The Basics of Crop Insurance

WHAT IS CROP INSURANCE?

How does Crop Insurance work?

The government has entered into a partnership with private Crop Insurance providers, like ProAg, to offer Crop Insurance on an equal-opportunity basis to agricultural producers nationwide. Approved insurance providers (AIPs) use independent licensed agents to market this insurance.

Every year, ProAg and other approved insurance providers (AIPs) enter into a contract called the Standard Reinsurance Agreement (SRA) with the Federal Crop Insurance Corporation (FCIC) to administer the Crop Insurance program by marketing, underwriting, and adjusting claims for Crop Insurance policies. The insurance providers transmit data to the Federal government. They are also responsible for both the training and monitoring of agents and staff.

How much does Crop Insurance cost?

Premium rates and insurance terms and conditions are established by the Federal Crop Insurance Corporation (FCIC) for the products it develops. There are also products developed by insurance providers and established with FCIC approval. In both cases, the price of insurance is constant throughout the industry. In other words, the cost is the same regardless of the Crop Insurance company or agency. Companies and agencies compete with Crop Insurance knowledge, customer service, and related insurance products. The agent’s ability to build business relationships with the insured is an important piece of the delivery system.

What does a Crop Insurance agent do?

Agents are involved in the sale and service of Crop Insurance. The program includes multiple plans of coverage for over 100 crops or commodities. With many crops and plans in place, the program guidelines change frequently.

The agent receives a commission, outlined in an annual contract between the agent and the insurance company. In return, the agent provides product and premium information to the insured and collects information from the insured as required by the policy throughout the year.

Policy information often varies by crop, from state to state and sometimes from county to county. Therefore, the policy is made up of many parts. There are documents which address the commonalities and other documents which address the differences. A lot of the information changes from year to year, and sometimes month to month. An agent is responsible for understanding the crops and plans in their specific region.

Below is a list of policy provisions, or rules, that are necessary to address all the facets of the Common Crop Insurance Policy. As you move to the right, the information gets more specific. For example, the Basic Provisions contain general Crop Insurance information regarding what options are available. Crop provisions provide crop specific information since every option is not applicable to every crop. Even more specific, are the actuarial documents which include county specific details.

Why do farmers buy Crop Insurance?

The Crop Insurance company or approved insurance provider (AIP) agrees to indemnify (that is, to protect) the insured (farmer, rancher or grower) against losses which occur during the crop year. Losses must be due to things which are unavoidable or beyond the insured’s control such as drought, freeze and disease. Some policies offer coverage due to adverse weather events such as the inability to plant due to excess moisture or losses due to the quality of the crop.

In most cases, the insurance covers loss of yield or revenue exceeding a deductible amount. Farmers, ranchers or growers can experience a loss of revenue due to low production and/or changes in the market price. The types of coverage available vary by crop and county due to the differences in each crop.

What is a crop? What is a commodity?

It is more accurate to refer to commodities rather than crops when discussing Crop Insurance since many coverages are not for crops in the typical sense. Over 100 commodities are insured such as perennials (crops not planted every year such as apples, citrus), livestock (cattle, lambs), apiculture (beekeeping), clams, rangeland, pasture and oysters.

Some crops can be insurable under numerous plans. For example, wheat coverage includes Yield Protection (YP), Revenue Protection (RP), Area Yield Protection (AYP) as well as numerous others; whereas a crop of wine grapes can only be insured under a yield-based plan of insurance (APH).

The types of coverages vary by crop due to the difference in the crop’s individual natures. Imagine the different requirements in the following crops: corn, wheat, blueberries, cabbage, cucumbers, figs, mint, olives and nursery plants.

What is a plan of insurance?

A plan of insurance is a specific type of insurance that is offered, including all of the rules associated with it. In most cases, a crop may be insured by only one plan at a time. When multiple plans are available, the producer must review the coverage details within each plan and select the one that best fits his/her farming operation and risk management needs. Knowing the plans available in the agent’s marketing area and the requirements for each plan is a responsibility of each agent.

The number of insurable crops and insurance products continues to grow to meet the increasing needs of the producer. A list of insurable crops can be found within the Actuarial Information Browser on the RMA website. It is essential for agents to be aware of and review all options available to producers in their state / county and to provide the insured with the information regarding all products available to them.

What is an insured?

The insured is the main focus of the Crop Insurance program. Providing the ag producer with tools to manage risk is the primary goal of the Federal Crop Insurance program and ProAg. An insured could be a farmer, a rancher, a beekeeper or a grower. The insured is the one who takes out the insurance policy for the crop that he/she has ownership, or a substantial beneficial interest (SBI). The insured enters into a contract to insure a crop in a county where insurance is available.

The insured’s responsibilities include: reporting specific information to establish a contract and guarantee, paying all applicable premiums and fees, following appropriate farming practices, and to notify the approved insurance company (AIP) in the event of a loss.

An indemnity (or loss payment) is issued to the insured when the requirements of the policy have been met. In most cases, the crop has not produced enough and/or generated enough revenue due to an insurable reason or cause of loss.

CROP INSURANCE 101, 201 and 301

Just starting your Crop Insurance career? ProAg offers Crop Insurance 101, 201 and 301 webinars throughout the year for ProAg agents and affiliates. Log into the ProAgPortal® intranet and register today for these important classes.

Crop Insurance is a vital part of the American agricultural industry and a key risk management tool for the modern farmer. It is, however, a complex topic, so we would like to provide an overview of some of the basic Crop Insurance concepts, practices, and tools. We hope this will be informative to those who are seeking a basic understanding of Crop Insurance, while also serving as a resource for those better acquainted with the topic.

As you can imagine, the Crop Insurance industry is filled with acronyms and terms. Please check out our Crop Insurance Acronyms page for additional basic explanations.

This is a summary only and is meant to provide basic information for general informational purposes only. In no way should it be considered a replacement to any federally published policy, provision, underwriting handbook or loss handbook language.

LOOKING FOR A CROP INSURANCE PROVIDER?

For more than 90 years, ProAg has provided personal service to farmers and agents. ProAg began as a family-owned business located in Amarillo, TX, and has evolved into a visionary, privately-owned business dedicated to outstanding quality and performance in agriculture risk management.

ProAg, a member of the Tokio Marine HCC group of companies, is positioned as a financially strong and well-capitalized insurer prepared to weather any economic storm. We strive to serve our clients’ best interests by remaining singularly focused on our specialized line of business—Crop Insurance. We stand committed to continuing the principles that ProAg was founded on: Integrity, Loyalty and Customer Service. ProAg is dedicated to helping our trusted agent partners grow by our continued commitment to innovative technologies such as mapping, precision ag, automated weather products and in-the-field adjusting.

Above all, ProAg is dedicated to building strong and secure relationships. We believe long-term business partnerships with farmers, agents, and reinsurers (some of which span five decades) allow us to deliver a consistency of service unmatched in our industry. We value the large and small agent, as well as the family and corporate farmer.

Are you ready to experience the ProAg difference?

Join the ProAg family today. Contact your local ProAg agent today or start the journey of becoming a ProAg agent by calling your local ProAg regional office here.

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