Therefore, no change has been made.

Section 400.706

    Comment: An insurance company stated it is not appropriate for the 
requirement in Sec.  400.706(a)(2) to be implemented without a deadline 
for action by RMA. The commenter suggested the requirement be within 10 
business days of receipt. The commenter stated the questions of quality 
of documentation may be subjective and asked what standard of measure 
is to be applied and under whose responsibility will it fall. The 
commenter stated the quality of documentation is best addressed during 
the review process (not before) and includes the prospect that a 
submission review be delayed or that it be disapproved. The commenter 
also stated Sec.  400.706(a)(3) and (a)(4) should be amended to reflect 
comments and revisions to paragraph (a)(2).
    Response: The time frames for providing submissions are limited and 
any number of submissions may be submitted each time frame. Further, 
the submissions have varying levels of complexities from changes to 
existing policies to introducing new and innovative plans of insurance. 
Therefore, it is not possible for FCIC to set a time frame to review 
the quality of the submissions. RMA agrees that the review of the 
quality of the submission may be subjective but such a review is 
necessary to ensure that the resources of the agency and expert 
reviewers are not wasted on products that have not been sufficiently 
developed. Such review is only intended to determine if there is 
sufficient information to allow a meaningful review. This initial 
review process is the responsibility of the Deputy Administrator of 
RMA's Office of Research and Development. Without the initial review 
process and a determination by the Board the submission is complete, 
approval by the Board could be delayed for months or longer if the 
submission goes to the experts and receives poor reviews or reviews 
that state it is impossible to determine whether the standards for 
approval have been met because there is insufficient information. An 
initial determination of quality could preclude the need for multiple 
expert reviews. A definition of ``complete submission'' has been added 
for clarity. Further, Sec.  400.706(b) has been revised to clarify that 
the Board will determine if a submission is complete.
    Comment: An insurance company questioned if the language in Sec.  
400.706(c)(3) of the interim rule requiring the Board to render a 
decision to approve or give notice of an intent to disapprove within 90 
days after acceptance of the submission and requiring the applicant to 
be notified in writing at least 30 days prior to the Board taking such 
action would require written notification of intent to disapprove 
within 60 days of acceptance.
    Response: Section 508(h)(4)(D) of the Act allows the Board 120 days 
after a complete submission is received to make a determination whether 
to approve or disapprove the submission. Section 508(h)(4)(C)(i) of the 
Act directs the Board to give notification of its intent to disapprove 
a submission not later than 30 days prior to making the disapproval. 
This means the Board must initially act not later than 90 days after 
determining the submission is complete, as reflected in Sec.  
400.706(c)(3) of the interim rule. Due to other revisions made to Sec.  
400.706, the 90 day notice of intent to disapprove is now contained in 
Sec.  400.706(g) and the 30 day time frame for the applicant to be 
notified if the Board intends to disapprove the submission is now 
contained in Sec.  400.706(i) of this regulation.
    Comment: A legal counsel stated Sec.  400.706(f)(3) which states, 
``The submission does not conform to sound insurance and underwriting 
principles;'' should be deleted because many coverages explicitly 
mandated by Congress extend beyond traditional insurance concepts and 
do not conform to sound insurance and underwriting principles. For 
instance, crop insurance production risks for drought, price risks 
under Crop Revenue Coverage (CRC), Group Risk Protection (GRP) allowing 
a producer to collect an indemnity even though the producer did not 
sustain a

[[Page 44228]]

