A. Private Sector Individuals Can Develop Insurance Products

Private sector individuals (or groups) who have specific ideas in mind as to what type of risk management insurance products are needed for their crops or livestock can develop insurance products to be considered for approval by the Federal Crop Insurance Corporation (FCIC) Board of Directors (Board). Section 508(h) of the Federal Crop Insurance Act (Act) allows private parties to develop insurance products that are: (1) in the best interests of producers, (2) follow sound insurance principles and (3) are actuarially appropriate.

Private sector individuals may submit: (1) crop insurance policies, (2) provisions of policies; or (3) rates of premium. These submissions are commonly referred to as 508(h) Submissions. If a private individual prefers, a Concept Proposal can be submitted to the Board prior to fully developing a 508(h) Submission. The Board may approve an advance payment for the Concept Proposal for a portion of the expected research and development expenses to aid in the development of the 508(h) Submission. Be sure to review the documents shown in item B for links to important documents that provide details about these types of product submissions.

B. Important Documents/Links

Appendix III/M-13 Handbook Index - provides standards, instructions and information for electronic data reporting of policyholder, commodity and other information submitted by Approved Insurance Providers (AIP) as required by the Standard Reinsurance Agreement (SRA), Livestock Price Reinsurance Agreement or other Risk Management Agency (RMA) policy and procedures.

Concept Proposal Procedures - “Approved Procedures for the Submission of Concept Proposals Seeking Advance Payment of Research and Development Costs” - establishes guidelines and responsibilities of the FCIC and the applicant for the submission of a Concept Proposal to the FCIC Board for approval of an advance payment covering the estimated research and development expenses as authorized under section 522(b) of the Act.

Criteria for Insurance Product Development - “General Guidelines, Considerations, and Criteria for Feasibility of Insurance Product Development” - provides general information that may be helpful to private entities who are interested in developing crop or livestock insurance products.

Document and Supplemental Standards Handbook (DSSH) - provides the form standards and procedures for use in the sales and service of any eligible crop insurance policy; AIP required statements and disclosures; and the standards for submission and review of non-reinsured supplemental policies in accordance with the SRA.

External Handbook Standards - provides procedures and instructions for developing and maintaining RMA external handbooks.

Federal Crop Insurance Act - provides guidelines on what types of products are allowed to be reinsured and legal authorities for coverage.

Index-based Weather Procedures – These procedures establish guidelines and responsibilities of FCIC and the applicant for the submission of Index-based Weather Plans of Insurance to the FCIC Board of Directors (Board) for approval as authorized under section 523(i) of the Act.

Reasonableness Procedures: Approved Procedures For Reimbursements & Determination of Reasonableness Related To Reimbursement Expenses for Concept Proposals, 508(H) Submissions & User Fee Requests - These procedures must be used for all Concept Proposal and 508(h) submissions because information on costs is required at each stage of the submissions. The document also provides the guidelines and formats for reimbursement requests including advance payments for expected research and development costs, research and development reimbursement, maintenance payments, and user fee requests. The procedures include content and format requirements of estimated and actual cost budgets for all privately submitted products, provide requirements for the timing of reimbursements and user fee requests, and guidelines the Board will use to determine reasonableness of expenses. These procedures apply to the submission of policies, provisions of policies and rates of premium under Section 508(h) of the Act and 7 C.F.R. part 400, subpart V (Subpart V), and advance payments for Concept Proposals submitted under section 522(b).

Procedure for Review of New and Revised Crop Insurance Products and Determination of Pilot/Permanent Status - provides approved procedures the FCIC Board of Director’s review of new and revised crop insurance products and determination of pilot or permanence status of products.

Subpart V - Submission of Policies, Provisions of Policies, and Rates of Premium - This regulation provides all necessary guidelines including but not limited to: 1) what to submit for potential insurance products, 2) when to submit privately developed products, and 3) how the reimbursement for research and development and maintenance is handled.

508(h) Submission Checklist - required elements for a complete 508(h) submission.

508(h) Submission Flowchart - development cycle for a 508(h) submission.

522(b) Concept Proposal Checklist - required elements for a complete concept proposal.

522(b) Concept Proposal Flowchart - development cycle for a concept proposal submission.

Index-based Weather Checklist - required elements for a complete index-based weather plan of insurance.

Written Agreements on 508(h) Products – provides guidelines for submitting requests to allow written agreements on 508(h) products.

