Crop Insurance Discount Program Loses Approval

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NU Online News Service, June 20, 4:11 p.m.EDT?Federal authorities have withdrawn their approval fora new Web-based discount crop insurer to continue writing policesafter the firm was dropped by its reinsurer and frontingcompany.

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The managing general agent of the "Premium Discount Plan" (PDP)pilot program said existing policies remain in force and will beserviced and the company will try to refile and obtain approval toprovide coverage for the 2004 crop year after the current"temporary" setback.

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The program was approved for seven states last December by theFederal Crop Insurance Corp. Board and Risk Management Agency ofthe U.S. Department of Agriculture, with Converium Insurance NorthAmerica as the program underwriter and Des Moines, Iowa-based Crop1 as its managing general agent.

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"This has been a surprise for us," said Gene Grimsley, seniorvice president of administration at Crop 1.

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"Converium Insurance was the policy-issuing company that we wereworking with. They were our policy-issuing company and also ourreinsurer. Essentially, what happened was that Converium opted notto provide the fronting company. The policy-issuing company thatour company had a contract with chose not to provide the frontingrelationship for Crop 1 into the future," said Mr. Grimsley.

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Representatives from Converium declined to offer any comments onwhy their company decided not to provide the frontingrelationship.

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Mr. Grimsley noted that until his firm gets the contract inplace for a different fronting company and all the necessaryreinsurance in place, it is legally not able to provide thediscount program.

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"We will likely be working with a different company. But as soonas we get that accomplished, we plan to refile and hopefully havethe program available in the future, in time for it to be availablefor the 2004 crop year," he told National Underwriter.

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Crop 1's pilot program, which utilizes the Internet to savemoney in administrative costs, passes on the savings to farmers inthe form of reduced rates, Mr. Grimsley explained.

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The PDP pilot program offered crop insurance over the Web,through agents, farm cooperatives and other financial farm servicesat discounted rates.

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But it had attracted strong criticism, especially from theAlexandria, Va.-based Independent Insurance Agents & Brokers ofAmerica, that such online sales of crop insurance will undercutagent commissions and circumvent independent agents' participationin the crop insurance delivery system.

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Typically, Crop 1's rates have been up to 10 percent less thanthrough other primary carriers. And Mr. Grimsley defended the PDPprogram and dismissed the criticism that it has been vulnerable toillegal rebating, anti-consumer tying arrangements and unfairmarketing practices.

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"Those criticisms would be inaccurate in that the program wasapproved by the Risk Management Agency and it has ruled andconfirmed on more than one occasion that this is not illegalrebating and there are no anti-consumer tying arrangements inplace, so that is in fact not an issue," he said.

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He added that, while declining to give out the number ofpolicyholders, the pilot program has been attracting "enoughpolicyholders in seven states to be a valid test."

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As for the claim that the pilot program could have hurtindependent agents, Mr. Grimsley said: "I don't know if there is agood response to that. Our program is designed around some of theefficiencies we have. There are also some agents that actuallycontract with our company and pass on the discount to theircustomers."

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Mr. Grimsley also emphasized that the arrangement Crop 1 haswith Converium is "very much in place" for the 2003 crop year. "Wewill service these policies--we will pay the losses. This is achange in direction, if you will, for the 2004 crop year. It doesnot have any impact at all on the 2003 crop year. That's veryimportant to note."

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