Approved Procedures for Determing Reasonableness of Reimbursement Expenses for 508(h) and Concept Proposal Submissions

United States
Department of
Agriculture

Federal Crop
Insurance
Corporation

Board of Directors

FEDERAL CROP INSURANCE
CORPORATION

BOARD OF DIRECTORS

APPROVED PROCEDURES FOR
DETERMINING
REASONABLENESS OF
REIMBURSEMENT EXPENSES
FOR 508(h) AND CONCEPT
PROPOSAL SUBMISSIONS
Effective Date: May 2010
Procedure Number: 17040

(A)

Basis, purpose and applicability.
(1)

This procedure establishes the guidelines by which Federal Crop Insurance
Corporation Board of Directors (Board) will determine the ‘reasonableness’ of
requests for research and development and maintenance costs for the
submission of policies, provisions of policies and rates of premium under:
(i)
(ii)

(2)

(B)

Section 508(h) of the Federal Crop Insurance Act (Act) and 7 C.F.R.
part 400, subpart V (subpart V); and
Advance payments for concept proposals submitted under section
522(b).

The Board will approve only the amount of reimbursement or advance payment
that it determines to be reasonable.

Definitions.

The definitions from subpart V and the Approved Procedures for Submission of Concept
Proposals Seeking Advance Payment of Research and Development Expenses Procedure
Number 17030; apply to these procedures unless otherwise specified in this section. In
addition to the definitions in subpart V and Procedure 17030, the following definitions apply:
Actuarial costs - Costs incurred by the submitter directly related to the determination
of premium rates and prices, including costs to acquire and develop the data for the
submission. Actuarial costs do not include costs to certify the submission as actuarially
appropriate which are reimbursable independent of actuarial costs.
Board - Federal Crop Insurance Corporation Board of Directors.
Copy - Extension of terms of a current Federally reinsured or previously reinsured plan
of insurance with only minor revisions as the basis for the submission, such as
introducing new or modified definitions. An example of a copy would be modifying
the definitions in an existing Group Risk Plan to provide coverage to a new crop or area
but the rest of the policy terms and coverages do not change.
FCIC - Federal Crop Insurance Corporation.
Modification - A revision to a Federally reinsured or previously reinsured plan of
insurance that includes revision of the policy, underwriting procedures, and loss
adjustment procedures. The modification must be more substantial than adding
definitions to accommodate the submission. An example of such would be modifying
the policy terms, pricing, rating, underwriting or loss adjustment procedures of an
existing plan of insurance to add a new coverage not previously provided. For
example, adding Dairy to the Livestock Gross Margin plan of insurance.

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Non-actuarial costs - All costs, excluding actuarial costs, that are directly related to the
development of the policy and include but are not limited to conducting feasibility
studies, policy writing, underwriting, reviewing insurance documents, directing work,
etc.
Original - A unique or original plan of insurance that is not based on or otherwise
closely related to an existing Federally reinsured or previously reinsured plan of
insurance. An extension of an existing plan of insurance to a new crop does not qualify
as an original submission. Rather, the basis of the coverage must be fundamentally
different than that provided under existing Federally reinsured or previously reinsured
plans of insurance. Examples would be the Livestock Gross Margin and Livestock
Risk Protection plans of insurance.
Other costs – These costs include costs associated with preparation of the submission
to present to the Board, legal and actuarial reviews, travel, responding to comments
from the Board, RMA, and independent expert reviewers, preparation for the
submission for sale, etc.
Risk Management Agency (RMA) – An agency of the United States Department of
Agriculture responsible for the administration of all programs authorized under the
Federal Crop Insurance Act and other authorities.
Similar submissions - Previously approved submissions in the same category (e.g.,
copy, modification or original) that most closely approximates the submitter’s
submission.
(C)

Submitted expenses for reimbursement of 508(h) submissions.
(1)

Subpart V provides guidance to applicants on the types of costs, verifiable
documentation necessary and the time frame to submit expenses to be considered
by the Board for reimbursement. However, the Board has determined that these
regulations need to be clarified to allow it to conduct a meaningful review of the
reasonableness of any request for reimbursement or advance payment.

(2)

As stated in subpart V, actual costs submitted may be adjusted at the sole discretion
of the Board. In addition, in accordance with section 522(b)(6) of the Act, section
400.712(f) makes it clear that reimbursements will be adjusted based on the
complexity of the policy or plan of insurance and size of the area the policy will be
sold.

(3)

To assist the Board in determining reasonableness in accordance with the Act and
subpart V:
(a)

The Board will determine the category of the submission in order to be able to
compare other similarly approved submissions, as either a:
(i)

Copy:
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(b)

(c)

(ii)

Modification; or

(iii)

Original.

All costs must be placed into one of three categories:
(i)

Actuarial costs,

(ii)

Non-actuarial costs; and

(iii)

Other costs.

The submitters must break down each of the categories of costs into one of the
tasks listed below.
(i)

For each task, the submitter must include the number of hours needed to
perform the task, the name and occupational classification of the person
performing task using the Bureau of Labor Statistic (BLS) Categories
located at http://www.bls.gov/oes/current/oes_nat.htm. If the number of
hours for any of the categories of costs exceeds the average for similar
types of submissions, please provide a detailed explanation of why the
additional work was necessary

(ii)

If a classification is not listed in the document, please provide a detailed
description of the work done.

