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2003 National Extension RME Conference Hyatt Regency DFW March 26-27, 2003. © 2003 Crop 1 Insurance Direct, Inc. All rights reserved. Abstract PDP- MPCI Premium Discount Plan for Farmers.

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2003 national extension rme conference hyatt regency dfw march 26 27 2003

2003 National ExtensionRME ConferenceHyatt Regency DFWMarch 26-27, 2003

© 2003 Crop 1 Insurance Direct, Inc. All rights reserved.

abstract pdp mpci premium discount plan for farmers
AbstractPDP- MPCI Premium Discount Plan for Farmers

The premium paid by a farmer for federal crop insurance has, for over twenty years, been the same irrespective of the agent or insurance provider. Beginning this spring season, Crop1 Insurance, and its authorized insurance provider, Converium Insurance (North America) Inc., has stepped forward with a FCIC-approved Premium Discount Plan. PDP is available first and only from Crop1, on all MPCI insurance plans (except CAT) in selected states and on selected crops.

The cost savings justifying the premium discount is based on a new business model that captures cost economies of emerging technologies and business practices related to the Internet, distributed computer processing, satellite imagery, geographic information systems, and the knowledge that agriculture is becoming more complex and its risk management more integrated into finance, production, and marketing support systems.

abstract pdp mpci premium discount plan for farmers1
AbstractPDP- MPCI Premium Discount Plan for Farmers

Farmers are, for the first time, the primary benefactor of productivity gains and cost economies in the federal crop insurance delivery system. Farmers may use these savings to lower production costs or make higher coverage levels more affordable.

crop1 insurance management
Crop1 Insurance: Management
  • COO - Steve Griffin - over 20 years in the crop insurance industry in operations, product development, strategic planning and risk (underwriting, pricing, & reinsurance) management. Management and operations experience with four crop & farm insurance companies.

Steve Griffin, COO

Des Moines, IA

steve.griffin@crop1ins.com

crop1 insurance details
Crop1 Insurance: Details
  • Strategic partnership with Converium Insurance (North America), Inc. (formerly Zurich Re).
  • Exclusive Managing General Agency for MPCI insurance with Converium.

Crop1 Insurance Headquarters Des Moines, IA

slide6

6

PresentsPDPPremium Discount Plan

The most revolutionary milestone in the federal crop insurance program since privatization in 1981.

background

7

Background
  • In 1985 Congress inserted a new section, 508(e)(3), into the Federal Crop Insurance Act that allowed if a provider determined that it could deliver federal crop insurance for less than the authorized expense reimbursement and it could pass those savings to the policyholder as a premium discount, with the approval of RMA.
  • Response: RMA provided no rules and procedures and no providers stepped forward.
  • No current provider could justify the savings without cutting marketing costs and no provider could withstand the probable backlash during the submission process.
background1

8

Background
  • In 1999 RMA attempted to develop regulatory guidelines for the submission of premium discount plans. But, in 2000, the process was stymied by OGC and the subsequent change in administration.
  • In ARPA 2000, Congress again tried to authorize competition with the insertion of Section 523(d). This section provided rules and protection of 508(h) procedures to the submission process and a broader definition of savings. It charged the FCIC Board to (shall) approve a plan by crop year 2002.
background2

9

Background
  • Crop1 was formed in February, 2000 with the goal of being a low-cost discount provider.
  • Crop1 submitted its PDP proposal on July 5, 2002 under Section 523(d).
  • In October-November, 2002, the largest provider to federal crop insurance failed to the “surprise” of RMA Washington officials.
  • Progress on PDP was delayed by new and unprecedented requests for financial security and operational guarantees.
landmark change in federal crop insurance

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Landmark Change in Federal Crop Insurance
  • On December 18, 2002 the Federal Crop Insurance Corporation (FCIC) Board of Directors approved the first premium discount plan for federal crop insurance and established rules and procedures for its approval under Section 508(e)(3) of the Federal Crop Insurance Act.
  • For the first time, federal crop insurance will not necessarily be the same price.
  • Crop1 is the first and currently only provider for the Premium Discount Plan, or PDP, which provides farmers savings of up to 10% on their federal crop insurance premium.
premium discount plan benefits

11

Premium Discount Plan: Benefits
  • PDP is the first of a new generation of plan proposals that will create a new competitive paradigm in the federal crop insurance industry and private delivery system.
  • PDP will provide greater benefits to the farmers by reducing the cost of federal crop insurance to the farmer and making higher levels of coverage more affordable.
  • Enhanced competition at the farm level will maximize program benefits to farmers.
  • The 523(d) and 508(e)(3) approval process will bring new stability and solvency to the private crop insurance industry in the wake of recent failures.
premium discount plan details

