Published Rebating Violations and Sanctions

Subsection (b)(5)(B) states:

(B) PAYMENT OF CATASTROPHIC RISK PROTECTION FEE ON BEHALF OF PRODUCERS.—

(i) PAYMENT AUTHORIZED.—If State law permits a licensing fee to be paid by an insurance provider to a cooperative association or trade association and re- bated to a producer through the payment of catastrophic risk protection administrative fees, a cooperative association or trade association located in that State may pay, on behalf of a member of the association in that State or a contiguous State who consents to be insured under such an arrangement, all or a portion of the administrative fee required by this paragraph for catastrophic risk protection.
(ii) SELECTION OF PROVIDER.—Nothing in this sub- paragraph limits the option of a producer to select the licensed insurance agent or other approved insurance provider from whom the producer will purchase a policy or plan of insurance or to refuse coverage for which a payment is offered to be made under clause (i).
(iii) DELIVERY OF INSURANCE.—Catastrophic risk protection coverage for which a payment is made under clause (i) shall be delivered by a licensed insurance agent or other approved insurance provider.
(iv) ADDITIONAL COVERAGE ENCOURAGED.—A cooperative association or trade association, and any approved insurance provider with whom a licensing fee is made, shall encourage producer members to purchase appropriate levels of coverage in order to meet the risk management needs of the member producers.

Subsection (d)(3) states:

(3) PERFORMANCE-BASED DISCOUNT.—The Corporation may provide a performance-based premium discount for a producer of an agricultural commodity who has good insurance or production experience relative to other producers of that agricultural commodity in the same area, as determined by the Corporation.

NOTE: Regarding subsection (d)(3), there are currently no “Performance-Based Discounts” authorized.

While rebating was not addressed by statute prior to the 2008 Farm Bill, section 508(b)(5)(B) of the Act authorized an approved insurance provider (AIP) to make a licensing fee or other payment to a “cooperative association” or “trade association,” which could, in turn, be rebated to a producer with CAT coverage or buy-up coverage. The following cooperatives are “grandfathered” by this section of the Act and approved in only the listed states.

The above listed cooperatives may pay patronage dividends to all members who reside in the approved state, even when membership has grown through acquisitions and mergers. However, the above listed cooperatives may not pay a patronage dividend to any member who resides outside of the approved states. No other cooperative association or trade association is authorized to pay a patronage dividend based upon MPCI sales except those listed above.

While section 506(1) of the Act preempts State law that is in conflict with the Act, it does not prohibit the States from enforcing their rebating statutes on agents who sell federal multi-peril crop insurance (MPCI) if such laws are not in conflict. RMA and the States work together and share information regarding rebating violations. Given the broad scope of section 508(a)(9) of the Act, it is unlikely that there would be a violation of State rebating laws that would not be a violation of section 508(a)(9). RMA and the States are both enforcing rebating prohibitions.

Scenario A
An agent is affiliated with another business, and they provide other goods or services at a lower cost or more favorable contract terms to producers that purchase their MPCI from them. The same lower cost or contract term is not provided to producers who do not purchase their MPCI from them.

Examples of these other goods, services, or contracts include, but are not limited to: other insurance; loan rates; commodity bushel price; accounting, financial, grain marketing, or farm management services; land appraisal or loan origination services; seed and inputs sales; and equipment sales and maintenance.

Scenario B
An agent also sells other insurance policies, but you have to purchase your MPCI from them in order to buy the other policies.

Example: Another agent offers a crop hail policy that costs less than the coverage offered by your MPCI agent. In order to purchase the less expensive crop hail policy from the other agent you have to purchase your MPCI from them. Reference 3) “Private Product Sales” above is the RMA Managers Bulletin that addresses this prohibition.

Scenario C
Providing gifts to a current or potential MPCI customer or their family.

Examples: trips (to anywhere); fishing, hunting, or sporting event outings; equipment or tools; vehicles; club memberships; contributions toward a customer’s debt; customer appreciation dinners; basically, anything exceeding a minimal value. An example of what would not be considered a gift would be promotional and marketing items or activities of minimal value that are provided to all persons in the normal course of business, including calendars, pens, and meals, are not regarded a valuable consideration or inducement to procure or retain insurance.

Scenario D
Purchasing items/services from a MPCI customer at a price above market value.

Examples: Paying $5000 for a car with a blue book value of $4000 or paying more than the current selling price for any goods or services.

Scenario E
Structuring a business entity for the purpose of transferring MPCI sales revenue back to the MPCI customer.

