Second Draft of the 2005 Standard Reinsurance Agreement

"RMA's primary objective is to provide a viable crop insurance delivery system that is effective and available to all farmers," stated RMA Administrator Ross J. Davidson, Jr. "Working together with insurance industry professionals and farm commodity groups, we can accomplish a balanced SRA that meets the needs of farmers, taxpayers and insurance providers."

USDA's Risk Management Agency (RMA) today released the second draft of the proposed 2005 Standard Reinsurance Agreement (SRA or the agreement). The proposed SRA will enhance the federal crop insurance program by: encouraging greater availability and access to crop insurance for our nation's farmers; providing a safe and reliable delivery system; and reducing fraud, waste, and abuse, while achieving balance and cost efficiencies for taxpayers. Proposed changes to the SRA will not affect premiums or other direct benefits to farmers but will result in continued and enhanced insurance coverage.

• The proposed SRA encourages companies to provide broader service to farmers.
  Farmers deserve excellent service and equal access to risk management tools regardless of their risk situation. The proposed SRA encourages companies to provide broader service to farmers by RMA assuming a larger share of the non-profitable business in high-risk areas. Traditionally, the federal government takes on the bulk of non-profitable business in all areas and allows insurance companies to retain more of the profitable business. To achieve a more equitable balance of overall risks for taxpayers, the companies will be required to retain 25 percent of total non-profitable business including high-risk areas, a five percent increase from 20 percent in the current SRA.

• This SRA provides higher standards for financial strength and performance of insurers and their service providers.
  Many farmers have expressed the need for well-trained agents and loss adjusters. The SRA establishes requirements for insurance companies to ensure that agents and loss adjusters are appropriately trained. The proposed SRA enhances insurance company disclosure of agent and loss adjuster training and provides direction and oversight to strengthen companies' focus on training agents and loss adjusters to better serve limited resource, minority and women farmers. Through these enhanced standards and oversight activities, RMA can monitor the progress of company training of agents and loss adjusters, and ensure they are providing every opportunity and the best service possible to their clients.

• The proposed SRA provides a safe and reliable foundation for future company expansion of the federal crop insurance delivery system.
  The proposed SRA provides a safe and reliable foundation for future company expansion of the federal crop insurance delivery system. RMA has proposed changes such as allowing greater flexibility for companies to share risks with FCIC in the pilot phase of new products. To maintain a safe and reliable delivery system, this SRA provides higher standards for oversight of the financial strength and operational performance of insurers and their service providers. The agreement formalizes coordination of RMA's oversight of insurers with state insurance department oversight to enhance the effectiveness of administrative resources. Insurance companies would be required to disclose more leading indicators of their insurer and service provider operational and financial soundness and risks. Many of these disclosures were implemented informally last year in the wake of the failure of the largest crop insurer.

• The provisions in this SRA reduce taxpayer burden and enhance program integrity.
  Finally, the provisions in this SRA reduce taxpayer burden and enhance program integrity by adopting more effective methods to strengthen RMA's and companies' ability to identify, prevent and help prosecute fraud, waste and abuse, potentially saving millions of dollars.
  
  "We must assure that taxpayer dollars allotted to the crop insurance program go to the farmers who need and deserve risk management tools, rather than to individuals who seek to unlawfully cheat or take advantage of the system," said Davidson.

  Also Released

  Appendix I: Program Integrity Statement (PDF file; 28Kb)
  

  Appendix II: Plan of Operations (PDF file; 17Kb)
  

  Appendix III: Data Processing and Transmission Requirements - forthcoming
  

  Appendix IV: Quality Standards and Control (PDF file; 78Kb)
  

  Background

  The Standard Reinsurance Agreement is considered a cooperative financial assistance agreement between the Federal Crop Insurance Corporation (FCIC) and the insurance company named on the agreement. The FCIC is a wholly owned government corporation within the U.S. Department of Agriculture that is authorized to carry out all actions and programs authorized by the Federal Crop Insurance Act. The Risk Management Agency has been delegated authority to act on the behalf of the FCIC to deliver and administer all Federal crop insurance programs. Each reinsurance agreement establishes the terms and conditions under which the FCIC will provide subsidies and reinsurance on eligible crop insurance contracts sold or reinsured by the insurance company named in the agreement.

  Related items: 2005 Standard Reinsurance Agreement - DRAFT (PDF file; 258kb) | Request for Input | Main Reinsurance Agreement page