BULLETIN NO.: MGR-96-005 TO: All Reinsured Companies All Risk Management Field Offices FROM: Kenneth D. Ackerman /s/ KDA 3/4/96 Deputy Administrator SUBJECT: Pilot Program for Simplified Claims Processing BACKGROUND: The Federal Crop Insurance Corporation (FCIC) received proposals to streamline the final claim loss adjustment process by allowing the insured to certify harvested production and unit acreage when certain underwriting conditions were met. FCIC and insurance industry representatives discussed similar proposals during implementation of the Federal Crop Insurance Reform Act of 1994, as a means to simplify the crop insurance program and better utilize resources. These proposals contained economies in the loss adjustment process and emphasized the need to expedite claims meeting certain criteria. FCIC has considered these proposals and developed standards to implement Simplified Claims Processing (SCP). ACTION: A pilot program for SCP is approved beginning with the 1996 crop year. Approved reinsured companies are authorized to allow insureds to certify harvested production and unit acreage. 1 The crops and criteria for a claim to qualify for SCP follow: A. Only the following 12 crops are eligible: almonds, corn, cotton, grain sorghum, peanuts, peas (green/dry), popcorn, soybeans, sugar beets, canning and processing sweet corn, tobacco, and wheat. B. Only crop policies placed in the commercial fund are eligible. C. Crop policies with more than one unit earning premium are not eligible. D. The indemnity must not be greater than $1,000 for the individual crop policy, except almonds, which must not be greater than $2,000. E. All of the acreage must be harvested. No portion of the crop may be left in the field. F. All production must be sold or commercially stored and shown on a settlement sheet or similar third party ledger. Individual load weight tickets are not acceptable. G. Claims involving any of the following conditions are not eligible: (1) Farm-stored production, even if weighed and returned; (2) Zero production; (3) Prevented planting; (4) Production fed to livestock; (5) Nonstandard Classification System (NCS) insureds; (6) FSA or company employees, loss adjusters, and agents; (7) Contracts receiving an indemnity under the SCP process during either of the previous 2 crop years; (8) Delayed claims; (9) Delayed notices; (10) Corrected claims; (11) A revised acreage report; or (12) Quality adjustment, except that SCP can be used for corn, soybeans, and grain sorghum when the quality adjustment is due only to a test weight shown on the test weight discount factor chart. Do not use SCP if any "zero value" production is involved. H. The insured is to provide the reinsured company with (1) the summary sheets listing all of the harvested production (individual load weight tickets not acceptable), and (2) a copy of either the FSA acreage certification or copies of the aerial photos identifying the planted crop acreage. These records are to be maintained in the insured's file folder. 2. Reinsured company participation in the SCP pilot is as follows: A. Voluntary. The pilot will be continuously monitored and may be modified or withdrawn from any or all reinsured companies at any time. All participants must assist in evaluating the SCP effectiveness for reducing costs, simplifying paperwork, avoiding vulnerabilities in program administration, and determining accurate premium and indemnity amounts. B. SCP forms designed specifically for this purpose must be approved by FCIC. The form must contain the same loss information as claims completed in the traditional manner including penalty and certification statements, United States Code references, and applicable insured and company representative signatures. C. The SCP will be coded for Data Acceptance System (DAS) processing. All applicable DAS edits and all policy and procedural requirements will apply to SCP. Reinsured companies will be responsible for assuring that the pilot program will be administered in a way that the information collected and submitted through DAS is accurate. A claims data field will be added to the DAS system for identifying SCP. D. Reinsured companies must use discretion in the use of this procedure. Use of this type of inspection is NOT permitted if abuse occurs or is suspected. Examples of need for caution is when insureds have a history of uninsured causes of loss or the reported cause of loss is a peril that normally does not occur in the area. Farm inspections are required under such circumstances. Reinsured companies may impose more stringent standards. E. Reinsured companies must include in their Plan of Operation (or submit an amendment) a description of the proposed pilot program. The description must: (1) Identify crops and areas (state(s) and county(ies)) included in the SCP pilot. (2) Identify who will be responsible to identify and complete the SCP claims. (3) Describe the field level spot-check plan to be used to supervise this pilot. (4) Identify the methodology for measuring and comparing the experience of the pilot program to previous years' claim processing experience in the pilot area. Data from at least the previous 3 years' claim processing experience for same area and crops as the pilot program should be used as a benchmark for comparing the same type of information for the year or years of the pilot program. F. Reinsured companies must submit by February 1 of each year, to Reinsurance Services Liaison Branch (RSLB), an evaluation including at least the following items: (1) number of insured/agent complaints or problems associated with claim information or the claim process, (2) number of corrected claims, (3) controversial claims resulting from SCP, (4) SCP review results, (5) costs/benefits of processing simplified claims, and (6) time spent obtaining and processing simplified claims. G. Reinsured companies will be advised by the RSLB of the acceptance or rejection of the Plan of Operation and proposed evaluation plans. The reinsured company's compliance history and experience will be considered in determining acceptance of the insurance provider's proposal. H. Reinsured companies must spot check, at the field level, at least 15 percent of the SCP units during the pilot and provide its review results along with items identified above. Current FCIC tolerances to identify claims requiring a corrected claim will be used in this SCP pilot program. 3. FCIC will conduct on-site evaluations and reviews of the SCP pilot program's success and any areas for needed improvements.