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Use or disclosure of information or data 5 Proprietary Property of Watts & Associates, Inc. contained on this sheet is subject to the restrictions on the title page of this proposal. Copyright © 2020 Watts & Associates, Inc. All Rights Reserved. IV.BACKGROUND INFORMATION AND RATIONALE FOR PHASE II Phase I represents a relatively straight forward and simplistic system to provide immediate benefit to growers in the staging area while simultaneously allowing for the analysis and development of a crop insurance product that is specific to the staging area (i.e., Phase II). Phase II development of a private insurance product would likely result in an NRS product (e.g., a rider policy) that would attach to an MPCI Federal Crop Insurance product. As previously stated in this proposal, private companies may provide growers with additional products that add coverage or features to the baseline Federal Crop Insurance products. These products are called “Non-Reinsured Supplemental Policies” (NRS) in reference to the fact that they are not subject to subsidies or protection from the FCIC in the case of severe systemic losses. The product for Phase II could be designed to include two components. One component would provide indemnification to the producer in the event the producer could not plant a crop due to cropland being inundated by floodwaters as controlled by the Comprehensive Project. In this event, a producer could receive a coverage guarantee up to 90 percent (either yield protection or revenue protection at their option). The second component would provide indemnification in the event the crop was planted, but upstream staging was required during the growing season and thus the crop was inundated for a period of time that would likely result in 100 percent yield loss or a reduction in yield (e.g., a summer Crop Loss Program). In this event, the producer would receive coverage up to 90 percent (coverage greater than 90 percent may be explored), less any production to count in the event there was harvestable production. The product would be designed such that the Authority would pay for the supplemental insurance product for growers that farm in the staging area. The NRS coverage would pay the full value of the crop as estimated for Federal Crop Insurance purposes, (the approved yield multiplied by the applicable projected or harvest price or subject to the same factors applicable to Federal Prevented Planting coverage), and would not be subject to a deductible. As the cause of loss (man-made flooding) has been determined to be uninsurable under the terms of the federal policy, no indemnity would be paid through the FCIC (i.e., the Authority would be 100 percent responsible for indemnification). Compensation for the crop loss in the current crop year, however, does not fully capture the value of the damage incurred by the grower. The RMA procedures dictate that crop insurance guarantees are determined based on the historical yields for the last ten years in which the field is planted (or intended to be planted) to the applicable crop. In the event of a total production loss as a result of flooding, the grower could expect to endure reduced guarantees and increased federal crop insurance premium rates for many years, particularly when rotations are taken into account. While it is not legal to offer direct compensation for these losses in the guise of an insurance product (RMA lawyers have formally opined that using a supplement policy to compensate for future damage to insurance guarantees falls outside the authority of the Act), it is possible to “scale up” the private products indemnities due in the year of a loss by a factor that roughly equates to the future value of these losses.