loss, Catastrophic Risk Protection (CAT) coverage allowing a producer 
to obtain a coverage guarantee possibly worth millions of dollars for 
no premium and a token administrative fee, and the Agricultural Risk 
Protection Act (ARPA) mandating the use of futures and options 
contracts designed to provide reasonable protection from the financial 
risks of price for income fluctuations inherent in the production and 
marketing of livestock, transcend traditional insurance and 
underwriting principles. Federal Crop Insurance is not simply a 
business-based insurance system but a Federally subsidized program with 
a social policy element and a mandate to address the full range of 
agricultural risk management, not simply traditional insurance. Trying 
to apply traditional insurance models as a legal standard for new 
products under ARPA 2000 inevitably will result in selective 
enforcement and arbitrary judgments. FCIC has the responsibility to 
assure itself that any proposed new tool is technically sound and 
protects the interests of both the taxpayers and farmers.
    Response: Section 400.706(f)(5) has been redesignated as Sec.  
400.706(h)(6). FCIC agrees ARPA encourages the development of products 
that may be non-traditional and innovative in design. FCIC agrees that 
not all traditional principles of insurance apply to these types of 
products. However, there is express statutory authority to offer the 
coverage referred to by the commenter. Absent express authority to the 
contrary, the sound principles of insurance and underwriting continue 
to apply since they are one of the underpinnings of a determination of 
actuarial soundness. In addition to the requirements of the Act, FCIC 
must protect taxpayer dollars. This means that insurance cannot provide 
coverage in excess of the value of the commodity and no known program 
vulnerabilities can be introduced as a result of the implementation of 
the submission. Therefore, FCIC will review the submission to determine 
whether it is in accordance with sound insurance and underwriting 
principles and if it is not, FCIC will determine whether the Act 
authorizes an exception. Redesignated section 400.706(h) has been 
revised for clarity.
    Comment: An insurance company stated language in Sec.  
400.706(f)(5) should include a limitation that would prevent use of 
this provision to deny approval of a submission when the time 
constraint was created due to the action or inaction of RMA or the 
Board, and not the applicant.
    Response: Congress has set very tight time limits on the approval 
process. In some quarters there may be many products submitted. This 
provision was specifically intended to permit denial of a submission 
if, even after due diligence, there is insufficient time to properly 
evaluate the submission. For example, expert reviewers may not be 
available because they are working on other projects or the submission 
is so complex or requires such significant changes that it is 
impossible to determine what changes are necessary in the available 
time frame. To the extent that the applicant believes that RMA or the 
Board is stalling on acting on a submission in order to utilize this 
provision, the applicant always has recourse to challenge such actions 
are arbitrary and capricious. Therefore, no change has been made.

Section 400.708

    Comment: An insurance company suggested language be added to Sec.  
400.708 to give SRA holders the option to not offer specific products 
that the Board has approved. This decision by the SRA holder may be 
based on the approved insurance provider's assessment of the product, 
the reinsurance terms for the product, or any other reason.
    Another insurance company and an insurance service organization 
asked if all approved insurance providers reinsured by FCIC will be 
required to offer every product that is approved or will a separate SRA 
addendum be optional for each such product. The commenter also asked if 
an insurance company reinsured by FCIC could opt out of a program if 
the company deems the user fees to be excessive.
    Response: Section II.A.2. of the 2005 Standard Reinsurance 
Agreement, states in part ``* * * The Company is not required to offer 
such plans of insurance as may be approved by FCIC under the authority 
of section 508(h) of the Act. However, if the Company chooses to offer 
any such plan, it must offer the plan in all approved states in which 
it writes an eligible crop insurance contract and it must comply with 
all provisions of this paragraph as to such plan.'' This means that 
approved insurance providers can opt not to offer any policy or plan of 
insurance approved under section 508(h) of the Act. However, if the 
approved insurance provider opts to offer the policy or plan of 
insurance, it must offer it everywhere. Separate SRAs or addendums to 
the existing SRA will be used as appropriate. Therefore, no change has 
been made.
    Comment: An insurance company and an insurance service organization 
stated Sec.  400.708(a)(1) needs to be clarified because it seems to 
require a post approval disposition of property rights from the payment 
for said property rights manifested in the reimbursement for research 
and development costs articulated in Sec.  400.712(a) and it appears 
the applicant ultimately gives up the property rights.
    Response: The applicant continues to have property rights to the 
submission until responsibility for maintenance is relinquished to 
FCIC, as determined by the applicant. However, if research and 
development or maintenance costs have been paid by RMA, section 
522(b)(5) of the Act makes it very clear that if the applicant elects 
not to continue to maintain the product, the research and development 
or maintenance costs paid by RMA are payment in full for the product 
and RMA has the property rights to the product. Section 400.708(a)(1) 
simply incorporates this provision. Section 400.708(a)(1) has been 
revised to clarify when property rights are transferred.

