Submission of Policies, Provisions of Policies, Rates of Premium, and Non-Reinsured Supplemental Policies, 53657-53686 [2016-18743]

Agencies

• DEPARTMENT OF AGRICULTURE
• Federal Crop Insurance Corporation

[Federal Register Volume 81, Number 156 (Friday, August 12, 2016)]
[Rules and Regulations]
[Pages 53657-53686]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-18743]



[[Page 53657]]

Vol. 81

Friday,

No. 156

August 12, 2016

Part III





Department of Agriculture





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Federal Crop Insurance Corporation





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7 CFR Part 400





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

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

[[Page 53658]]


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DEPARTMENT OF AGRICULTURE

Federal Crop Insurance Corporation

7 CFR Part 400

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


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

AGENCY: Federal Crop Insurance Corporation, USDA.

ACTION: Final rule.

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

DATES: This rule is effective September 12, 2016.

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

SUPPLEMENTARY INFORMATION: 

Background

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

General

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

[[Page 53659]]

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

Sec.  400.701--Definitions

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

[[Page 53660]]

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

[[Page 53661]]

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

[[Page 53662]]

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

Sec.  400.703--Timing and Format

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

[[Page 53663]]

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

Sec.  400.704--Covered by This Subpart

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

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

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

[[Page 53664]]

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

[[Page 53665]]

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

[[Page 53666]]

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

[[Page 53667]]

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

Sec.  400.706--Review

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

[[Page 53668]]

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

[[Page 53669]]

Sec.  400.708--Post Approval

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

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

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

[[Page 53670]]

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

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

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

[[Page 53671]]

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

[[Page 53672]]

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

[[Page 53673]]

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

List of Subjects in 7 CFR Part 400

    Administrative practice and procedure, Crop insurance.

Final Rule

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

PART 400--GENERAL ADMINISTRATIVE REGULATIONS

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

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

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


Sec.  400.700  Basis, purpose, and applicability.

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


Sec.  400.701  Definitions.

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

[[Page 53674]]

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

[[Page 53675]]

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


Sec.  400.702   Confidentiality and duration of confidentiality.

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


Sec.  400.703  Timing and format.

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

[[Page 53676]]

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


Sec.  400.704  Covered by this subpart.

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


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

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

[[Page 53677]]

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

[[Page 53678]]

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

[[Page 53679]]

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


Sec.  400.706   Review.

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

[[Page 53680]]

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

[[Page 53681]]

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

[[Page 53682]]

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

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


Sec.  400.708  Post approval.

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


Sec.  400.709  Roles and responsibilities.

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

[[Page 53683]]

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


Sec.  400.710  Preemption and premium taxation.

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


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

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


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

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

[[Page 53684]]

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

[[Page 53685]]

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

[[Page 53686]]

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


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

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

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