Company Update/Industry Update. Great American Insurance Company 2000 Business Review MPCI –$ 145...

Company Update/Industry Update

Great American Insurance Company

• 2000 Business Review• MPCI

– $ 145 million• 15% increase over 1999

• Crop Hail– $ 16.7 million

• Low Commodity Prices• Migration to MPCI coverages

• Named Peril– Estimated at $ 3.1 million

• Strategic reduction in Southeast wind exposure. 0

20

40

60

80

100

120

140

160

1999

2000

NamedPeril

Crop-Hail

MPCIInsurance

Total


©2 000 NC IS 20 01 F all U pda teLe gisl ation -1

A g ri cu lt u ra l R is k P ro te c tio n A c t of 2 00 0

• Legislative Action– Agricultural Risk

Protection Act of 2000 (ARPA)

– Signed June 20th, 2000

– Public Law 106-224


• Agricultural Risk Protection Act of 2000– Title I - Crop Insurance Coverage– Title II - Agricultural Assistance– Title III - Biomass Research and Development

Act of 2000– Title IV - Plant Protection Act– Title V - Inspection Animals


• Agricultural Risk Protection Act of 2000

– Title I - Crop Insurance Coverage• Invests 8.5 billion dollars over a 5 year

period in crop insurance.



• Title I - Crop Insurance Coverage– Expected Market Price

• Shall not be less than the projected market price of the commodity.

• May be based on the actual market price at time of harvest.

• Alternatives available for other plans– Cost of Production, etc.



• Title I - Crop Insurance Coverage

– Performance Based Discounts • Premium discount for producers who have

good insurance or production experience as compared to other producers of commodity in the area.


• Agricultural Risk Protection Act of 2000• Title I - Crop Insurance Coverage

– Increased Premium Subsidies • Subsidies increased for all buy-up levels• Other Plans approved before enactment

receive same subsidy percentage as traditional MPCI Plans

– CRC, RA, Pilot Programs, etc.


0

500

1000

1500

2000

2500

1987

1989

1991

1993

1995

1997

1999

SubsidyFarmer Pd

52 Mil

193 Mil

Premiums & Participation

Acres Insured


MPCI Policies Earning Premium

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1994

1995

1996

1997

1998

1999

Crop Years

Nu

mb

ers

CAT

Buy-up


• 1998-1999 Disaster Relief 30 Billion Dollars

• 2000 Disaster Relief 5.5 Billion Dollars0.0

1.02.03.04.05.06.07.08.09.0

1987

1989

1991

1993

1995

1997

1999

NAPDisasterIndemnity

-Disaster Assistance-

1998 1999 2000

MLA 3.1Bil 5.4 5.5

Crop Loss 2.4 1.2 ---

Premiums .4 .4 .4


Crop Year 2001

Increase in Premium Assistance

Coverage Level 50% 55% 60% 65% 70% 75% 80% 85%

2000 Reinsurance Year 55% 46% 37.80% 41.70% 31.90% 23.50% 17.30% 13%

2000 Reinsurance Year + 25% 66.30% 59.60% 53.30% 56.30% 48.90% 42.60% 38% 34.70%

Ag Risk Protection Act (2001) 67% 64% 64% 59% 59% 55% 48% 38%

• New Buy - Up Premium Subsidies for 2001


CA

T

55 65 75 85

Current Law0

50

100

Per

cen

t S

ub

sid

yST A: Section 101

Subsidy: old VS new

ARPA 2000

Add 25% EFA Sub


• CAT Coverage Changes

– LAE Reimbursement Rate• Reduced from 11.0% to 8% • Effective 2001 Reinsurance Year


• CAT Coverage Changes– Payment of Administrative Fees

• Permits cooperatives and trade organizations to pay all or part of CAT fee for their members.

– If State law allows licensing fee or other payment to be paid by Insurance Provider to a cooperative or trade association and rebated to a producer with CAT or Additional coverage.

• Insurance coverage must still be delivered by a licensed agent.


Coverage Level Reinsurance Year 2000 Reinsurance Year 2001Catastrophic $60 Crop/County $100 Crop/CountyUp to 65/100 $50 Crop/County $30 Crop/County65/100 or Greater $20 Crop/County $30 Crop/CountyNAP No Fee $100 Crop/County not to

exceed $300/Crop or$900/Producer

•Administrative Fee Overview


• APH Adjustments– Effective for the 2001 Reinsurance Year

• Option to replace AHP yield below“60% T”with“60% T” (Detail to be discussed later in presentation.)

– Insurance Rate based upon original data.– Guarantee of Coverage based upon revised data

• Adjust yields for successful pest/disease eradication program.

