04-23-2020
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Use or disclosure of information or data 5 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 />IV.BACKGROUND INFORMATION AND RATIONALE FOR PHASE II <br />Phase I represents a relatively straight forward and simplistic system to provide immediate <br />benefit to growers in the staging area while simultaneously allowing for the analysis and <br />development of a crop insurance product that is specific to the staging area (i.e., Phase II). <br />Phase II development of a private insurance product would likely result in an NRS product (e.g., <br />a rider policy) that would attach to an MPCI Federal Crop Insurance product. As previously <br />stated in this proposal, private companies may provide growers with additional products that add <br />coverage or features to the baseline Federal Crop Insurance products. These products are called <br />“Non-Reinsured Supplemental Policies” (NRS) in reference to the fact that they are not subject <br />to subsidies or protection from the FCIC in the case of severe systemic losses. <br />The product for Phase II could be designed to include two components. One component would <br />provide indemnification to the producer in the event the producer could not plant a crop due to <br />cropland being inundated by floodwaters as controlled by the Comprehensive Project. In this <br />event, a producer could receive a coverage guarantee up to 90 percent (either yield protection or <br />revenue protection at their option). The second component would provide indemnification in the <br />event the crop was planted, but upstream staging was required during the growing season and <br />thus the crop was inundated for a period of time that would likely result in 100 percent yield loss <br />or a reduction in yield (e.g., a summer Crop Loss Program). In this event, the producer would <br />receive coverage up to 90 percent (coverage greater than 90 percent may be explored), less any <br />production to count in the event there was harvestable production. The product would be <br />designed such that the Authority would pay for the supplemental insurance product for growers <br />that farm in the staging area. <br />The NRS coverage would pay the full value of the crop as estimated for Federal Crop Insurance <br />purposes, (the approved yield multiplied by the applicable projected or harvest price or subject to <br />the same factors applicable to Federal Prevented Planting coverage), and would not be subject to <br />a deductible. As the cause of loss (man-made flooding) has been determined to be uninsurable <br />under the terms of the federal policy, no indemnity would be paid through the FCIC (i.e., the <br />Authority would be 100 percent responsible for indemnification). <br />Compensation for the crop loss in the current crop year, however, does not fully capture the <br />value of the damage incurred by the grower. The RMA procedures dictate that crop insurance <br />guarantees are determined based on the historical yields for the last ten years in which the field is <br />planted (or intended to be planted) to the applicable crop. In the event of a total production loss <br />as a result of flooding, the grower could expect to endure reduced guarantees and increased <br />federal crop insurance premium rates for many years, particularly when rotations are taken into <br />account. While it is not legal to offer direct compensation for these losses in the guise of an <br />insurance product (RMA lawyers have formally opined that using a supplement policy to <br />compensate for future damage to insurance guarantees falls outside the authority of the Act), it is <br />possible to “scale up” the private products indemnities due in the year of a loss by a factor that <br />roughly equates to the future value of these losses.
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