INFORMATIONAL MEMORANDUM: R&D-95-010

TO:         All Reinsured Companies
            CFSA Headquarters, Program Delivery and Field Operations 
            All Risk Management Field Offices

FROM:       Tim B. Witt          /s/ Tim B. Witt  03/14/95
            Acting Director
            Research and Development Division

SUBJECT:    Clarification of Rate Reduction Provisions for Small
            Grains Destroyed Prior to Harvest


ISSUE:

Questions have been raised regarding administration of small grain crop and 
special provisions that provide for reduced premium amounts for acreage 
destroyed prior to harvest.  

DISCUSSION:

The small grain crop provisions (paragraph 6.(b)(2)) allow for a reduced 
premium rate (short-rate) for insured acreage that is destroyed prior to 
harvest if an indemnity is not claimed for the acreage.  This rate reduction 
provision is applicable only in counties for which the special provisions 
provide a rate adjustment factor for this purpose.  For the 1995 crop year 
the reduction factor is shown in the special provisions for specific counties 
for wheat, barley and oats in Oklahoma, New Mexico, and Texas, and for wheat 
in specific counties in Colorado, Kansas, Missouri, and Nebraska.  The 
short-rate is available only for policies with producer paid premium and is 
not applicable for catastrophic risk protection policies.

The special provisions statements in the applicable counties read as follows:

        "For purpose of paragraph 6.(b)(2) of the Small Grains Provisions,
        you must notify your agent not later than (date varies by location) 
        if any acreage will be destroyed prior to harvest, or be grazed on or 
        after (date varies by location). After receiving this notice, we will 
        reduce the premium for acreage subsequently destroyed or grazed by 
        the amount stated in the actuarial table.

        No premium reduction will be allowed if the required notice is not
        given, or if you claim an indemnity for the acreage.  If the acreage 
        is not destroyed as intended, you will be subject to the 
        under-reporting provisions contained in subsection 6.(f) of the Basic 
        Provisions.  Insurance coverage will cease on any acreage you intend 
        to destroy on the date you notify your agent, and on (date varies by 
        location) for acreage grazed on or after that date."

The following points further clarify the "short-rate" provisions.

-- Acreage which will be harvested as grain is not eligible for the short-rate.

-- To qualify for the short-rate for acreage that will be destroyed prior to 
   harvest, either by grazing or mechanical means, the insured must notify 
   his/her agent not later than the date specified in the county special 
   provisions.

-- The insured must specify the unit, practice, and/or crop type so the 
   acreage to be destroyed can be properly identified on the acreage report.

-- No indemnity payment can be made on any acreage that receives a short-rate.  
   If the insured sustains a loss prior to the date designated in the county 
   special provisions, he/she must decide by the designated date whether to 
   pay the full premium and receive any applicable indemnity payment or have 
   the short-rate factor applied to his/her premium and become ineligible for 
   an indemnity on the damaged acreage.

-- If notice is not given on or before the date designated in the special 
   provisions, acreage is insurable and full premium is due and payable.

-- If notice is not given on or before the date designated in the special 
   provisions and acreage is grazed after the Consolidated Farm Service Agency
   "pull-off" date for the county, an uninsurable cause of loss may be 
   assessed for damage during the extended grazing period.

-- If acreage is not destroyed as reported, the insured will be subject to the 
   under-reporting provisions contained in subsection 6.(f) of the Basic 
   Provisions.

-- Upon receiving timely notice, the agent must revise the acreage report to 
   indicate the acreage eligible to receive the short-rate.

-- Coverage will cease on any insurable acreage receiving a short-rate on the 
   date the agent is notified the acreage will be destroyed by the insured, or 
   on the date designated on the Special Provisions for acreage to be grazed 
   and not harvested.

In counties for which the special provisions do not indicate a rate reduction 
factor, any acreage reported as insurable that is later destroyed will be 
insured in accordance with applicable policy provisions for the full premium 
rate.