(iii)

Include the hourly wage rate as determined by the BLS Occupational
Employment and Wage Statistics Survey for each occupation located at
http://www.bls.gov/oes/current/oes_nat.htm and benefits as determined
by the BLS Employer Costs for Employee Compensation Survey located
at http://www.bls.gov/ncs/ect/home.htm for each person for each task. If
the hourly wage rate exceeds two times the hourly wage rate or benefits
provided by the Bureau of Labor Statistic, please provide a detailed
explanation of why the tasks could not be performed at the listed rates.

(iv)

All submitters are given an opportunity to explain to the Board how their
submission is different from existing plans of insurance.

(v)

The tasks required to be performed may include but are not limited to:
(I)

Non-Actuarial
1.

Assess need by contacting commodity
organizations/producers;

2.

Search for like or similar programs;

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(II)

(III)

3.

Conduct feasibility study to determine if program is
possible;

4.

Conduct listening sessions with producers to determine
interest; and

5.

Create or modify the policy provisions, loss adjustment
procedures, handbooks, actuarial documents, Special
Provisions, or any other necessary documents.

Actuarial
1.

Gather data (number of producers, acres, states, rating
and pricing data, etc.);

2.

Determine appropriate rating and pricing methodologies
for the risks covered and the available data; and

3.

Using the approved methodologies, provide rates, factors,
and prices to RMA;

Other
1.

Review statutes to determine if legally plausible;

2.

Certify that the rating and pricing methodologies are in
accordance with acceptable insurance principles;

2.

Produce submission according to subpart V and submit
document to the Board;

3.

Present the submission to the Board;

4.

Address issues raised by the Board, RMA, OGC and the
independent expert reviewers;

5.

If submission is approved, finalize all policy provisions,
loss adjustment procedures, handbooks, actuarial
documents, Special Provisions, and any other necessary
documents;

6.

Work with RMA, as needed, for their review of rates,
factors, and prices and in development of any programs
needed to validate numbers; and

7.

Work with RMA to set up data acceptance records and
edits, and the appropriate calculations for the premium
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calculator, indemnity calculation, or any other
calculations necessary to implement/support the approved
submission.
(d)

Placement into one of the labor categories will be determined by the nature of
the work, not the title of the task.

(e)

The rules applicable to determining compensable costs and hourly rates under
the Equal Access to Justice Act shall be applied by the Board to these
submissions. For example, ministerial tasks, travel, etc. performed by
underwriters or project managers may receive less than the hourly wage
provided by Bureau of Labor Statistics.

(f)

When examining reasonableness, the Board will first compare the
reimbursement request with the average cost for similar submissions.
Attachment 1 is provided to give a general guide based on average costs of
508(h) submissions approved as of this publication.

(g)

(i)

To the extent that the reimbursement request exceeds such average cost,
the submitter should provide detailed information justifying the
additional costs.

(ii)

In determining reasonableness, the Board will look at:
(I)

The occupational classification of the person used to perform
the task;

(II)

The number of hours claimed for each task;

(III)

The hourly wage rate claimed for each task; and

(IV)

The explanation, if necessary, for the number of hours and
hourly wage rate.

(iii)

If the justification appears reasonable, the submitted costs may be
approved.

(iv)

If, in the Board’s sole discretion, the costs do not appear to be
reasonable, the Board will determine a reasonable reimbursement by
determining the appropriate reimbursement based on comparison to
other similar submissions.

If a submission is determined to be of insufficient quality to refer to expert
review, or is considered incomplete and is subsequently resubmitted and
approved, the costs to perfect the submission may not be considered
reimbursable costs depending on the level of insufficiency or incompleteness of
the submission, as determined by the Board.
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(D)

(h)

Reimbursement of costs associated with addressing issues raised by the Board,
expert reviewers and RMA will be evaluated based on the substance of the issue
and the amount of time necessary to address the specific issue raised. Delays
and additional costs caused by the inability or refusal to adequately address
issues may not be considered reimbursable.

(i)

While the Board may consider the average costs of similarly approved products
to determine reasonableness, the Board may also consider one or more specific
similar approved plans and may request RMA to provide its estimate of time
and level of effort required for a similar product developed under contract in its
determination of the reasonableness of any requested reimbursement.

(j)

It is incumbent upon each submitter to provide as much information as possible
to justify the costs claimed in the submission and the submitter will be provided
the opportunity to explain and articulate to the Board the costs and hours
submitted for reimbursement.

Advance payments for Concept Proposals.
In considering advance payments for concept proposals, the Board will:
(1)

Determine the category of the submission in order to be able to compare other
similarly approved submissions, as either a:
(a) Copy;
(b) Modification; or
(c) Original.

(2)

Determine reasonableness of estimated costs based on the costs associated with
similar products.

(3)

Request, as necessary, RMA to provide its estimate of time and level of effort
required for a similar product developed under contract in its determination of the
reasonableness of any requested reimbursement.

(4)

If the submitters request for an advance payment exceeds the amount determined to
be reasonable, as determined by the Board, the submitter may be required to further
justify and substantiate their costs. An advance payment is at the Board’s sole
discretion.

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Attachment 1
508(h) Research and Development Average Cost Adjusted for Inflation1
Category

Actuarial Costs

Copy
Modification
Original

$67,677
$219,323
$161,140

Non-Actuarial
Costs
$126,372
$137,380
$266,952

1

Other Costs

Total Costs

$13,403
$22,360
$222,589

$207,452
$379,063
$650,681

General guide based on average costs of 508(h) submissions approved for reimbursement as
of September 20, 2009.

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