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Use or disclosure of information or data 3 Proprietary Property of Watts & Associates, Inc. <br />contained on this sheet is subject to the <br />restrictions on the title page of this proposal. Copyright © 2020 Watts & Associates, Inc. All Rights Reserved. <br />III.BACKGROUND INFORMATION AND RATIONALE FOR PHASE I <br />The Federal Crop Insurance program provides subsidized crop insurance to growers of major and <br />minor commodities across the United States. Multi-Peril Crop Insurance (MPCI) is administered <br />through RMA, and delivered by 17 privately held insurance companies and brokers through a <br />vast network of individual licensed crop insurance agents. MPCI covers a wide range of perils <br />(e.g., drought, excess moisture, disease, etc.) that negatively impact crop yields and subsequently <br />crop revenue. MPCI offers protection for yield and revenue. The average premium subsidy for <br />growers is 55 percent (i.e., FCIC covers 55 percent of a given premium, and the insured (grower) <br />pays the remaining 45 percent). All company operating expenses and agent commissions are <br />paid by the Federal government under the terms of the Standard Reinsurance Agreement (SRA). <br />Coverage is offered to nearly all commonly grown crops planted in the expected staging area. <br />North Dakota has the highest Federal Crop Insurance participation rate in the United States, with <br />enrolled net acreage occasionally even exceeding the acreage reported to NASS and FSA as <br />planted (implying a participation rate of greater than 100 percent). Coverage is available for <br />major crops grown under organic practices, but participation is markedly lower among organic <br />growers, who have historically expressed concern about low relative guarantees and high relative <br />premiums. <br />Federal Crop Insurance is delivered to growers through a public/private partnership. The Federal <br />Crop Insurance Corporation (FCIC) provides the private companies with standardized program <br />materials, premium rates, and underwriting procedures as well as delivering subsidies and <br />reinsuring the private companies against severe losses. All private companies must offer the <br />same selection of Federal Crop Insurance programs under the same rules to any grower who <br />expresses interest in their service area. In addition to delivery of Federal Programs, these private <br />companies may also provide growers with additional products that add coverage or features to <br />the baseline Federal Crop Insurance products. These products are called “Non-Reinsured <br />Supplemental Policies” (NRS) in reference to the fact that they are not subject to subsidies or <br />protection from the FCIC in the case of severe systemic losses. <br />There is an underlying assumption that growers producing crops in the Comprehensive Project <br />staging area already participate in Federal Crop Insurance. (North Dakota and Minnesota <br />consistently report nearly 100 percent participation in crop insurance for eligible acres). Lenders <br />(bankers) typically require growers to purchase crop insurance as part of securing operating <br />loans for the growing season. Consequently, there is an existing crop insurance product and <br />affiliated administrative structure already in place that is utilized by growers. Since growers are <br />already familiar with the current structure, the Authority can utilize this structure as a starting <br />point for collaboration with growers regarding crop loss compensation due to flooding events. <br />Phase I proposes to utilize the existing crop insurance infrastructure for compensation due to <br />crop losses caused by a flooding event initiated by the Authority. The fundamental rationale <br />implies that Phase I can be implemented in a more timely manner since the approach is simply <br />placing an administrative component for the Authority to utilize with the current crop insurance <br />system.