Section 400.709

    Comment: An insurance company stated Sec.  400.709(a)(1)(ii) 
requires the applicant to annually update and provide maintenance 
changes to the insurance product and they suggested the regulation 
should address what happens if the applicant is no longer able or 
willing to continue to maintain or offer the product prior to the end 
of the maintenance period.
    Response: As previously stated, Sec.  400.712(m) has been added to 
specify the maintenance period ends for an approved submission once the 
applicant no longer performs the maintenance responsibilities, as 
determined by FCIC, or the applicant gives FCIC notice they no longer 
wish to maintain the submission. Maintenance of the approved submission 
may be assumed by FCIC or the Board may withdraw reinsurance, risk 
subsidy and A&O subsidy.
    Comment: An insurance service organization stated Sec.  
400.709(a)(2) requires any changes be submitted to FCIC no later than 
180 days prior to the earliest sales closing date and asked how this 
compares to the current requirement.
    Response: Before this regulation was effective, specific deadlines 
for changes were contained in a Memorandum of Understanding (MOU) 
between the applicant and FCIC. For example, currently the CRC and RA 
MOU's allow 153 days for changes to spring crop provisions and 122 days 
for changes to

[[Page 44229]]

fall crop provisions; except, in the event of unforeseen circumstances, 
changes may be made if they are submitted 30 days prior to the contract 
change date. Given that RMA will be reviewing new submissions, revising 
existing submissions, and maintaining its own products, the 180 day 
deadline is necessary to allow adequate time for the review process and 
Board approval and treat all products consistently. However, since some 
submissions may allow producers to obtain insurance coverage at various 
times during the year, the references to sales closing dates have been 
changed to contract change dates in Sec. Sec.  400.709(a)(1)(ii) and 
(2).
    Comment: An insurance company and an insurance service organization 
stated Sec.  400.709(b)(1)(ii) indicates approved insurance providers 
should contact FCIC to obtain and execute a copy of the reinsurance 
agreement for approved products and they suggested this language be 
modified to require FCIC/RMA to contact approved providers and make 
them aware of products that have been approved because the 
responsibility for advising providers should fall to FCIC/RMA, as FCIC/
RMA holds the approval authority over the products.
    Response: Section 400.709(b)(1)(ii) of the interim rule has been 
redesignated as Sec.  400.709(b)(1)(iii). The fact that FCIC holds the 
approval authority does not mean it is required to provide notice to 
the approved insurance providers that products have been approved. The 
approved insurance providers have notice throughout the process. When 
products are considered by the Board, they are placed on the Board 
meeting agenda, which is made public. Any approval of the product is 
made in an open Board session and all resolutions are published on 
RMA's public Web site at https://www.rma.usda.gov/ as soon as new 
products are approved. Further, FCIC notifies all approved insurance 
providers via a Manager's Bulletin when the product is released. Since 
participation is voluntary, once RMA makes the information available, 
it is the approved insurance providers who are appropriately 
responsible for requesting and executing a copy of the reinsurance 
agreement for the approved product. The specified section has been 
redesignated as Sec.  400.709(b)(1)(iii) for clarity, however, no other 
change has been made.
    Comment: An insurance company and an insurance service organization 
suggested the language in Sec.  400.709(b)(1)(iii) which states, 
``Conducting the best review of the submission possible in the time 
allowed'' should be revised to state, ``Conducting a thorough review of 
the submission.'' Since FCIC/RMA has approval authority, and exercise 
of that authority does have consequences, the language should reflect 
the full responsibility that accompanies the authority. The commenter 
asked if the best review possible in the brief time allowed will always 
be adequate.
    Response: Section 400.709(b)(1)(iii) of the interim rule has been 
redesignated as Sec.  400.709(b)(1)(i). RMA has a limited time frame to 
conduct its review and must conduct as thorough a review as possible 
within that time frame. RMA acknowledges that its review may not catch 
