Contact USDA Before Agreeing to a “No Premium” PRF Policy
Recent schemes may allow those without an insurable interest to benefit from USDA insurance program.
If something sounds too good to be true, it probably is. Recently, different schemes have been devised that, directly or indirectly, connect livestock producers enrolled in USDA’s Pasture, Rangeland, and Forage (PRF) program to investors and or lending-type entities. While the specifics vary, the livestock producer generally agrees to turn over a portion of their PRF indemnities in return for the investor covering all or part of the PRF premium. A similar emerging scheme offers a low interest rate to help pay premiums if the client stays with the agent for a period of time. These schemes harm PRF, a program that has kept many ranchers in business during droughts. Producers and agents caught in these schemes could face serious legal repercussions with USDA.
Why is this problematic? These schemes could be considered either rebating or a “scheme and device.” Rebating is strictly prohibited by the Federal Crop Insurance Act (Act) with limited exceptions authorized by the Act. USDA has stated that “[t]his prohibition includes anything that would be deemed valuable consideration, inducement to procure or retain insurance, or a method used to circumvent the rules of the policy.” Agents are prohibited from rebating and, if caught, could be suspended, debarred, or disqualified from participating in crop insurance. When producers sign up for PRF, they certify that they have not been involved in rebating and that a false statement could subject them to criminal and civil penalties.
At times, those who seek to misuse crop insurance attempt to circumvent the rules. Crop insurance regulations state, “if a person has knowingly adopted a material scheme or device to obtain… insurance coverage, to which the person is not entitled, has evaded the provisions of the Federal Crop Insurance Act, or has acted with the purpose of evading the provisions of the Federal Crop Insurance Act, the person shall be ineligible to receive any and all benefits applicable to any crop year for which the scheme or device was adopted…A scheme or device may include, but is not limited to, creating or using another entity, or concealing or providing false information with respect to your interest in the policyholder to evade.” CFR § 400.458
During the recent drought in the West, PRF has proven its value. It has kept many family-owned multi-generational ranchers in business. Schemes that treat PRF like investment opportunities to relieve producers of paying their premiums only hurt producers in the long run. PRF payments are meant to help livestock producers, not crop insurance agents, not investors, not quasi-lending institutions, etc.
Producers should be wary of agents offering insurance policies that guarantee premiums will be paid and, if contacted, immediately call USDA’s Western Regional Compliance Office at (530) 792-5850 to ensure the proposal is legal.
About the Author: Brandon Willis oversaw USDA’s Risk Management Agency from 2013-2017. The opinions in this article are solely his.