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Insight on Crop Insurance Changes

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DisclaimerInsurance forms and endorsements vary based on insurance company; changes in edition dates; regulations; court decisions;

and state jurisdiction. This instructional materials provided by Insight is intended as a general guideline and any interpretations provided by the instructor or the creator(s) of this material do not modify or revise insurance policy language. In providing these materials, the authors assume neither liability nor responsibility

to any person or business with respect to any loss that is alleged to be caused directly or indirectly as a result of the instructional

materials provided.

Copyright 2010 – 2013 All Rights Reserved

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Your Instructor Today

Rita McMullen AFIS, CPCU, CPIW AAI President, PDM Insurance Agency

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Sponsored by: www.HartfordLivestock.com


Topics covered Background on Crop Insurance Examine the traditional production products

vs. newer revenue products to respond to high dollar grain and organic crops.

Overview of Crop Policy Important Dates Types of Crop Insurance products New Products on the Horizon -Subsidies,

What's Next?

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Polling Question #1

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Background on Crop Insurance

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Why Crop Insurance

Reduce the unknown FARM STRESSES of Growing Crops

The #1 Cause of Crop Loss across the Country is Weather Related Losses

Insurance Agents cannot control Mother Nature, rather we can emphasize how to minimize the RISK of Growing Crops with the purchase of Crop

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Banana Farm in Portland, MA after Sandy destroyed 1500 hectares

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Why Crop Insurance

Insurance policies covering farm property have some significant limitations relating to “crops” as “Covered Property” Policies typically exclude “crops” as

covered property Some specialty policies have “limited”

coverage for crops both in the amount of insurance provided and the perils of insurance.

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Why Crop Insurance

Some specialty policies will cover only a limited category of crop such as “only table grape crop”.

Policies typically exclude Trees (trellis or vines) Some specialty policies have limited

coverage for such items as trellis or grape vines for limited perils (fire, lightning, vehicle damage, animals other than insects, birds or rodents.

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Why Crop Insurance

Property Policies EXCLUDE the Perils that are covered on Crop Policy specifically those relating to weather and disease.

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Why Crop Insurance

Protect against production or revenue losses

A financial safety net Collateral for loan

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Background on Crop RMA (US Dept. of Agriculture (USDA Organization)

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Background on Crop RMA (US Dept. of Agriculture (USDA Organization)

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Risk Management Concerns and Education for Crop

Five Major Areas of Risk Marketing Risk Human Resource Risk Financial Risk Legal Risk Production Risk

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Traditional Production Products vs. newer revenue products to high dollar grain

and organic crops

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Polling Question #2

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Crop Insurance Programs

Purpose Protect against production or revenue

losses A financial safety net Collateral for loan

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What is Crop Insurance?

Federally subsidized – a portion of the total premium paid depends on coverage level selected.

Protection for farmer’s crops. We can’t control the weather, but crop

insurance helps farmers to minimize the risk from weather related risks.

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Crop Insurance Facts

RMA provides 22 insurance plans on over 350 agricultural commodities in all 50 states and Puerto Rico.

Several Pilot programs for some new crop policies in selected states and counties.

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Insurable Crops

Varies by State and County Refer to Actuarial

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Overview of Crop Insurance Policy

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Producer Obligations In Writing a Crop Policy Report acreage accurately Meet policy deadlines Pay premiums when due, and Report losses immediately Producers will receive

Accurate answers to questions on types of coverage,

Prompt processing of their policy, and Timely payments for covered loss

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Parts of the Policy

Common Crop Insurance Policy Basic Provisions 11-BR Specific Crop Provisions Ex. Corn –Coarse Grains –Crop Revenue

Coverage Provisions 11-0041 Policy Endorsements Special Provisions

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Parts of the Policy

Actuarial – Issued For Each County & State. Shows Insurable Crops, Sales Closing,

Final Planting Dates, Special Crop Details.