– Boll Weevil Eradication– Integrated Pest Management


• Premium Rates– FCIC must periodically review and reevaluate:

• Current rates and rate methodologies by:– Contracting with:

» Private insurance companies» Rating bureaus» Other organizations

• Rates and loss history must be analyzed by geographic area.

• 2002 rates may be adjusted if these rates are excessive for a commodity in the area.


• Quality Adjustments– An option for the purchase of Quality Loss

Adjustment on a “smaller than unit” basis if the following conditions apply:• Policy is sold on an identity preserved basis.• All quality determinations are made:

– Solely by the Federal agency designated to grade or classify.– In accordance with standards published in the Federal

Register.– Discount schedules will be established at

the determination of the Secretary.


• Quality Adjustments– FCIC will set quality standards which will

direct quality losses to be paid based on the variability of the grade from the base quality.

– FCIC will contract the review of Quality Loss Adjustment procedures• To more accurately reflect local quality discounts.• Adjustments will be made emphasizing

– Actuarial soundness– Fraud, Waste, and Abuse


• Double Insurance/Prevented Planting– First Planted Crop Options

• Crop #1 has loss or is prevented from planting

– Producer Options• If no second crop is planted for harvest on the

same acreage– Collect 100% of the loss or the Prevented Planting

Payment.

• If a second crop is planted for harvest on the same acreage

– Collect up to 35% of the loss or the prevented planting payment


• Double Insurance/Prevented Planting– No Loss on 2nd Crop

• Premium is earned• 1st crop full indemnity is due (subtracted

by the amount previously collected).• Prevented planting becomes equal to a

maximum of 35% of the insurable loss.


• Double Insurance/Prevented Planting– Loss on 2nd Crop

• Loss is payable, and premium is earned• 1st crop indemnity or prevented planting stands as

originally paid (not to exceed 35% of the insurable loss)• 1st crop premium MAY be recalculated to correspond

with the indemnity paid. – Example: $20,000 loss = 20% premium reduction – $100,000 liability


• Subsequent Crops– Are there provisions for a 3rd crop

intended for harvest on the same acreage as the 1st and 2nd.

–NO!– MPCI Crop Insurance is not available under

this circumstance.– NAP is not available under this circumstance.


• Prevented Planting Qualifications

– How/When do I qualify for prevented planting?– An insured will qualify for prevented planting

when:• Other producers in the area are generally affected,

and• 2nd crop cannot be planted before the end of the

1st crop late planting period.


• Prevented Planting and Double Cropping– If all crop conditions are met:

• Double cropping must be an established practice in the area.

• “Additional” coverage levels must be available for the specific double cropping situation.

• Valid history for double cropping by producer exists– The producer has 2 or more crops planned for harvest on the same

acreage, or– The applicable acreage has historically had 2 or more crops

intended for harvest in the same crop year.


• Prevented Planting and Double Cropping– If all crop conditions are met:

• The secondary crop must follow a customary practice of farming after the first crop.

– Indemnities can be paid on Double Cropping if:• 2 or more crops are customarily planted for

harvest in the same crop year.


• NAP– NAP area triggers have been removed– Fees are now charged!

• $100 / Crop/ County not to exceed• $300 / County or• $900 / Producer

– Producers report acreage and yields to FSA.


• Program Compliance/Integrity – FCIC shall:

• Work with Insurance Providers to address program compliance and integrity issues as they develop.

• Reconcile relevant information with FSA to identify discrepancies.


• Fraud, Waste, and Abuse– FSA will assist in monitoring fraud,

waste, and abuse by:• Conducting fact finding sessions at the

request of FCIC or of their own initiative.• Report to FCIC

– The results of fact finding missions.– Any identified program vulnerabilities.

• Assist FCIC and Insurance Providers in the claims auditing process.


• Fraud/Waste/Abuse

– FSA field infrastructure may be used, but• FSA personnel must

– receive the same level of training as adjusters,– pass the same competency tests.

– FSA State Committee will be consulted on• Policies, plans of insurance, and related material

– Including sales closing dates, t-yields, etc.

–


• Fraud/Waste/Abuse– Data Mining

• FCIC will review agents and adjusters with claims greater than 150% of the mean by all other agents or adjusters in the area.

• Search for other disparities.

– FCIC will take remedial action if warranted.


• Fraud/Waste/Abuse– Annual Performance Reviews

• Providers are required to conduct an annual performance review of each agent and adjuster.

• Findings reported to FCIC.

– Remedial action may be required.


• Fraud/Waste/Abuse– Information Requirements

• Policy data must be submitted within 30 days of Sales Closing Date.

