IIABA Applauds Apparent Demise of Crop PDP Pilot Program

June 19, 2003

The Independent Insurance Agents & Brokers of America (IIABA) is calling the Risk Management Agency’s (RMA) decision to pull approval for the Converium-Crop 1 Insurance Company’s “Premium Discount Plan” (PDP) pilot program the “right decision that will safeguard the integrity and long-term success of the Federal Crop Insurance Program,” according to IIABA senior vice president of Federal Government Affairs Maria Berthoud.

The Federal Crop Insurance Corp. (FCIC) Board and RMA approved the Converium-Crop1 Insurance Company pilot PDP last December for seven states and five crops for the 2003 crop year. Crop1 was the managing general agent for the PDP while Converium was the program underwriter.

At a Senate Agriculture Committee hearing late last week, RMA Administrator Ross Davidson announced that Converium, the Standard Reinsurance Agreement (SRA) holder, has recently discontinued its relationship with Crop1 and that as a result the PDP’s authority had been withdrawn by the agency.

IIABA vigorously opposed the PDP pilot program because it was vulnerable to illegal rebating, anti-consumer tying arrangements and unfair marketing practices. IIABA had challenged the PDP on several fronts in Washington and on Capitol Hill. Association representatives had met with RMA Administrator Ross Davidson and several key members of Congress to air its concerns. Additionally, IIABA’s grassroots agents voiced their opposition to the FCIC Board-RMA decision.

“IIABA firmly believes that the Crop 1 pilot program would have allowed the selling, soliciting and servicing of crop policies contrary to FCIC rules as well as state insurance licensing laws by permitting unlicensed individuals to sell and service crop insurance policies,” commented Berthoud. “It also could have encouraged rebating by employing networks of affiliates that, in offering crop insurance at a reduced premium, could have bundled this discount with offers of other goods and services.

“We applaud RMA’s decision to end this trial program,” continued Berthoud. “If the PDP would have continued, an unlevel playing field would have been established, which would have ultimately hurt farmers by reducing the professional service, advice and counsel they receive from independent agents who specialize in crop and farm insurance.

As initially approved, the PDP was an online service that allowed farmers to purchase crop policies and have them serviced primarily via Crop1’s Internet Web site. Under the PDP program it was envisioned that a network of unlicensed affiliates, such as seed dealers, implement dealers and farm creditors, would assist farmers in purchasing crop insurance coverage, filing claims and other servicing needs, even though they have no professional qualifications, continuing education or expertise in the insurance profession.

In written testimony submitted at the hearing, Davidson said, “Because approval was based in part on the relationship between Crop1 and Converium, the existing PDP program has not been approved for crop year 2004.”

At the same time, Davidson added that the PDP can be resubmitted for approval for the 2004 crop year and that RMA “has and will continue to exert careful regulatory oversight of these types of programs to ensure compliance with federal law and the provisions of the SRA, particularly with respect to the proper use of licensed agents, producer service, and illegal rebating and tying prohibitions.”

IIABA Director of Federal Affairs Justin Roth said, “IIABA will remain vigilant in its opposition to pilot crop insurance programs that skirt federal and state laws and create an unlevel playing field to the detriment of independent agents. We will oppose a reinstatement of the Crop1 PDP as originally presented and other pilots that will undermine the future well-being of the FCIP. We will closely monitor this and other proposals and work with RMA and Congress to ensure that pilot programs are implemented on a fair basis that will not damage or hinder agent delivery of crop insurance to the nation’s farming community.”

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