WASHINGTON — Sen. Chuck Grassley today said he was very disheartened about a proposed rule from the Risk Management Agency regarding the Premium Reduction Plan, which was created to allow insurance providers an opportunity to reduce farmer premiums based on the provider’s efficiencies.
The proposed rule requires that the discount available to farmers may not vary between states, crops, coverage levels, policies or plans of insurance.
"Anyone involved in crop insurance knows it costs less to provide insurance in Iowa than it does in Texas because we have less risk. I don’t think it’s possible to have non-variable efficiencies in an environment full of variable costs," Grassley said. "If RMA attempts to arbitrarily cap the program’s benefit based on the state with the highest cost of delivery or risk, the only folks that lose are the ones that had the most to gain, those in low risk areas like Iowa."
Grassley said that the rule implies that if companies don’t want to be subjected to caps based on states with high risks, the companies must cut the high risk states out of the program. He said that isn’t going to help maintain support in Congress for crop insurance and put the federally subsidized crop insurance program at risk.
"I have sent a letter to RMA asking for further clarification. If I’m not satisfied with the answer I’m not afraid to address this problem by cutting funding for the rule or the program," Grassley said.
Grassley had previously expressed concern with the Premium Reduction Plan because it had been used to develop products that have limited appeal and seemingly target large farms. He was concerned that this type of product could lead to further consolidation and concentration in agriculture if only the largest farmers are using the program and receiving the benefits.
Here is a copy of Grassley’s letter.
March 29th, 2005
Mr. Ross Davidson
Administrator, Risk Management Agency
1400 Independence Ave. SW, Room 6092
Washington, DC 20250
Dear Mr. Davidson:
After reviewing the proposed rule regarding Premium Reduction Plans (PRP) printed on February 24th, 2005, I have come to the conclusion that the intent of the proposed rule is difficult to discern and the rule seems to contradict itself. It is crucial that this rule be clear and easily understood before it moves forward. For that reason I would ask that you answer the following questions so that I may better understand the intent of the proposed rule regarding PRP.
1) According to the proposed rule, the legal interpretation is that the discount has to correspond to the efficiency (pg 9005, 9006, and 9008). At what level does this rule apply? State, policy, plan of insurance?
2) On page 9008 (middle column) RMA is proposing that the premium reduction amount must be commensurate with the amount of savings obtained from the efficiency in that state. How will RMA enforce this rule? Does RMA intend to require companies to provide state level accounting?
3) Does RMA believe that it costs the same to deliver a corn policy versus a fruit or tree policy?
4) Does RMA believe it costs the same to deliver crop insurance in IA as it does in TX?
5) Proposed section 400.715 says that the discount has to be offered in every state and for every plan of insurance that the company writes. It further says that the amount of the discount may not vary between states, crops, coverage levels, policies or plans of insurance. TAKEN WITH #2, HOW CAN A COMPANY THAT WRITES IN MORE THAN 1 STATE OFFER A DISCOUNT? DELIVERY COSTS VARY BY STATE, and PLAN OF INSURANCE, HENCE ANY EFFICIENCY WILL VARY BY STATE and PLAN OF INSURANCE. For example, a 1% reduction in agent commissions will impact TX agents significantly more than IA agents. Or a computer efficiency will impact States that have more policies written (IA for example) than those with a few policies.
6) Is it possible to have non-variable efficiencies in light of variable costs? How detailed will RMA get with its plan and oversight review to make sure efficiencies do not vary by State and the discount truly "corresponds" to the efficiency.
I have been very concerned about the influence of PRP on crop insurance over the last few years. As you know, I sent you a letter last April 13, 2004, which stated many concerns and my apprehension with a program that is seemingly being targeted primarily to large farmers. You recently answered that letter and attempted to alleviate my concerns, but to date I’m still unconvinced that this product is appealing to all sizes of farming operations.
I believe my staff has already sent the questions in this letter to your staff through email to guarantee your receipt and encourage a more timely response than the last letter I sent to you on this topic. I look forward to your prompt response.
Sincerely,
Chuck Grassley
United States Senator
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