INFORMATIONAL MEMORANDUM: R&D-96-XXX TO: All Reinsured Companies All Risk Management Field Offices FSA Headquarters, Program Delivery and Field Operations FROM: Tim B. Witt Director Research and Development Division SUBJECT: Continuous Hail and Fire Exclusion Option Form ISSUE: Allowing insurance providers to use a continuous rather than annual Hail and Fire Exclusion Form. DISCUSSION: There have been requests to use a continuous, rather than an annual, form to exclude hail and fire coverage from multiple peril crop insurance policies having additional coverage. A continuous form will reduce insureds' and agents' paperwork while still maintaining the same function as the annual form. Under the terms of the policy and the Continuous Hail and Fire Exclusion Option, hail and fire coverage will be excluded from multiple peril crop insurance policies for each crop year that the insured provides proof that the insured has the required amount of hail and fire insurance in effect with a private company. Hail and fire coverage will not be excluded if the insured fails to have the required amount of hail and fire coverage or fails to provide proof of such. ACTION: The use of the continuous form is optional. Standards for a Continuous Hail and Fire Exclusion Option Form have been developed for insurance providers to use when developing a continuous hail and fire form. Insurance providers who wish to use the continuous form must: (1) use the form standards in Exhibit 1 to develop the continuous form, and submit the form for approval as stated in the FCIC 24030 Submission Standards Handbook. (2) assure that employees and/or loss adjusters (as appropriate) continue to follow the procedures in the Crop Insurance Handbook and Loss Adjustment Manual to verify that the required amount of hail and fire coverage is in effect. The following line entries and statements identified as "(Substantive)" are required for form approval. Items that are within quotes are required as is. Items identified as "(Non-substantive)" are suggested but are not required for form approval. 1 Form Number. (Substantive) 2 Name of Company. (Substantive) 3 Title of form, as follows: "Hail and Fire Exclusion Option." (Substantive) 4 Statement: (Substantive) "The terms of this option apply to the first crop year requested and are continuous for each succeeding crop year as provided below. This option can be canceled or crops can be deleted if a request is submitted in writing on or before the applicable multiple peril crop insurance cancellation date for the crop(s), or crops can be added if a written request is submitted on or before the applicable sales closing date for the crop(s)." 5 Insured's Name and Address. (Substantive) 6 MPCI Policy Number. (Substantive) 7 First Effective Crop Year. (Substantive) 8 Name and Address of Insurance Agency. (Substantive) 9 The following statements are required except for the calculation example. "Hail and Fire will be excluded on a crop basis as insured causes of loss from your Multiple Peril Crop Insurance Policy for a reduced premium under the following terms and conditions:" (Substantive) "A For the first crop year: (1) the Hail and Fire Exclusion Option must be signed: (a) within 72 hours after the effective date and time of an annual hail and fire insurance policy or first year of a multi-season policy, and/or (b) on or before the date Multiple Peril Crop Insurance coverage attaches for the crop year when a multi-season hail and fire policy is in effect (except the first crop year of a multi-season hail and fire policy); and (2) the crop must not have been damaged to the extent that a multiple peril crop insurance indemnity is to be, or may be, claimed on any unit of the insured crop." (Substantive) "B For each crop year, hail and fire insurance coverage must be in effect (and premium earned) on all planted insurable acreage of the crop insured under the Multiple Peril Crop Insurance Policy and the total dollar amount of hail and fire insurance liability must equal or exceed the total Multiple Peril Crop Insurance liability for that crop acreage." (Substantive) "C For each crop year, you must provide a copy of the annual hail and fire declaration sheet showing the required amount of hail and fire coverage for the crop year or other proof that the required amount of hail and fire coverage has attached for the crop year." (Substantive) "D For any crop year that any of the conditions in B-C (A-C, the first crop year) above are not met, hail and fire coverage will not be excluded and premium will not be reduced." (Substantive) "E An appraisal for uninsured causes will be made when the crop is damaged by hail and/or fire, and the average percent damage to the crop insurance unit exceeds the coverage level percentage determined by subtracting the coverage level percentage from 100. This excess percentage amount will be multiplied by the guarantee per acre divided by your coverage level percentage and the result will be the appraisal for uninsured