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.
History of Crop Insurance
HISTORY OF CROP INSURANCE
In the 1880s, a group of tobacco farmers in Connecticut formed the first organized Crop Insurance company, offering protection against losses from hail. Hail coverage was offered by private companies for the next 50 years.
In 1935, the dust storms began. After a year of record-breaking heat, the dusty soil from plowed fields drifted and piled up like snowdrifts, except it didn’t melt in the spring. Instead, crops and cattle died. On Feb 19, 1937, the Federal government announced the first national Crop Insurance program to help agriculture recover from the combined effects of the Great Depression and the Dust Bowl.
In 1938, the Federal Crop Insurance Corporation (FCIC) was created to carry out the program. Initially, the program was started as an experiment. Crop Insurance activities were limited to major crops in the main producing areas. Crop Insurance remained an experiment due to high costs and low participation rates among farmers for the next 42 years until the passage of the Federal Crop Insurance ACT of 1980.
Up to this point, Crop Insurance was strictly a government program. In the 1980s, private insurance companies became involved and, by 1998, had become the sole providers of Crop Insurance to the American farmer.
Although the number of insurable crops or commodities grew with the passage of the 1980 Act, it did not achieve the level of participation that Congress had hoped for. After a major drought in 1988, “ad hoc disaster assistance” (unplanned assistance created specifically for this event) was authorized to provide relief to eligible farmers. Another ad hoc disaster bill was passed in 1989, a third in 1992, and a fourth in 1993. Congress grew tired of these repeated requests.
By the early 1990s, Crop Insurance participation rates were still low, and Congress was spending more money in disaster relief than it was on Crop Insurance. This led to the enactment of the Federal Crop Insurance Reform Act of 1994 which dramatically restructured the program. This Reform act made participation in the Crop Insurance program mandatory for farmers to be eligible for deficiency payments under price support programs, certain loans, and other benefits. Because participation was mandatory, catastrophic (CAT) coverage was created.
CAT coverage compensated farmers for losses exceeding 50 percent of an average yield paid at 60 percent of the price established for the crop for that year. The premium for CAT coverage was completely subsidized by the Federal government. Participants paid $50 per crop per county subject to maximum amounts for multiple crops and counties insured by the same individual. Subsidies for higher coverage levels were increased.
In 1996, Congress repealed the mandatory participation requirement. However, farmers who accepted other benefits were required to purchase Crop Insurance or otherwise waive eligibility for any disaster benefits that might be made available for the crop year. These provisions are still in effect.
In the same year, the Risk Management Agency (RMA) was created in the United States Department of Agriculture to administer the Federal Crop Insurance programs and other non-insurance-related risk management and education programs that help support U.S. agriculture. Through subsidies built into new guidelines, participation grew.
By 1998, more than 180 million acres of farmland were insured under the program, representing a three-fold increase over 1988.
In 2000, the Agriculture Risk Protection Act (ARPA) allowed Congress to enact legislation that expanded the role of the private sector, allowing entities to participate in conducting research and development of new insurance products and features. With the expansion of the contracting and partnering authority, RMA can enter into contracts or create partnerships for research and development of new and innovative insurance products.
Authority was added to allow the Board of Directors to create an expert review panel to aid the board in evaluating new insurance products for feasibility and actuarial soundness. ARPA also increased premium subsidy levels to farmers to encourage greater participation and included provisions designed to reduce fraud, waste and abuse.
In 2008, more than 272 million acres were insured and by 2013, Crop Insurance protected more than 294 million acres. This was equal to 89% of planted cropland, including protecting 128 different crops with an insured value of $124 billion!
In 2014, The Farm Bill substantially strengthened Crop Insurance by adding several new products and options for farmers and ranchers and by making Crop Insurance more affordable for beginning farmers with a new provision called Beginning Farmer and Rancher (BFR) Benefits.
The Farm Bill required a number of program revisions to reinforce Crop Insurance’s role as the primary component of the farm safety net. The major enhancement to Crop Insurance was the addition of two supplemental policies. The Supplemental Coverage Option (SCO) and the Stacked Income Protection Plan (STAX)) which help producers expand their protection against losses due to natural disasters or price declines. Another major addition was the Whole Farm Revenue Protection (WFRP) policy which provides coverage for highly diversified farms and farms selling two to five commodities to wholesale markets.