– Name and ID number of insured– Commodity to be insured– Coverage Level– Price Election

•Penalties for late reporting


• Fraud/Waste/Abuse– Penalties of Abuse

• Sanctions exists for anyone that willfully and or intentionally provides false or inaccurate information, or fails to comply with a requirement of FCIC.

– Producer, Agent, Adjuster, Insurance Provider, and Others involved in Crop Insurance


• Fraud/Waste/Abuse– $$ Civil Fines $$

• For each material violation-– Not to exceed the greater of:

» the amount of the pecuniary gain obtained, or

» $10,000


• Fraud/Waste/Abuse– Disqualification

• The person may be disqualified for up to 5 years from receiving benefits or participating in:

– Crop Insurance AMTA/NAP– Agriculture Act of 1949 CCC Charter Act– AAA of 1938 Food Security Act of 1985– Consolidated Farm/Rural Development Act– All laws providing crop loss or price decline assistance.


• 508(h) Product Research and Development – Cost Reimbursement

• FCIC will reimburse research and development costs for 508(h) submissions approved before and after enactment.

• Maintenance costs associated with the annual costs of underwriting for up to 4 reinsurance years will be reimbursed.


• 508(h) Product Research and Development

• After the 4 year period has passed, the maintaining provider may:

• Continue to maintain the underwriting standards, and charge a fee to Insurance Providers that sell the program or

• Transfer the maintenance over to FCIC


• Research and Development– Contracting Authority

• FCIC may now contract Research and Development to increase participation in states where low participation and availability exists.

– States underserved in both products and volume.– States lacking specialty crop programs.

• FCIC may contract with qualified persons experienced in:

– Crop Insurance or– Farm or Risk Management


• Research and Development• Contracting Authority

– Qualified Contractors may include:• A college or university.• An approved insurance provider, or• A trade or research organization.


• New Product Development• Reimbursements • 508(h) Development/Maintenance

– 10 million 2001-2002– 15 million thereafter

• Contracting Authority– 20 million 2001-2003– 25 million thereafter– 5 million for low participation states


• What is the future of the Pilot Programs?– To evaluate a new risk management tool,

FCIC may conduct a pilot:• Submitted under 508(h)• Developed under the specific livestock provisions

of this act, or• Developed under the Act’s contracting authorities

– FCIC may not pilot insurance if protection against the risk is generally available from private companies.


• Pilot Program Activities– Pilots may include insurance against losses

involving:• Reduced forage on rangeland caused by drought or

insects.• Livestock poisoning and disease.• Destruction of bees due to the use of pesticides.• Unique special risks related to:

– Fruits and nuts– Vegetables, and– Specialty Crops

» Aquaculture, Forest and other needs


• Pilot Program Activities– FCIC may

• Approve a pilot on a regional, state, or national basis.

• Operate the pilot for up to 4 years and extend if necessary.

– The pilot may later expand to include the use of:• Whole farm units• Single crop units• Cross state or county units


• Where is the Livestock Pilot?• In the fiscal year 2001, FCIC will conduct at

least 2 pilot programs to evaluate:– The effectiveness of risk management tools for

livestock producers, including the use of:• Futures and options contracts, and• Policies and plans of insurance.

– Protection from financial risk of price and income fluctuations in:• Production, and• Marketing


• What animals will qualify for the livestock pilot?

– Cattle– Sheep– Swine– Goats– Poultry


• What is the economic impact of livestock in our current economy?

• How does it compare to our crop economy?

– Fiscal Year 1999– Crops 98 Billion Dollar Business– Livestock 99 Billion Dollar Business


• Livestock– FCIC may provide:

• Reinsurance• Subsidy for the purchase of:

– Futures and options contracts.– Policies and plans of insurance.

– No livestock pilot will exist where protection generally is available from private companies.


• Livestock– This program will be piloted in an

adequate number of counties to determine:• Feasibility• Effectiveness, and• Demand among producers


• Pilot Program Activities Rate Reduction

– FCIC wishes for insurance providers to compete in a financially sound manner. Beginning with the 2002 crop year:• Insurance providers may seek FCIC approval

for policies and plans with reduced rates– For 1 or more commodities, and– Within a limited geographic area


• Pilot Program Activities Rate Reduction

• FCIC approval requirements questions:– Are the interests of the producers

adequately protected?– Is the size of the proposed pilot area

adequate?


• Spread the News!– FCIC will establish a crop insurance

education and information program for producers:• In states in which there is traditional and

continual low participation and/or availability, and

• In states under served by the crop insurance program.


