Private parties have developed many crop insurance products offered by the Risk Management Agency (RMA)]through the 508(h) process. Here we describe this process and then illustrate some of the products developed. Many manufacturers have received useful coverage through these products. However, often in farm bill debates the emphasis is on changing the process, making it more challenging to realize a product. This could reduce the ability to advance risk coverage in the future.
The 508(h) process.
Individuals and groups can develop specific insurance policies, policy provisions and premium rates through the 508(h) process. Section 508(h) is the part of the Federal Crop Insurance Act that allows private individuals to develop insurance products (see here for more information from RMA).
Many developers start with a concept proposal that is submitted to an RMA. After submission, a concept proposal is reviewed by at least two expertises external to RMA. RMA’s Office of General Counsel is also reviewing the proposal. The board of the Federal Crop Insurance Corporation—a wholly owned government corporation that administers the federal crop insurance program—could then vote to approve the concept proposal. If approved, 50% of the estimated research and development costs associated with the development of a full proposal may be advanced to developers.
A full 508(h) submission can be developed with or without a concept proposal submission. The 508(h) filing sets forth all elements of the proposed policy, including the required manuals (eg, standards manual, loss adjustment manual). If necessary, policy premiums should also be provided along with necessary changes to computer systems to be able to offer the proposed policy. A market assessment of the potential use of the product is also provided. Overall, these materials constitute a lengthy RMA presentation document.
Once an RMA receives a 508(h) submission, it goes through a review process. This review process includes reviews by five external reviewers and an internal RMA review. The submitter has an opportunity to respond to questions raised by the review. Ultimately, the FCIC Board decides whether to approve or disapprove the project.
If approved, the privately developed product becomes part of the RMA offerings. Approved Insurance Providers (AIPs) administer these products, making them available to farmers and growers through crop insurance agents. These products are subsidized at rates set forth in the Federal Crop Insurance Act. In many ways, privately developed products look to manufacturers like RMA-developed products. Developers are reimbursed for reasonable costs associated with product development.
Privately developed products
Looking at manuals (here) related to privately developed products gives a sense of the breadth of privately developed products. A list of private product developers is also available (here). Privately developed products can be divided into the following categories:
Improvements to traditional programs: Many producers of corn, soybeans, wheat, rice and other staple crops purchase products developed by RMA, such as Revenue Protection (RP), RP with crop price exemptions, and Yield Protection. Many of these manufacturers purchase upgrades such as:
- Trend Adjusted Acknowledgment of Actual Production History (TA-APH) (farmdoc every day, March 15, 2022): This approval allows producers to increase guaranteed yield based on forecast trend adjustments that account for increases in yields over time. The majority of manufacturers use this product.
- Margin Protection: Margin protection provides protection against declining operating margins for corn, soybeans, wheat and rice in select states. According to Summary of Business (SOB) records maintained by RMA, Margin Protection was used on 281,000 U.S. acres in 2022.
- Enhanced Coverage Option: The Enhanced Coverage Option provides county level coverage of 90% or 95% to 86%. To qualify, a grower purchases a Revenue Protection Plan (RP), RP with Crop Price Exclusion, or a Yield Protection Plan (YP). According to SOB records, ECO was used on 8.6 million acres in 2022.
Livestock insurance: Livestock insurance includes dairy revenue protection, livestock risk protection and livestock gross margin. These policies protect milk, dairy cattle, swine, fed cattle, feeder cattle, lambs, and swine. According to SOB records, total premiums totaled $845 million in 2022. Livestock policies accounted for 5% of total premium in 2022.
Additional crops: Privately developed products have provided coverage for additional crops including annual forages, Florida APH citrus, beekeeping, apple tree plan, yield protection sugarcane, California citrus tea, cane, sage, hemp, hybrid vegetable seeds, macadamia tree, machine The crop of cucumbers, olives, peanut revenue, pecan tree, popcorn revenue, legume revenue, specialty soybeans, sweet potatoes, Texas citrus tree and triticale.
Overall, private products have provided valuable risk protection to farmers. Further advances are likely, including those related to practices such as the recently developed Post-Application Confirmation of Coverage (PACE, see farmdoc every day, 18 January 2022). This approval provides protection against the inability to apply nitrogen after planting.
Debates on the upcoming farm bill may focus on the 508(h) process. Some effort may be made to complicate the process. Critics of the 508(h) process object to some of the products developed. Others suggest that some of the proprietary products work for crops with small acres and few growers, and that development costs are high relative to the acres and growers served. Making the process more difficult, however, is likely to reduce innovation in crop insurance. In general, a review of previous products suggests that many products have been successfully developed through the 508(h) process. Adding difficulty can reduce progress in risk management.
Disclaimer: Farmdoc team members have been involved in the 508(h) process over time.