The Farm Bill provides for increased program integrity, guaranteeing tax dollars are used effectively and efficiently as we expand the farm safety net.
Today, the Federal Government’s role in the Crop Insurance industry is to establish policy provisions, rules, and regulations. Depending on the level of coverage, the government subsidizes from 38% to 67% of the producer’s premium and provides reinsurance to ProAg and other Approved Insurance Providers (AIPs). The government also provides administrative and operating (A&O) reimbursement to these companies.
The Crop Insurance Cycle
THE CROP INSURANCE CYCLE
The Risk Management Association (RMA) and the Crop Insurance industry activities follow a timetable known as the Crop Insurance cycle. The cycle begins when the Federal government releases information about insurance products for the upcoming crop year and ends with the release of changes to the program for the following year.
The initial application for insurance is filled out in an agent’s office and then electronically submitted to an approved insurance provider (AIP). All applications must be on file with the agent by the applicable sales closing date (SCD). These dates vary by crop, region, etc.
The most common sales closing dates (SCDs) are:
- 3/15 and 9/30 – Annual Crops (crops which are planted every year)
- 1/31 and 11/20 – Category C / Perennial Crops (crops which are not planted every year)
During the application process, the ag producer must decide which crops to insure and at what level of coverage. Policies are based on specific crop and counties.
If the insured chooses to insure a crop in a county, he/she must insure all acres of that crop in that county. For example, if the insured chooses to insure wheat in Saint Charles county, he/she must insure all acres of wheat planted in Saint Charles county. He/she cannot choose to insure non-irrigated wheat and not insure the irrigated wheat acres. However, he/she can choose to not insure corn planted in Saint Charles county or wheat planted in another county.
The insurance coverage is continuous and automatically renews unless canceled in writing by either ProAg or the policyholder by the cancellation date, which is typically the same as the sales closing date (SCD).
As a result, this is also the time insureds have the opportunity to review any changes and, if desired, change the policy coverage, or cancel the insurance coverage. Any changes the insured makes must be submitted no later than the crop sales closing date. If the changes are not filed prior to the sales closing date (SCD), the changes take effect the following crop year. If the insured wishes to cancel the policy, a written notice must be submitted on or before the crop cancellation date.
Individuals and Entities
The applicant may be an individual or an entity. An entity has its own distinct existence. For example, an organization has a legal identity which is separate from those of its members.
Entities are vital to the insurance policy because insurance only extends to the individual or entity listed as the named insured on the application. It is extremely important for the agents to verify the name listed on the application is the name in which the crop is sold to ensure coverage is not voided and to eliminate potential issues when / if there is a claim.
For example, an individual, Bob Farmer, purchases a Crop Insurance policy, but actually does business as Farmer Farms, LLC. If part of the crop is damaged, there is no loss payment because Farmer Farms, LLC does not have coverage on the crop(s). Likewise, if Farmer Farms, LLC purchases the policy, Bob Farmer, as an individual, does not have coverage.
Substantial Beneficial Interest (SBI)
To apply for a Crop Insurance policy, the applicant, also known as the named insured, must own, or have an insurable share in the crop on which insurance is requested.
Anyone with a 10% or greater interest in the named insured is called a substantial beneficial interest (SBI). All SBIs must be reported on the application with their applicable tax IDs. It is vital that the agent verifies the correct ID numbers are on the application. A policy is void if it does not include all persons with an SBI.
For example, a father and his two sons own a ranch. Each son has a 25% share or ownership of the ranch. Since 25 is more than ten, all three are listed on the application.
What is a Person Type?
Each applicant must indicate his/her specific type of entity, called the person type. For example, a rancher purchases a Crop Insurance policy. His/her person type is “individual” unless he/she is married, then it would be “spousal”. If Family Farms, Inc. purchases a Crop Insurance policy. The person type is “corporation”.
There are requirements regarding who signs the application and how each person signs based on his/her person type. In the General Standards Handbook, Exhibit 2 contains a Person Types and Documentation chart with a complete listing of entity types. The chart also indicates the way the name should appear on the application, the valid signature format for the entity, any additional documentation required, and the applicable Tax ID type.
Important Crop Insurance Dates
Sales Closing Date (SCD): This is the final date an application can be submitted or filed. It is also the last date an insured may make coverage changes to an existing Crop Insurance policy. This date is found in the Special Provisions.