Example: Establishing a Limited Liability Corporation (LLC) or other entity comprised of producer owners, having an owner or another individual become the MPCI agent for the LLC members, and the agent write policies for the owners of the LLC. The commissions earned on the policies are then paid to the LLC, and the agent is compensated from part of the commissions. The LLC then dividends the remaining commission income back to the customer members in cash; or buys seed, fertilizer, equipment, etc. for the customer members; or distributes the commission income benefit back to the customer members through some other means.

Scenario F
Providing an MPCI customer an investment, ownership, or similar opportunity with the agent/agency.

Example: Selling shares in an agency to MPCI customers as an incentive to purchase insurance from the agency. As with Example E, this provides a benefit back to the customer directly related to their purchasing their insurance from the specific agent/agency.

Scenario G
An agent pays all or part of a producer’s premium.

Example: An agent agrees to pay a producer’s premium in exchange for a future indemnity and/or other repayment. A producer has an agreement with their agent to share an indemnity payment received by the producer and the agent agrees to pay the producer’s premium when an indemnity is not received.

Scenario H
A landlord requires a lessee to purchase crop insurance from a specific agent or agency and the lessee receives a direct or indirect benefit.

Example: A landlord requires the lessee to purchase their crop insurance from an agent: the agent also sells seed, gives the landlord a discount which is passed down to the lessee; the landlord is given farm management software from the agent which they then provide to the lessee; the agent pays the landlord, and the landlord provides a reduced lease rate to the lessee.

Lending institutions may offer a patronage dividend program calculated based upon loan interest paid or other product purchases. Cooperatives may provide their members a dividend calculated based upon the business they conducted with the cooperative. If MPCI premium is not part of the calculation to determine the dividend a producer receives, it is not a rebate. If MPCI premium is included in the calculation, it is a rebate. A producer participating in a dividend program should be eligible and receive the same amount regardless of whether they purchased their MPCI from the entity providing the dividend. The only exceptions are the “grandfathered” cooperatives listed above.

Reference 5) above contains guidance on the Anti-Rebating Certification Statement. The following certification statements are included on a form executed by the insured and their crop insurance agent.

Applicant/Insured Statement
--I certify, for the crop year indicated, that I have not directly or indirectly received, accepted, or been paid, offered, promised, or given any benefit, including money, goods, or services for which payment is usually made, rebate, discount, abatement, credit, or reduction of premium, or any other valuable consideration, as an inducement to procure insurance or in exchange for purchasing this insurance policy after it has been procured. I understand that this prohibition does not include payment of administrative fees, performance based discounts, and any other payment approved by FCIC that are authorized under sections 508(a)(9)(B) and 508(d)(3) of the Federal Crop Insurance Act (Act) (7 U.S.C. §§ 1508(a)(9)(B) and 1508(d)(3)). I understand that a false certification or failure to completely and accurately report any information on this form may subject me, and any person with a substantial beneficial interest in me, to sanctions, including but not limited to, criminal and civil penalties and administrative sanctions in accordance with section 515(h) of the Act (7 U.S.C. §1515(h)) and all other applicable federal statutes.

Agent Statement
--I certify, for the crop year indicated, that I have neither offered nor promised, directly or indirectly, any benefit, including money, goods, or services for which payment is usually made, rebate, discount, credit, reduction of premium, or any other valuable consideration to this person either as an inducement to procure insurance or in exchange for obtaining insurance after it has been procured. I understand that this prohibition does not include payment of administrative fees, performance based discounts, and any other payment approved by FCIC that are authorized under sections 508(a)(9)(B) and 508(d)(3) of the Federal Crop Insurance Act (Act) (7 U.S.C. §§ 1508(a)(9)(B) and 1508(d)(3)). I understand that a false certification or failure to completely and accurately report any violation may subject me, and all agencies/companies I represent, to sanctions, including but not limited, to criminal and civil penalties and administrative sanctions in accordance with section 515(h) of the Act (7 USC §1515(h)) and all other applicable federal statutes.

Every MPCI customer and agent is certifying that they have not received or given a rebate. If you are unsure whether the rebating prohibition applies to your situation, contact your AIP.

As stated in the Anti-Rebating Certification Statement executed by the producer and agent, both are subject to sanctions including criminal and civil penalties and administrative sanctions in accordance with Section 515(h) of the Federal Crop Insurance Act (FCIA) Laws and Regulations and all other applicable federal statutes. Sanctions include civil fines and disqualification for up to 5 years.