all the mistakes, errors, or flaws. However, since RMA is not the 
developer of the product, the responsibility for such mistakes, errors, 
or flaws correctly lies with the applicant. This provides applicants 
with the incentive to thoroughly review and test their product prior to 
submitting it to the Board. Since applicants will be reimbursed for 
costs associated with such research and development, there is no 
financial impediment to conducting a thorough review and test of the 
product. Except for redesignation of the provision, no change has been 
made.
    Comment: A legal counsel, a university, an insurance service 
organization, and insurance companies stated FCIC should be liable for 
mistakes, errors, or flaws in a submitted product and its related 
materials. The Board now conducts a substantial review process prior to 
approving 508(h) submissions, including analyses by five outside 
independent reviewers, OGC, and RMA's staff. It is unrealistic and 
inconsistent with FCIC's past practice for FCIC to not be liable. 
FCIC's formal approval of a product signifies that the Board has 
reviewed it, and that the Board has determined its reviews to be 
positive. The public and the applicant should be able to rely on this 
public action by the Board. When the Board approved Crop Revenue 
Coverage in the late 1990s, the memorandum of understanding between 
FCIC and the sponsoring company assigned liability for such policy 
errors to FCIC, and every legal challenge involving the policy since 
that time has presumed FCIC responsibility. By sharing in the liability 
for errors or flaws, FCIC retains an incentive for maintaining a high 
level of quality control over new products. The Act intended to provide 
a process and mechanism under which organizations can evaluate and 
design programs that are needed in the marketplace and have them 
available to producers under the FCIC/RMA umbrella. If FCIC/RMA 
approves a submission, then FCIC/RMA must be the regulator, manager, 
maintainer and administrator of that program. Section 
400.709(a)(1)(iii) requires the applicant to respond to procedural 
issues, questions, problems, etc., in regard to a policy or plan of 
insurance and they suggested this is a role for FCIC/RMA as regulator 
of the program, not the applicant that developed the product. Section 
400.705(a)(10) requires the submission to include the names of those 
responsible for addressing the policy and procedural issues and 
questions that arise in administering the approved program. Once FCIC/
RMA grants approval of the product, responsibility for the product and 
its delivery, including responding to questions about procedural 
issues, policy language, etc., for the product should belong to FCIC/
RMA. The program becomes an FCIC/RMA program the same as MPCI or GRP or 
any other RMA/FCIC approved or designed insurance program. Any other 
conclusion is inconsistent with the SRA, which holds SRA holders 
responsible for complying with FCIC policies, procedures, etc., not 
those of other parties. This issue again reinforces that once FCIC/RMA 
grants product approval, it becomes responsible for the product. 
Section 400.709(a)(2) indicates only the applicant may make changes to 
the policy, plan of insurance, or rates of premium approved by the 
Board. The commenter stated FCIC/RMA has the responsibility to make 
such changes after FCIC has approved the submission. It was also stated 
that Sec.  400.709(b)(2) should be modified by removing the word 
``not'' as FCIC assumes liability for submissions once they are 
approved.
    Response: Section 400.709(b)(2) has been redesignated as Sec.  
400.709(b)(3). Applicants are liable for the insurance products they 
submit under 508(h) of the Act because they own the product. FCIC does 
not gain ownership or control over the product until such time as the 
applicant agrees to relinquish the product to RMA. Further, while the 
product is owned by the applicant, FCIC does not have the authority to 
modify it. All it can do is disapprove a submission or withdraw 
reinsurance if errors are discovered and the applicant is not willing 
to correct the error. Also, it is the applicant that chooses the method 
to use to correct the identified mistake. Therefore, FCIC cannot assume 
the liability of a product over which it has so little control. In 
addition, if FCIC were to assume the liability for mistakes, it would 
delay the approval process considerably. All submissions would have to 
be disapproved until FCIC had thoroughly completed its review and 
tested the product. For its