Cancellation Date: The calendar date when the coverage for the crop automatically renews unless canceled in writing by either the insured or approved insurance provider (AIP). The cancellation and sales closing date are often the same date. This date is found in the Crop Provisions.
The insured must document last year’s harvest information during production reporting time. It includes how much acreage was planted (planted acreage), harvested and any appraised production (due to a loss). The amount a crop produced or yielded is called “actual production.” The production report (PR) must be given to the agent by the production reporting date (PRD), typically 45 days after the sales closing date (SCD).
The production report indicates how many units were produced on a specific area of land. The unit varies by crop. For example, sunflowers are reported in pounds and corn is reported in bushels per acre.
This information must be reported separately by:
- Crop (for example, corn)
- Practice (for example, irrigated or non-irrigated)
- Type (for example, grain)
- Location (unit and map area)
Dates Associated with Production Reporting
Production Reporting Date: The production reporting date is the final date that the previous year’s production and acreage may be reported for most plans of insurance. It is typically 45 days from the cancellation date unless otherwise noted in the Special Provisions.
Once the crop is planted, the insured must report these acres to the agent on an acreage report (AR) by the acreage reporting date (ARD). Acreage reporting dates (ARDs) vary by crop, state, county, practice and type. These dates can be found in the Special Provisions. The insured must report the number of acres planted, the percent share he/she has in those acres, and the dates they were planted. Once the information is entered into the ProAgWorks processing system by the agent, ProAg underwriters determine the liability and coverage for the crop year based on the information provided.
The acreage report for the crop includes:
- All planted acres (insurable, uninsurable and late planted)
- Practice and type of the crop
- All acreage the producer was not able to plant (prevented planting acreage)
- Date of planting
- Insurable share for that acreage and any applicable shareholders
Dates Associated with Acreage Reporting
Earliest Planting Date: This date is the earliest a grower can plant his/her crop and still be eligible for replant payments if the crop needs to be replanted. This date varies by crop and county.
Final Planting Date: This is the last date a grower can plant without it affecting his/her guarantee (or how much his/her crop is insured for.) This date varies by crop and county.
Acreage Reporting Date: The acreage reporting date is the final date an insured may submit his/her acreage report. If acreage is not reported, insurance is not in effect. The date is found in the Special Provisions or as provided in section six of the Common Crop Insurance policy.
Payment due date: The premium due date is the last day a payment can be paid without being charged interest. This date varies widely by crop and county.
Termination date: The termination date is the calendar date contained in the Crop Provisions when Crop Insurance ceases to be in effect because of nonpayment of any amount due under the policy, including premium. This date varies widely by crop / county and can happen during many stages of the Crop Insurance cycle.
NOTICE OF LOSS
Damage to a crop is referred to as a loss. The form used to report a loss is called the notice of loss (NOL).
The insured must report the suspected loss to the agent within 72 hours of discovery of the damage or no later than 15 days after the End of the Insurance Period (EOIP) which is the earliest of:
- Total destruction of the insured crop on the unit
- Harvest of the unit
- Final adjustment of a loss unit
- The calendar date contained in the provisions
- Abandonment of the crop; or
- As otherwise specified in the crop provisions
When should I file a Crop Insurance claim?
Planted crops with damage or loss of production: A notice of loss for a planted crop must be provided within 72 hours of the initial discovery of damage or loss of production (but not later than 15 days after the end of the insurance period, even if the crop has not been harvested).
Revenue loss without a production loss: If there is no damage or loss of production and a revenue plan of insurance is in effect, notice must be given no later than 45 days after the latest date the harvest price is released.
Prevented planting: For crops which are prevented from being planted due to an insurable cause of loss, for example, a flood, notice must be provided within 72 hours after the final planting date or the time the producer determines it is not possible to plant during any applicable late-planting period.
End of late planting period: The late planting period begins after the final plant date and it lasts for 25 days.
Dates Associated with a Notice of Loss
End of insurance period: The end of insurance period is the date on which the Crop Insurance coverage ceases for the crop year. This includes when the crop is destroyed or harvested, at the final adjustment of a loss on a unit, abandonment, the calendar date contained in the Crop Provisions or Special Provisions for the end of the insurance period, or as otherwise specified in the Crop Provisions.
This step is considered both the end and the beginning of the Crop Insurance cycle. The cycle begins when the Federal government releases information about insurance products for the next crop year and ends with changes to the program for the following year.
