PIA Reaffirms Opposition to Crop Insurance Rebating
The National Association of Professional Insurance Agents has reaffirmed its long-standing opposition to the practice of rebating in the sale of crop insurance policies, following a "cease and desist" advisory issued by the USDA's Risk Management Agency (RMA).
On May 12, 1999, the RMA proposed a rule that would allow insurers to bypass crop insurance agents and sell crop insurance directly through associations and cooperatives, which could offer rebates. In a letter to the RMA, PIA strongly objected to the rule citing a series of potential ethical problems and the fact that family farmers who do not belong to growers associations and cooperatives could unfairly pay higher prices.
The RMA received over 800 comments on the proposed rule, many from PIA members and affiliates and has delayed action on the rule pending action in Congress on several pending bills that address the issue.
"We are optimistic that this stern warning against implementing a rule that has not been written, combined with comments in opposition provided by PIA and others, indicates that the RMA is rethinking its proposal," said Kenneth Asheim of Pierre, South Dakota, chairman of the PIA National Crop Advisory Group. "This proposal permits growers associations and cooperatives to perform agency duties for which they are not properly licensed and receive benefits from the performance of these duties that would otherwise violate commission-sharing prohibitions in place in every jurisdiction in the country."
"PIA will continue to oppose this rule along with Section 109 of H.R. 2559, the Agriculture Risk Protection Act, which embodies its provisions," said PIA Senior Government Affairs Representative Sheila McNamara.
Prompted by concern that some organizations are already implementing provisions of the proposed rule prior to its publication, the RMA on November 24 issued an advisory. It directed anyone engaged in marketing crop insurance "which may have the potential to disguise rebating schemes to cease and desist immediately, until RMA has published its regulations governing such practices."
In the USDA bulletin, RMA reminded everyone involved in the delivery of the Federal crop insurance program that the Standard Reinsurance Agreement (SRA) specifically prohibits rebating of any kind and that the terms of the SRA remain in effect until the proposed rule is published as a final rule or Congress takes action on this matter.
Under current regulations, the RMA considers dividend and patronage refunds to be normal business practices for mutual, cooperative and certain other insurance companies, as well as for certain kinds of cooperatives such as insurance-buying groups and agricultural lenders. However, the RMA believes if dividends and patronage refunds are guaranteed to potential policyholders in advance, or are made contingent upon the continued purchase of crop insurance policies, or the payments are made only to policyholders, such inducements are prohibited rebates.
"We'd like to express our appreciation to the National Association of Insurance Commissioners (NAIC), the National Council of State Legislators and the National Council of Insurance Legislators," noted Asheim. "All filed comments in support of PIA's position on this issue at our suggestion,"
NAIC held a special meeting on the issue in October, inviting both PIA and the RMA to participate in the discussion. NAIC has also convened a working group to direct NAIC's further efforts in this area.