Many agricultural producers across the nation obtain crop insurance coverage for their planted acreage under the federal crop insurance program (“FCIP”). Crop insurance plays an important role to a producer’s risk management plan. Producers primarily purchase crop insurance to protect against financial losses resulting from unfavorable growing or market conditions. Insurance coverage is not limited to crop commodities and is available for certain livestock producers. Overall, in times of natural disasters, decreased production, and low commodity prices, the FCIP helps support farm income.
The structure and administration of the FCIP differs greatly from other types of insurance. Specifically, the FCIP operates as a public-private partnership where the program is administered by the federal government, but insurance policies are sold and serviced by private insurance companies. Much like the structure of the program, the legal issues that arise under the FCIP are often complicated. Therefore, understanding the structure and administrative procedures of the program is necessary for producers, crop insurance providers and their agents, and others when considering the legal issues that can arise under federal crop insurance.
Background
The FCIP was established in 1938 following many unsuccessful attempts by the private sector to offer affordable crop insurance to producers. To carry out the provisions of the program, Congress created the Federal Crop Insurance Corporation (“FCIC”), a wholly owned corporation of the United States Department of Agriculture (“USDA”). The FCIP was expanded greatly in 1980 when Congress enacted the Federal Crop Insurance Act (“FCIA”) (P.L. 96-365). The FCIA expanded the types of commodities eligible for coverage, authorized a subsidy for premiums, and authorized private insurance companies to sell crop insurance policies.
Structure
Today, USDA administers the FCIP through its FCIC and its Risk Management Agency (“RMA”). Although both FCIC and RMA have significant oversight over the FCIP and private insurance providers known as Approved Insurance Providers (“AIPs”), each entity serves different functions.
In general, FCIC works to “carry out the purposes” of the FCIA, meaning it works to “promote the national welfare by improving the economic stability of agriculture through a sound system of crop insurance….” 7 U.S.C. § 1502(a). Essentially, FCIC is authorized to administer the FCIP. FCIC does this by providing reinsurance to AIPs and implementing regulations needed to carry out the FCIP. FCIC is managed by a Board of Directors (“Board”)—which is comprised of USDA officials, crop insurance professionals, and current policy holders—and is supervised by the Secretary of Agriculture. The Board develops and approves new insurance policies and modifications to existing policies.
Once finalized, the policies are codified in the Code of Federal Regulations at 7 CFR Parts 402, 407, and 457. The basic provisions that apply to FCIP policies, which are referred to as the “Common Crop Insurance Policy” (“CCIP”), provide the terms and conditions for insurance policies offered by AIPs.
While FCIC has administrative authority over the FCIP, most administrative duties are primarily conducted by RMA. In general, RMA writes the crop insurance policy terms, determines rates and coverages, administers premium and expense subsidies, develops new crop insurance policy plans, and publishes the Crop Insurance Handbook (“Handbook”). RMA publishes the Handbook to ensure AIPs comply with the policies established by FCIC by providing guidelines, procedures, and instructions for the administration of crop insurance policies sold by AIPs.
RMA, on behalf of FCIC, also serves as a reinsurer for AIPs through a contract called the Standard Reinsurance Agreement (“SRA”). Essentially, reinsurance allows an AIP to transfer a portion of the underwriting risk to RMA. The SRA permits AIPs to sell and service crop insurance policies to agricultural producers. In turn, RMA is required to issue administrative and operating payments to AIPs for the cost of administering insurance policies. Under the SRA, AIPs are required to sell and service crop insurance policies established by FCIC under the federal regulations, which means the AIPs cannot modify the terms and conditions contained under these policies.
Policies
Currently, the FCIP offers insurance coverage for over 100 commodities under several different types of policy plans. Policies differ depending on the type of commodity, and the state and county where the commodity is grown. Crop insurance policies are typically categorized as either revenue loss or yield loss. Revenue loss insures against loss of revenue resulting from a production loss and price decline if the market price drops. Yield loss insurance coverage protects against a production loss determined by a producer’s average production history. Certain losses, however, are not covered by crop insurance. For example, losses due to a producer’s “neglect or malfeasance” or failure “to follow good farming practices” are not covered by crop insurance. 7 USC § 1508(a)(3)(A).
Crop Insurance Administration
Producers work with insurance agents to purchase crop insurance policies sold by AIPs. This means producers enter into a crop insurance contract with their AIP in order to insure their crops. Once a producer’s crop is planted, they must report the planted acres on a document known as an Acreage Reporting Form (“ARF”). The ARF is an important document because a producer’s insurer use the information reported in the form to determine which coverage applies to a producer’s crop.
Under an ARF, a producer identifies the crop planted in each field and the type or the intended harvest method of that crop. For example, a producer attempting to insure their corn crop must report they planted corn for harvest as either grain or silage. Producers are required to indicate the method of harvest because grain and silage policies differ because there are different risks associated with insuring grain and silage. Importantly, producers are required to certify that the information reported in their AFR is true.
Once the producer’s crop is insured, it continues to be insured as the type of crop reported in their ARF even if they harvest the crop different than the method indicated in the form. When a producer is changing their method of harvest, FCIC policy requires them to notify their insurance agent of the change. Once notified, their insurer sends an adjuster to calculate the actual production of the producer’s yield. Adjusters use different calculations depending on the type of crop. The calculation is used when the producer makes a claim on their insurance.
Producers making a loss claim on their insurance policy must notify their crop insurance agent. Their agent then submits the claim to the AIP using a form called the Notice of Loss (“NOL”). The AIP reviews the NOL and decides whether to approve or deny the insurance claim. If approved, the AIP issues payment to the producer.
Conclusion
Generally, insurance agents assist producers with the crop insurance process. In fact, many producers rely on their agents to properly insure their crops. When insuring crops, insurance agents rely on the insurance policies published in the federal regulations and the Handbook. However, there are instances where the crop insurance statutes, regulations, and the Handbook lack clarity on how to properly insure a producer’s commodity. When this occurs, the ambiguous insurance provisions are resolved by the legislature, regulating agency, or judiciary.
This article is the first in a series that the National Agricultural Law Center will publish over the next several weeks discussing the FCIP and certain legal issues that arise under the program. The next article in this series will discuss a recent case that examines an ambiguous provision in the coarse grains insurance policy and the Handbook.
To view FCIC regulations and FCIP policies, click here.
To view the RMA 2022 Crop Insurance Handbook, click here.
For more NALC resources on crop insurance, click here.