The Risk Management Association (RMA) can make changes to the insurance rules and regulations from one year to the next. These changes are available on RMA’s website by the contract change date.
Date Associated with Contract Changes
Contract change date: The calendar date by which changes to the policy are made for the crop year. The contract change date is found in the Crop Provisions.
What is Unit Structure?
WHAT IS UNIT STRUCTURE?
Why is unit structure important?
A unit describes how acreage of a crop is grouped together for Crop Insurance coverage. Unit structure simply refers to the way a farmer chooses to group his/her fields. For example, one type of unit structure allows the producer to have all his/her fields or acreage placed into one group or unit. Another type of unit structure allows a producer to have separate units or groups for each field or location.
Claims are paid based on the total yield or production for a specific unit, therefore if the insured has elected to group all the fields together, all of the production or yield is considered as a whole. If smaller groups are elected, each smaller unit is looked at individually, which increases the chances of a claim payment.
There are rules surrounding how acreage is grouped, as well as how unit structure can affect the premium. Discounts are available for some elections. Generally speaking, the more acreage is broken up, the higher the chances of a claim payment and the higher the cost of the premium.
A farmer has four fields. One field is damaged due to a storm.
Scenario One: If the farmer groups four fields together and only one field is mostly damaged, the total loss may be around 20 percent. Since only one out of three of the fields were damaged, it is highly likely that the insured would not receive an indemnity for that one damaged field.
Scenario Two: The farmer chooses not to group all fields together and each field is seen as one unit, for a total of four separate units. One unit has 80% damage, and the other three units have no damage, so it would be much more likely the insured would be indemnified for that one damaged field in this scenario.
Depending on how much coverage the farmer elects, he/she could receive a claim check for one scenario but not the other.
There are five different types of units, each with a specific code to help with easier identification:
- Basic Unit (BU)
- Optional Unit (OU)
- Enterprise Unit (EU)
- Enterprise Unit by Practice (EP)
- Whole Farm Unit (WU)
Enterprise units consist of all insurable acreage of the same crop in the county in which the insured has a share on the date that coverage begins for the crop year. This means ground with 100% share and ground that is sharecropped are grouped together if in the same county. Because all acreage of the crop is grouped together, the losses may not be as large compared to basic or optional units. However, there is a significant premium discount for enterprise units.
Basic units include all insurable acreage of a specific crop in a specific county in which the insured has a share. However, each share arrangement (different shareholders) is a different basic unit and cash rented land (land that is rented and utilized as if one owns it) and land actually owned are considered to be the same and are therefore all part of the same basic unit.
In order to qualify for another basic unit, there would need to be a different sharecrop arrangement with a different landlord if applicable.
NOTE: Different share percentages with the same landlord do not qualify for additional basic units.
Optional units can be established by location, type of crop or method of farming practice. This could vary by crop and region.
NOTE: Some crop provisions also allow optional units by variety, type, and non-contiguous land.
Enterprise Units by Practice (EP)
When available, insureds have the option to select enterprise units by practice for the same crop if both non-irrigated and irrigated practices exist on the policy for the crop in which enterprise unit structure was elected. The insured may have an EP for one practice and a different unit structure for the other practice. In order to select EU by practice, the acreage must meet the EU requirements and it must be allowed by the actuarial documents.
Whole Farm Unit (WU)
This is the least common type of unit structure. Whole farm units are exactly what the name implies. Whole farm units consist of all insurable acreage of all crops in the county in which the insured has a share.
NOTE: This is not related to the Whole-Farm Revenue Protection (WFRP) plan of insurance.
Plans of Crop Insurance
PLANS OF CROP INSURANCE
What are Perils? What does Crop Insurance Cover?
Federal Crop Insurance or Multi-Peril Crop Insurance (MPCI) provides protection from a variety of naturally occurring perils or hazards. The Crop Provisions for each crop list the covered causes of loss specific to that particular crop. Although crops vary somewhat, most provide coverage against the following:
- Adverse weather conditions
- Plant disease*
- Volcanic eruption
- Failure of the irrigation water supply, if applicable, due to an unavoidable cause of loss occurring within the insurance period.
* Does not include damage due to insufficient or improper application of insect or disease control measures
Most Federal Crop Insurance policies provide coverage for loss of production/yield or how much a crop produces. Some plans combine yield and price coverage. They cover loss in value due to a change in market price during the insurance period, in addition to the perils covered by the standard loss of yield coverage.