[[Page 44230]]

own products, this process can take years. However, the Act only 
provides 90 days to review the submission. This is not a sufficient 
time to conduct a thorough review and test of the product. When CRC was 
approved, the 90-day review requirement did not exist and RMA could 
take such time as necessary to review the product. Therefore, FCIC 
should not be responsible for the errors in a product that Congress has 
given it insufficient time to thoroughly review and test. It is the 
applicant that has unlimited time to develop, evaluate and test the 
product and has the authority to make such changes as are necessary. 
Therefore, the liability correctly lies with the applicant.
    Comment: An insurance service organization stated the Web site is a 
useful tool for making information available, but approved insurance 
providers should be notified in writing when policies, plans of 
insurance, or rates of premium are timely withdrawn because they are 
deemed canceled and applications for insurance are not accepted as of 
the date that FCIC publishes the notice of withdrawal on its Web site. 
Section 400.709(a)(5) would require approved insurance providers to 
check the Web site each time an application is processed in case a 
cancellation notice was posted after the last check.
    Response: Section 400.709(a)(5) applies to both producers and 
approved insurance providers and simply provides the consequences if 
reinsurance is withdrawn from a policy, plan of insurance, or rates of 
premium. The reference to the Web site simply provides the date by 
which cancellation is effective. FCIC agrees that if reinsurance is 
withdrawn or denied from a policy, plan of insurance or rate of 
premium, the approved insurance provider should be notified in writing 
and has revised the provision accordingly.

Section 400.712

    Comment: An insurance company and an agricultural association 
stated Sec. Sec.  400.712(b) and (c) of the interim rule do not address 
procedures for submissions sent to RMA and not yet approved by the 
Board prior to publication of the interim rule and such circumstances 
prevent compliance with paragraph (b), which states a request for 
reimbursement be included with the original application.
    Response: Revisions were made to Sec.  400.712 when the interim 
rule was completed to accommodate this situation. However, this 
information has been removed in the final rule since such information 
is now obsolete.
    Comment: An insurance company stated Sec.  400.712(d) is more 
appropriate to the decision to approve or disapprove an application and 
if an application is approved, the question of qualification for 
reimbursement should be moot. The commenter also asked whose marketing 
plan would be utilized to help render this decision.
    A legal counsel stated the proposed rule requires that to be 
eligible for reimbursement, a product must be marketable based on a 
reasonable marketing plan. Marketability so defined, is a judgement 
that the Board can make in advance when the product is approved, and it 
addresses a statutory requirement. However, the proposed rule defines 
marketability as a measure of the acceptability of a policy as 
reflected by the percent of market penetration of the identified target 
market which is an after-the-fact judgement. It is unclear how or 
whether the after-the-fact judgement applies as it is not referenced in 
Sec.  400.712. The commenter opposes use of the after-the-fact test as 
being unnecessary to legislative requirements, creating excessive 
uncertainty, and conflicting with the regulatory scheme. Once the Board 
has approved a reimbursement request at the time it approves the new 
product (a full marketing plan will be included in the submission), the 
applicant should be able to rely on the Board's decision.
    Response: Section 400.712(d) has been redesignated as section 
400.712(c). The definition of ``marketability'' in the proposed rule 
was deleted and a definition of ``marketable'' was added in the interim 
rule. The definition of ``marketable'' has been revised in the final 
rule to make it clear that the determination of marketable will be 
based on the marketing plan and the documentation provided to support 
it. FCIC has also determined that marketability should also be 
considered when determining whether the policy or plan of insurance 
protects the interest of producers because unmarketable products waste 
valuable resources that could be better used to provide products that 
producers want to purchase. Therefore, it has also included the 
requirement in redesignated Sec.  400.706(h).
    Comment: A legal counsel stated it should be explicitly stated the 
Board will approve a proposed research and development reimbursement 
request, conditioned only on subsequent proration as specified in Sec.  
400.712(f)(2) of the interim rule, at the same time the applicant's 
proposed new product is approved.
    Response: FCIC cannot determine when it approves a submission that 
it will pay the research and development costs. Some of those costs may 
not have yet been incurred and certain costs may be reduced or excluded 
in accordance with Sec.  400.712(h). FCIC has revised the provisions to 
clarify that a submission is eligible for reimbursement if the Board 
determines the submission is marketable.
    Comment: A legal counsel suggested Sec.  400.712(e) be modified by 
adding ``except as provided in paragraph (c) of this section'' after 
the phrase ``August 1'' because they stated that it could be read to 
require that such requests be received by FCIC not later than August 1 
to be considered for reimbursement in the current fiscal year.
    Response: The information referencing a submission approved by the 
Board or submitted to the Board prior to the interim rule being 
published on September 17, 2001, is now obsolete and has been removed 
in the final rule.
    Comment: An insurance company asked if since limited funds exist 
each fiscal year for reimbursement of research and development costs, 
and maintenance costs, if the limit is met in any year, whether the 
applicant can resubmit the ``shortfall'' for possible reimbursements in 
a subsequent year.
    A legal counsel stated that under the proposed rule in Sec.  
400.712(f)(2) if the sum of all applicants requests for reimbursement 
in a given year exceeds available funding, each amount is adjusted 
downward by a uniform factor and portions of the reimbursement that 
remains unpaid as a result of this reduction appear simply to expire. 
This could be unfair based on arbitrary timing factors if applicants 
adversely select against annual pools to the disadvantage of others. A 
fairer approach would be to permit each company to receive its full 
reimbursement as calculated under the rule and if the sum of all 
applicants claims exceed available funding in a given fiscal year and a 
uniform downward adjustment is applied, the unpaid portions should be 
rolled over and paid in the following fiscal year when funds are 
available.
    Response: Applicants will not be allowed to receive additional 
funds in a subsequent year for the ``short fall'' between the amount of 
reimbursement they requested and the amount of reimbursement they 
receive. The Act only authorizes one payment for research and 
development costs. Therefore, these costs cannot be broken into two 
separate payments in separate fiscal years. Further, the payment for 
maintenance costs comes from a single