• Educational Efforts– Insureds will have opportunities to learn more

about topics such as:– Futures Options Ag Trade Options– Crop Insurance Cash Forward Contracting– Debt Reduction Production Diversification– Risk Reduction Other Risk Management Tools


• How will these efforts be funded?– Grants will be awarded by peer or

merit review.– No more than 4% of the grant funds

can be used for administrative costs.– $5 million dollars are authorized for

2001 and subsequent years for the:• Education and Information program• Risk Management Education program


• Cost Sharing• Cost share assistance is available in 10 - 15

low participation states to:– Construct and improve watershed management or

irrigation structures– Plant windbreak trees to improve water quality– Mitigate financial risk through diversification and

resource conservation practices including:• Soil erosion• Integrated pest management,or• Transition to organic farming


• Cost Sharing– The program may also provide the

ability to:• Enter into futures and hedging/options

contracts.• Enter into agricultural trade options as a

hedging transaction.• Conduct any other related activity.


• What are the funding opportunities for Cost Sharing?– Cost Share Funding Plan

• Payments limitation of $50,000.• Administered through CCC.• Begins 2001 and continues through

subsequent years.


• Electronic Commerce– Requires RMA

• to make available electronically, all forms and program information

• to allow producers to use electronic means to submit required information

– “The Electronic Signatures in Global and National Commerce Act”

– “Freedom to E-File Act”


• Electronic Commerce– Requires RMA

• to submit implementation plan by October 1, 2000

– Subject to review by Office of Management & Budget (OMB)

• to fully implement plan by December 1, 2001


• Electronic Commerce– Insurance Providers

• Required to comply with law– December 1, 2001 implementation

• Must submit E-Commerce plan to RMA– Mandatory beginning 2002 Reinsurance Year– Provisions added to SRA


• FCIC Board Administration• Who are the new members of the Board?

• FCIC manager serves as a non voting ex officio member.

• Under Secretary of Agriculture over the FCIC program.– Under Secretary is designated by the Secretary.

• Chief USDA Economist.• 1 person experienced in the crop insurance business.• 4 active insured producers

– All from different geographic areas– Representing a cross section of farmers

» At least one specialty crop producer


• FCIC Board Administration– Total membership of 9.– FCIC Board:

• Appointed by the Secretary.• Will not otherwise be employed by the government.• Appointed to staggered 4 year terms, and• Will not serve more than 2 consecutive terms.

– The Board will elect its Chairperson.• The initial members of the Board

will be appointed February 1st - April 1st, 2001


• FCIC Board Action– The new Board will contract for:

• Independent review of any new policy and/or plan or related material.

– At least 5 persons will conduct reviews.• Only 1 may be employed by the

government.• At least 1 will be designated by insurance

providers.• None employed by an insurance provider

may review a 508(h). (pilot program)


• Specific Crop Issues Provisions– Potato

• No revenue insurance except as a whole farm policy/plan.

– Beginning with 2001:• Cotton/Rice: will include prevented planting

and replanting coverage.• Rice: Failure of irrigation water supplies due

to drought and saltwater intrusion will be insurable.


• Specific Crop Issues Provisions– Durum Wheat: An insured that purchased

1999 CRC by the sales closing date will receive an indemnity in accordance with the policy.• Base and Harvest prices will be in accordance

with the 07/14/98 CEE.• Reinsurance will be in accordance with the SRA.• Bulletin MGR-99-004 is void.• Effective 10/01/00.


• Thoughts and Actions of Congress– Congress:

• Is committed to responding to the concerns of rural America.

• Pledges to devote full attention to making necessary changes to Federal agricultural programs that will:

– Alleviate the agricultural price crisis.– Ensure competitive markets.– Ensure all farmers participate in the benefits of those programs. – Invest in rural education and health.– Increase resources for outreach and technical farming assistance.– Conserve our natural resources, and– Ensure a safe and secure food supply.


• Let’s summarize!

• What are the important features of this new legislation?

• How is my business effected?


• 8.5 Billion Dollars invested in Crop Insurance over 5 years.

• Impressive new premium subsidies for insureds.


• 60% T level option greatly improves the APH of insureds with disaster years.

• New procedures for Double Cropping and Prevented Planting. (Not effective for 2001 Crop Reinsurance Year.)

• NAP triggers removed and fees required.


• FCIC is involving FSA in compliance issues of fraud, waste and abuse.

• New strict fines imposed for violation of crop insurance program.

• Funding designated for expansive pilot programs such as livestock.


• New composition of member FCIC Board.

• Grants will be awarded for Education and Research.

• Private and public organization will be contracted to explore future possibilities for the expansion of crop insurance.


• The only consistency we will find within crop insurance is “change.”

• QUESTIONS……...

Date post:	26-Mar-2015
Category:	Documents
Upload:	autumn-ward
View:	212 times
Download:	0 times

Company Update/Industry Update. Great American Insurance Company 2000 Business Review MPCI –$ 145...

Documents