Crop Insurance policies also typically indemnify, or protect, the insured person for other adverse events, such as the inability to plant (referred to as prevented planting (PP)) or excessive loss of quality due to adverse weather. These types of coverage vary by crop due to the difference in the crop’s individual natures.
What types of Crop Insurance are available?
A plan is a type of insurance coverage. In this section, we will review a few of the more common plans of insurance, coverage levels and pricing associated with each of these plans.
- Individual plans are based on the insured’s individual production or yield history, revenue or both
- Area plans are based on information from the entire county, uses averages from surrounding ag producers as well
- Additional plans of insurance are available in some states and counties. It is important to review the actuarial documents for all plans of insurance in your area. Examples include livestock coverage, pasture, rangeland and forage coverage as well as apiculture (beekeeping).
Individual Plans of Insurance – Based on a Producer’s History
Here are some of the more common plans of insurance. Additional plans may be available in certain states or counties.
Actual Production History (APH)
The APH plan of insurance is the oldest Federal Crop Insurance plan available. It provides the producer protection against a loss of production, or how much the crop produces, due to nearly all unavoidable, naturally occurring events. This plan of insurance guarantees the producer a yield based on the actual production history of his/her crops, which is why it is called the APH plan.
The guarantee is calculated by multiplying the average yield by coverage level elected for the producer’s share of the crop. An indemnity, or loss payment may be due if the production (harvested and appraised) is less than the guaranteed amount.
The pricing for most crops insured under the APH plan of insurance is established by RMA – these prices are called price elections. These are posted online.
Many perennial crops (crops that are not planted every year) such as apples, peaches and grapes fall under the APH plan, and also those crops that do not have revenue coverage available. Some grain crops such as oats, rye, flax and buckwheat are also covered under the APH plan of insurance.
Actual Revenue History (ARH)
The Actual Revenue History is based on the insured’s revenue history for the crop that is insured. The guarantee amount is calculated based on the insured’s production and revenue history. A loss occurs when the revenue to count for the current year falls below the insured’s guaranteed revenue.
Yield Protection (YP)
The Yield Protection plan is very similar to the APH plan but is only available on crops that are eligible for Revenue Protection. The Yield Protection plan of insurance provides protection against a loss of production.
It works the same as the APH plan but instead of using a price election established by RMA, the price is established according to the applicable board of trade/exchange as defined in the policy document called the Commodity Exchange Price Provisions (CEPP). The price used is called the Projected Price. The Projected Price is used to calculate the guarantee, premium and loss payments.
The guarantee is established by multiplying the average yield by the coverage level and by the Projected Price, and an indemnity may be due when the value of the production to count is less than the yield protection guarantee plan.
Revenue Protection (RP)
The Revenue Protection Plan provides protection against a loss of revenue caused by price increase or decrease, loss of production, or a combination of both. It is available for the same crops where YP coverage is available.
The RP plan uses the Commodity Exchange Price Provisions to establish the pricing, however, it is a little different from the YP plan as it uses two different price discovery periods. The projected price is determined in the same manner as YP and is used to calculate the premium, replant and Prevented Planting payments. The harvest price is released near harvest time. This price is used to calculate an indemnity.
The revenue protection guarantee is established by: (Average Yield) X (Coverage Level) X (Insured’s Share Percentage) X (Projected Price).
An indemnity may be due when the calculated revenue (insured’s production X harvest price) is less than the revenue protection guarantee for the crop acreage.
NOTE: When the harvest price is released, if it is greater than the projected price, the revenue guarantee is recalculated using the harvest price as well.
While the revenue guarantee is increased, the insured is not charged additional premium for this increase. If the harvest price is less than the projected price, the policy guarantee remains at the projected price.
Losses are paid using the harvest price.
Revenue Protection With Harvest Price Exclusion (HP-HPE )
The Revenue Protection Plan with Harvest Price Exclusion Plan (RP-HPE) is similar to the Revenue Protection (RP) plan, however it provides coverage against loss of revenue caused by price decrease, low yields or a combination of both – the price increase is not covered because the guarantee is not adjusted up by the harvest price for this plan.
The projected price is used to determine the revenue guarantee, the premium and any replant or prevented planting payment. The harvest price is only used to value the production to count in a production or revenue loss. It is not used to recalculate the guarantee if there is an increase.