causes." (Substantive) "For example: The average percent hail damage to the crop insurance unit = 45%. MPCI coverage level = 65%. Per-acre guarantee = 100 bu. Step 1 1.00 .65 = .35 Step 2 .45 .35 = .10 (excess percentage) Step 3 .10 X 100 bu. (per-acre guarantee) Step 4 10 ö.65 = 15.4 bu. per-acre appraisal for uninsured causes." (Non-substantive) "EXCEPT THAT: If hail and/or fire occurs and the original hail and fire liability has been reduced below the Multiple Peril Crop Insurance coverage, due to another cause of loss insured under the Multiple Peril Crop Insurance Policy, the hail and/or fire indemnity will be divided by the original hail and fire liability. This result will be multiplied by the multiple peril crop insurance guarantee per acre divided by your coverage level percentage and the result will be the appraisal for uninsured causes." (Substantive) 10 "The hail and fire exclusion applies to the following crop(s): ______________________________________________________________________ _______________________________________________________________________" (Substantive) 11 "Information for the first-year hail/fire exclusion request:" (Substantive) "Date Hail and Fire Coverage is effective: __________________" (Substantive) "Name of Hail and Fire Insurance Company(ies). Policy Number(s) _______________________________________ _______________________ _______________________________________ _______________________" (Substantive) 12 "I hereby authorize representative(s) of the company access to required information regarding the hail and fire policy(ies) listed above." (Substantive) 13 "Insured's Signature ______________________________ Date___________________" (Substantive) 14 "Agent's Signature_______________________________ Date___________________" (Substantive) 15 Privacy Act Statement (a) Include the Privacy Act Statement on the form or make available as a separate document. (Substantive) See Exhibit 2 for statement. NOTE: If the Privacy Act Statement is provided as a separate document, evidence of receipt of this statement may be shown by securing the signature of applicant/policyholder on a copy retained by the company. (b) If the Privacy Act statement is on the back of the form, add the following statement to the front of the form: "See reverse side of form for statement required by Privacy Act of 1974." (Non-substantive) COLLECTION OF INFORMATION AND DATA (PRIVACY ACT) To the extent that the information requested herein relates to the information supplier's individual capacity as opposed to the supplier's entrepreneurial (business) capacity, the following statements are made in accordance with the Privacy Act of 1974, as amended (5 U.S.C. 552a). The authority for requesting information to be furnished on this form is the Federal Crop Insurance Act, as amended, (7 U.S.C. 1501 et seq.) and the Federal Crop Insurance Regulations contained in 7 CFR Chapter IV. Collection of the Social Security Account Number (SSN) or the Employer Identification Number (EIN) is authorized by section 506 of the Federal Crop Insurance Act (7 U.S.C. 1506), as amended by the Food, Agriculture, Conservation, and Trade Act of 1990 (1990 Farm Act) (Pub. L. 101-624, 104 Stat. 3359), and is required as a condition of eligibility for participation in the Federal crop insurance program. The primary use of the SSN or EIN is to correctly identify you, and any other person with an interest in your operation of 10 percent or more, as a policyholder within the systems maintained by the Federal Crop Insurance Corporation (FCIC). Furnishing the SSN/EIN is voluntary; however, failure to furnish that number will result in you being denied program participation and benefits. The balance of the information requested is necessary for the insurance company and FCIC to process this form to provide insurance, provide reinsurance, determine eligibility, determine the correct parties to the agreement, determine and collect premiums or other monetary amounts (or fees), and pay benefits. The information furnished on this form will be used by Federal agencies, FCIC employees, insurance companies, and contractors who require such information in the performance of their duties. The information may be furnished to: FCIC contract agencies; employees and loss adjusters; reinsured companies; other agencies within the United States Department of Agriculture; the Internal Revenue Service; the Department of Justice, or other Federal or State law enforcement agencies; credit reporting agencies and collection agencies; other Federal agencies as requested in computer matching programs; and in response to judicial orders in the course of litigation. Furnishing the information required by this form is voluntary; however, failure to report the correct, complete information requested may result in rejection of this form; rejection of any claim for indemnity, replanting payment, or other benefit; ineligibility for insurance; and a unilateral determination of any monetary amounts due.