C. Types of Insurance Product Submissions

1. As a Concept Proposal with the intent to develop a full 508(h) submission

2. As a fully-developed 508(h) submission

D. Concept Proposal Submission

Concept Proposal submissions are created using the guidelines found in the Concept Proposal Procedures with subsequent development of a complete 508(h) Submission (see E.). They must be approved by the Board to be eligible for an advance payment of a portion of expected research and development expenses.

E. 508(h) Submission

508(h) Submissions are created using the guidelines found in Subpart V and are fully-developed insurance products or rates of premium. They must be approved by the Board to be implemented as a Federal crop insurance product eligible for reinsurance and potential subsidy to producers, and to receive reimbursement of research and development and maintenance expenses. If the Board does not approve the 508(h) Submission, then no research and development or maintenance expenses will be paid.

F. The Approval Process

Submissions are first reviewed for completeness to determine if all items listed in the Concept Proposal Procedures or Subpart V for 508(h) Submissions are included and are of sufficient quality to obtain a meaningful external review. Generally, once a submission is determined to be complete and of sufficient quality, the Board will vote to decide if the submission will be sent for external review. Following external review, the submission and reviews will be returned to the Board for consideration of approval of an advance payment for the Concept Proposal, or for product approval of a 508(h) Submission.

For Concept Proposals, when the Board votes on approval, they are voting on approval of an advance payment of research and development expenses. The maximum amount that can be approved is 50 percent of expected research and development expenses.

For 508(h) Submissions, if the Board votes for approval, they are actually approving the product for implementation as a risk management product in the future

G. Reimbursement For Expenses Incurred While Developing A Risk Management Product.

The 508(h) Submission process allows private parties to be paid for ‘reasonable’ research and development expenses incurred during development of the product, and up to 4 years of maintenance expenses. After the maintenance period, the submitter may continue to maintain the product in later years charging a fee to cover maintenance expenses, or turn the product over to the FCIC.

Additional information about User Fees.

Full information about reimbursements can be found in Subpart V, section 400.712, and in the document titled “Reasonableness of Reimbursement Expenses for 508(h) and Concept Proposal Submissions”.

H. External Review

Concept Proposals are reviewed by at least 2 external (to the RMA) expert reviewers.

508(h) Submissions are generally reviewed by 5 external expert reviewers.

Both types of submissions are also reviewed by RMA, Office of General Counsel and the Board members.

I. External Expert Reviewers

Expert reviewers are independent, experienced actuaries and underwriters approved by the Board and defined in the “Procedure for the Submission and Review of New and Revised Crop Insurance Policies” as:

Actuary - A person having technical competence relating to the current financial implications of future contingent events, especially as this affects the establishment of premium rates for insurance, as evidenced by: 1) membership, as either a fellow or associate, in the Casualty Actuarial Society; 2) at least 10 years of professional level work experience as an actuary setting rates for crop insurance or related lines such as hail, livestock, or farm insurance; or 3) at least 15 years of professional level insurance premium rate setting experience in, or equivalent to, the GS-1510 (Actuary) job series.

Underwriter - A person having technical competence and experience with the design of insurance policies, the classification and acceptance or rejection of risks, or the class of asset or activity (e.g. - the production risks or economics of specific crops) proposed to be insured, and who applies such knowledge to assure the proper functioning of insurance programs, as evidenced by: 1) at least 10 years of professional level work experience as an crop insurance underwriter; 2) at least 15 years of professional level work experience as a property and casualty underwriter in fields related to crop insurance, such as hail, livestock, or farm insurance; 3) at least 15 years of experience as an agricultural risk management consultant; 4) a Ph.D. in agricultural economics with at least 5 years of post-doctoral work in crop insurance or agricultural risk management; or 5) a Ph.D. with at least 5 years of post-doctoral work in a field of agriculture, risk management, etc., directly related to the agricultural commodity or activity proposed to be insured.

A person may apply to the Board to become an expert reviewer through the Secretary to the Board. Your application must include: (1) information to show that you meet the requirements in the “Procedure for the Submission and Review of New and Revised Crop Insurance Policies” to be considered as an actuary or underwriter for reviews, (2) a resume, and, (3) a writing sample. Inquiries should be emailed to Robin Anderson.

Contact Information
For more information, contact Product Administration and Standards Division at 816-926-7387.