The producer does not receive the benefit of price movement with the RP-HPE plan.
Dollar Plans of Insurance
Dollar Plans of Insurance are available for some commodities. Dollar Plans of Insurance are usually insured in dollar per acre or some other measurement applicable to the crop. The maximum dollar amount per acre or other measurement is established and published by RMA. The insured chooses a percentage of the maximum dollar amount to establish the guarantee. A loss occurs when the dollar to count per acre falls below the dollar amount of insurance.
Area Plans or County-Wide Insurance Plans
Area Plans insure against an area-wide, usually county-wide loss of production on a crop. When an entire county’s crop yield is low, most producers in the county will also have low yields. National Agricultural Statistical Service (NASS) county data is used to set the expected and actual county yields.
Under an Area plan, the insured chooses a percent of the expected county yield or revenue which is published by RMA in the actuarial documents. If the actual county yield or revenue falls below the expected county yield, a loss occurs.
The individual plans of insurance (APH, YP, RP, RPHPE) all require the producer to provide the amount of past production so a guarantee can be established. Even though we don’t use the producer’s actual yields to establish a guarantee for area plans, the new ARPI plan (below) still requires the production to be reported at the end of the insurance period. Maintaining this production history is mandatory and may be used by RMA as a data source to establish and maintain these area programs.
Area Risk Protection Insurance (ARPI) was released in 2014 and is the newest Area Plan of Insurance. ARPI has its own Basic Provisions, separate from the Common Crop Insurance Policy, so all ARPI plans of insurance follow these different guidelines.
There are three ARPI Plans of Insurance:
Area Yield Protection Plan (AYP)
The AYP plan provides coverage based on the experience of the county, rather than an individual farm. A loss may occur if the final county yield falls below the insured’s expected (or trigger) yield. The Federal Crop Insurance Corporation (FCIC) issues the final county yield in the calendar year following the insured crop year. Since this plan is based on a county yield and not a producer’s individual yield, it is possible for a producer to have a low yield on the farm and not receive any payment under this plan.
Area Revenue Protection (ARP)
The Area Revenue Protection Plan provides the yield protection of the Area Yield Protection Plan, but also provides against a loss of revenue due to production loss, price decline or a combination of both. ARP is similar to the RP plan as the initial guarantee is calculated using the projected price, but the revenue guarantee increases if the harvest price is greater than the projected price. If the harvest price is lower than the projected price, the policy guarantee remains the same. A loss occurs when the Final County Revenue falls below the Expected County Revenue (or Trigger) Guarantee.
Area Revenue with Harvest Price Exclusion (ARP-HPE)
The ARP-HPE is similar to the ARP plan except the guarantee is not adjusted up by the Harvest Price. The guarantee is always based on the projected price, but losses are calculated using the harvest price. This plan is very similar to the RPE-HPE plan except it is based on the experience of the county, rather than the individual producer.
ARPI has both a projected price and a harvest price. The prices are established using the same methodology as the YP and RP plans according to the applicable commodity board of trade/exchange as defined in the CEPP. Written agreements are not available for any of the ARPI plans of insurance. For more information on how ARPI plans of insurance work, refer to the RMA website www.rma.usda.gov and review the ARPI basic provisions along with any applicable ARPI crop provisions.
Crop Hail and Named Peril Insurance
CROP HAIL/NAMED PERIL (CH/NP)
Crop Insurance that is not part of the Federal Program is referred to as Private Crop Insurance and is sometimes referred to as Named Peril Insurance.
Most private coverage may be added to a crop to supplement coverage under the Federal Crop Insurance policy. Some plans require a Federal Crop Insurance underlying policy.
One of the most common private Crop Insurance types is Crop Hail Insurance. As the name suggests, it primarily covers against damage to the crop caused by hail, but also provides coverage against a few other things such as transit coverage and vandalism. There are several other types of private Crop Insurance depending on the area and crops that are grown in that area.
Most private coverage is on an acre-by-acre coverage. Production reports are not required, and instead of a production guarantee, the liability is expressed in a dollar amount.
Unlike MPCI, named peril or crop hail premiums are often due at the time of application or by a certain date following application.
Losses are paid when damage by the specified peril occurs to the crop.
Agents, please contact your ProAg account representative to review ProAg private crop hail or named peril coverage that’s available in your area. Insureds, contact your local ProAg agent to see what options are available to you.
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.
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