12

Premium Discount Plan: Details
  • PDP is available on all MPCI insurance plans (e.g., MPCI, CRC, RA, GRP, GRIP, IP), except CAT.
  • PDP is available only on five major crops—corn, soybeans, wheat, grain sorghum, and sugar beets.
  • PDP is only available in seven states—IA, IL, IN, KS, NE, MN, and ND.
  • No change in the policyholder’s coverage is required.
  • All eligible producers receive PDP automatically.
pdp benefits discount table

13

PDP: Benefits– Discount Table

Premium discounts vary between 5.65% to 11.1% depending upon insurance plan and coverage level.

The discount is a constant 3.5% of the unsubsidized (base) premium.

pdp pdp discount calculation

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PDP: PDP Discount Calculation
  • PDP does not change any data or calculations needed to establish the insurance guarantee, liability, and base premium per acre. Farmer-paid premium is simply reduced by the authorized percentage of premium.
  • Base Premium $1,000 (75% coverage level)
  • Federal Premium Subsidy 550
          • _____________________________________________________
  • Net Premium w/o PDP $ 450 (Brand X price)
  • PDP 35
          • _____________________________________________________
  • Net Premium w/ PDP $ 415 (7.8% discount)
pdp pdp discount calculation1

15

PDP: PDP Discount Calculation
  • If a farmer’s premium (from Brand X) is:
  • Farmer Premium $4,500 (75% coverage level)
  • PDP Savings 350
          • _____________________________________________________
  • Net Premium w/ PDP $4,150 (7.8% less)
  • Pocket the Savings or Increase Coverage,
  • Either the farmer you wins.
pdp enhanced delivery service

16

PDP: Enhanced Delivery & Service

Crop1 has enhanced the delivery system by engaging a new, relatively untapped, agri-support network of agri-retailers, farmer associations, and cooperatives. Crop1 utilizes direct agents, captive agents, and independent agents.

Crop1 maximizes the use of farmer associations, cooperatives, and agri-service groups as mandated by Congress in Section 507(e) while complying with all state licensing requirements.

This new business model allows an increasingly integrated and complex agricultural production and marketing system to be serviced by agricultural professionals with greater cost-effectiveness.

crop1 simplification for a complex agriculture

17

Crop1: Simplification for a Complex Agriculture
  • Crop1 simplifies the crop insurance process with:
  • Internet-accessibility and distributed processing
  • Enhanced computer technology (including satellite imagery and GIS)
  • Computer-assisted underwriting (e.g. automated unit structure)
  • Farmer decision tools (PremiumSaver™).
  • Making crop insurance a “priesthood of all users” by allowing computers show the options available (and only the applicable options) with easy-to-follow instructions and help aids.
crop1 a crop insurer for all levels of technology

18

Crop1: A Crop Insurer for All Levels of Technology

Crop1, despite its advanced e-commerce capabilities, is dedicated to serving farmers in more traditional ways utilizing paper forms, postal mail, face-to-face meetings, fax, and email. We will simply use our technology for you.

Key to cost savings is the saving labor through the elimination of errors and duplication of effort.

crop1 the detractors

19

Crop1: The Detractors

The movement of a market to a more competitive market structure is not welcomed by participants who have gained economic rents by the existing market structure.

PDP breaks the competition barrier and monopolistic forces have responded with a fury of misstatements, fear, and unfounded allegations.

Strategy: If you can’t beat the product, slam the provider and politically bar the competition.

crop1 the answers to certain allegations

20

Crop1: The Answers to Certain Allegations

PDP is not rebating or illegal. Mandated by Congress. Approved by RMA.

Crop1 delivers through licensed agents, like everyone else.

Crop1 provides universal access, not Internet only.

Crop1 follows the same procedures and guidelines of all other insurance providers.

Crop1 is new but its employees are seasoned veterans.

Converium is one of the strongest insurance companies in the crop insurance business.

PDP has no expiration date, so it is not a one-time promotion.

Crop1 is in compliance with state regulations.

Converium’s SRA is not at risk.

RMA has performed more due diligience on Crop1 than any other provider.

thank you march 26 27 2003

Thank youMarch 26-27, 2003

© 2003 Crop 1 Insurance Direct, Inc. All rights reserved.