[[Page 44231]]

year's appropriations that can only be used to reimburse costs expended 
for that fiscal year. Therefore, costs incurred in one fiscal year 
cannot be rolled over to be paid in a subsequent fiscal year. 
Therefore, no change has been made.
    Comment: An agricultural association stated they do not know of any 
legislative history which indicates that Congress intended for a 
complicated rating system to be developed as is in Sec.  400.712(g) of 
the interim rule for determining the level of reimbursement.
    Response: Section 400.712(g) of the interim rule has been 
redesignated as section 400.712(f). Section 522(b)(6) of the Act 
states, ``The Corporation shall determine the amount of the payment 
under this paragraph for an approved policy based on the complexity of 
the policy and the size of the area in which the policy or material is 
expected to be sold.'' Therefore, Congress expressly directed FCIC to 
develop a rating structure to determine the complexity of the product 
and how much it will be reimbursed.
    Comment: An insurance company stated Sec.  400.712(g)(1) of the 
interim rule indicates a high degree of subjective judgement as to what 
degree a policy, plan of insurance, or various components thereof, may 
be based on, or similar to, existing policies. The commenter stated 
that given the requirement for adherence to industry standards and 
practices it is likely that a complex, original plan may score highly 
but be less likely to be approved, while proposals utilizing well-known 
concepts might not score well but stand a better chance for approval.
    Response: The scoring methodology in redesignated Sec.  400.712(f) 
is not used for approving new insurance products. It is used for 
computing an equitable amount of reimbursement for research and 
development costs. The research and development expenses associated 
with using well known concepts should be less because the development 
and testing of such concepts has already been done by someone else. The 
research and development expenses associated with complex, innovative 
concepts would likely be higher because of their originality. The 
scoring system assures that applicants with complex, innovative designs 
have a better likelihood of having their research and development 
expenses approved. Except for redesignation, no other change has been 
made.
    Comment: A university and an insurance company suggested emphasis 
should be placed on accuracy, not necessarily on novelty. The 
commenters also stated innovation is essential, but consistency and 
accuracy may need more emphasis. Just being new or different does not 
guarantee accuracy, program success, or fair and equitable programs for 
policyholders or taxpayers. Section 400.712(g)(2) of the interim rule 
states new methodologies will be eligible for higher reimbursement than 
existing price methodologies.
    Response: Section 400.712(g)(2) has been redesignated as Sec.  
400.712(f)(2). The applicant should always place emphasis on accuracy 
since the applicant is solely liable for any mistakes, errors, or flaws 
in the submitted policy, plan of insurance, related material, or the 
rates of premium that have been approved by the Board. It is also in 
the best interests of the applicant to present to the Board the most 
accurate information in order to be considered for approval since such 
information and methodologies will be reviewed by expert reviewers and 
any inaccuracies will result in delays in appro