Mr. Lee Z. Ziegler, Economist, USDA Risk Management Agency

Mr. Lee Z. Ziegler, Economist, USDA Risk Management Agency

Reinsurance Services Division

1400 Independence Ave., SW

Room 6739-S

Washington, D.C. 20250

Dear Mr. Ziegler,

On behalf of the National Association of Professional Insurance Agents (PIA National), we would like to share with you comments and concerns on Premium Reduction Plans (PRPs).

PIA National appreciates that the PRP option is provided for in the federal law and that FCIC and RMA have an obligation to consider the application of any person that desires to engage in the federal crop insurance program by offering a PRP.

As we understand, the PRP option was originally established to accomplish two things:

1. Be available to currently organized associations already serving the farmers' needs in a broad category of advocacy and interests. Such organizations could engage in offering federal crop insurance to their members in a more basic and less costly form for otherwise underserved members.
2. A PRP option could only be made available if the offering of the PRP retained the same level of financial soundness and compliance as did all other forms of reviewed and permitted SRA-related offerings.

The PRP concept was to develop it with federal oversight on the specific crop insurance form and specific rate v/v FCIC and RMA and hold it to the same standards of the SRAs. Although it would have federal oversight, entities offering the PRP would still be subject to state and corporate insurance regulations.

Our understanding is that the entity offering the PRP is to demonstrate that the “discount to be extended to the farmer comes directly from demonstrated internal cost savings of that entity as directly derived from their developed PRP model.” In this regard it is the same as an insurer needing to demonstrate that a group discount is developed from the expense and cost-savings of the specific group itself, and not from the insurer offsetting group expenses across other lines to gain a competitive advantage in a select or preferred marketplace.

Current issues for consideration include:

1. We hope that both FCIC and RMA will give fair consideration to our comments as reflective of a producer organization that has taken the time to discuss true legal and business equity issues not only important to PIA members, but critical to the financial stability and success of the federal crop insurance program. Comments and attitudes that “crop agents are only concerned with protecting their earnings” are inaccurate and dangerous to the overall success of the federal crop insurance program.

1. PIA National believes that FCIC/RMA needs to include the same financial and competency evaluations for entities offering PRP as they do for “regular” SROs. Please refer to our comments from April 2004 for our additional information on the A&O, underserved market balance, agents education, state-by-state and crop ratio decisions, safety and soundness oversight, as well as corporate status issues and many others.

1. There must be coordination between federal and state oversight for federal crop insurance. Corporate law must be recognized and considered. FCIC/RMA’s approval of a PRP does not mean that the entity is able to avoid state oversight for insurance thus making it a “federal creature.”

1. It has come to our attention that current approved PRPs are being offered primarily to large farmers with low loss ratios, while small farmers, minorities, women, and disadvantaged farmers are not being offered a PRP. This is completely contrary to the Premium Reduction Plans guideline of offering a PRP to anyone – regardless of the size or loss history of the farm. The stated purpose of PRPs is to expand access to affordable crop insurance and effective risk management – not to restrict availability to only the largest farming entities by enabling such discrimination.

1. We realize that the Risk Management Agency does not have the resources currently available to properly police this unfair discrimination against these farmers. We would like to see an enforcement mechanism put into place to regulate this problem. Necessary cooperative oversight between FCIC/RMA and the state Departments of Insurance (DOIs) is imperative.

1. Insurers participating in the PRP are supposed to pass on “efficiencies” to farmers in the form of reduced premiums by demonstrating reduced administrative and operating (A&O) expenses. This creates an incentive to consolidate agents, or to use the Internet for sales and servicing. The savings were to be accomplished by internal insurer operational savings, especially through the use of improved technologies. Again, this is to further the greater goals of USDA/FCIC/RMA, i.e. more electronically capable insurers. Offering such similar programs through more electronically capable insurance producers adds up to more cost-savings for the program, as well as better data collection and tracking for RMA.
   Yet we know that currently approved PRPs may not be operating in this fashion, but rather in a “old school way” by simply cutting insurance producer commissions to meet the cost-savings goal. This creates a circumstance where the PRP is relying on insurance producers to “get the job done” but at considerably less than the job costs them (not the PRP/SRO) to do. It does not further the critical goal of “up-to-date” SRO relationships with FCIC/RMA to foster a better program. This also includes questions being raised as to how much time and effort the PRP is investing in the federal crop insurance education of their producer providers.
   

As professional independent agents, our members are best equipped to provide the highest quality sales and service to farmers. As more agents leave the marketplace, there is less competition in the marketplace and, ultimately, the farmer loses by being forced to accept less service. It also creates a situation in which premium increases – rather than decreases – are more likely, because there is less competition.

PIA National and its members have, since the 1970s, supported our farmer clients. For generations, America’s farmers have relied on the expertise of their crop insurance agents to assist them to insure their agricultural operations and manage their complex risks. These critical support functions cannot be replaced. Farmers cannot do without them.

Farmers are served best when their federal crop insurance can be professional and more completely approached from the perspective of their overall insurance requirements – and from a party to whom that farmer truly is a valued insurance customer.

There are few agents who sell crop insurance exclusively. Many agents find it necessary to diversify their book of business in order make a profitable living. When commissions are reduced, but the amount of work increases, many agents will not find it advantageous to continue to participate in the crop insurance program.

With the increasing complexities of the program and the potential inability to absorb reductions in commissions, agents may be forced out of servicing crop insurance or worse, be put out of business completely. Not only does this adversely affect the individual insurance producer, it also adversely impacts the employees of the agency, the agency’s farmer clients and the community in which all are a part.

Our common goal needs to be to strengthen America’s farming community – not weaken it in return for the promise of small savings that are unfairly distributed in a discriminatory manner, if at all – and that may disappear in a short time, ultimately weakening our farmers and our farming communities.

PIA National looks forward to working with you as you move forward in the comment period rule making process. Please contact Pat Borowski at 703-518-1360 or or Kellie Bray at 703-518-1364 or to discuss these matters further.

Sincerely,

Pat BorowskiKellie Bray

Senior Vice PresidentSenior Director

400 N. Washington St., Alexandria, VA 22314-2353

Tel: (703) 836-9340 Fax: (703) 836-1279