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Polling Question #3

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Typical Causes of Loss

Note: Each crop has specific crop provisions Fire Wildlife Earthquake Volcanic Eruption Failure of irrigation water supply due to

an unavoidable Cause of Loss occurring within the insurance period

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Special Provisions

Example Soy Bean Cause of Loss Insects: but not damage due to

insufficient or improper application of pest control measures

Plant Disease: but not damage due to insufficient or improper application of disease control measures

Case: soybean rust

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Coverage Triggers

Unavoidable: loss directly caused by specific causes of loss

Must be due to a naturally occurring event

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Exclusions

Negligence, mismanagement or wrongdoing by you, any member of your family or household, your tenants, or employees;

Failure to follow recognized good farming practices for the insured crop;

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Exclusions

Water that is contained by or within structures that are designed to contain a specific amount of water, such as dams, locks or reservoir projects, etc. on any acreage when such water stays within the designed limits

Water that is contained by or within structures that are designed to contain a specific amount of water, such as dams, locks or reservoir projects, etc. on any acreage when such water stays within the designed limits

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Polling Question #4

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Claims Procedure

Protect the crop from further damage Give prompt notice of damage to

insurance agent “Within 72 hours of your initial discovery of

damage, but not later than 15 days after the end of the insurance period”

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Claims Procedure

If you want to destroy crop, obtain consent from insurance company

If harvested, provide total production Company crop adjuster will determine

whether your yield falls below the yield or dollar guarantee stated in your crop policy.

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Important Dates

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Insurance Dates: Important Deadlines Sales Closing (SCD)—Last day to apply

for coverage. Final Planting Date (FPD)—Last day to

plant unless insured for late planting. Acreage Reporting Date (ARD)—Last day

to report the acreage planted. If not reported, insurance will not be in effect.

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Insurance Dates: Important Deadlines Premium Due Date—Last date to pay the

premium without being charged interest End of Insurance Period—Latest date of

insurance coverage

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Replanting Payment

Section 13 of the Basic Crop Provisions Note: May not be included on all Crops

Payment if the crop is damaged by an insurable cause of loss to the extent that the remaining stand will not produce at least 90% of the production guarantee for the acreage and it is practical to replant. Subject to certain stipulations.

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Late Planting

Section 16 of the Basic Crop Provisions Insurance will be provided for acreage planted to

the insured crop after the final planting date: Amount of Insurance will be reduced by 1% per

day for each day planted after the final planting date.

Premium amount is same as timely planted acreage.

Subject to certain stipulations.

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Prevented Planting

Section 16 of the Basic Crop Provisions Note: Not included on all Crops

Payment if you were prevented from planting the insured crop (failure to plant when other producers in the area were planting will result in the denial of the prevented planting claim) by an insured cause that occurs on or after the Sales Closing Date.

Subject to certain stipulations.

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Types of Crop Insurance Products

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Actual Production History (APH) Insures against yield losses. Coverage based on

insured’s past yield history (up to 10 years Farmer selects amount of average yield to insure,

from 50 to 75% (some areas to 85%). Also selects percent of predicted price between

55 and 100% of established price. If the harvest is less than the yield insured, the farmer is paid an indemnity based on the difference.

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Yield Protection (YP)

Insures producers in same manner as APH policies, except a Projected price is used to determine insurance coverage.

Projected price is determined in Accordance with the Commodity Exchange Price Provisions (CEPP) & is based on daily Settlement prices for certain futures contracts.

Producer can select % of price between 55-100%

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Polling Question #5

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Actual Revenue History (ARH) Has many parallels to the APH plan,

difference being instead of insuring historical yield, the plan insures historical revenues

Uses unique crop provisions. ARH pilot program protects growers

against losses from low yield, low prices, los quality or any combination of these events.

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Revenue Protection (RP)

Provides revenue protection based on price and yield expectations based on the greater of the projected price or the harvest price.

If the harvested plus any appraised production multiplied by harvest price is less than the amount of insurance protection, the producer is paid an indemnity based on the difference.

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Revenue Protection (RP)

The producer selects amount of coverage yield from 50-75% (85% in some areas), the projected & harvest price are 100% of the amount determined.

In accordance with the Commodity Exchange Price Provisions (CEPP) based on daily settlement prices for certain futures contracts. settlement

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Revenue Protection with Harvest Price Exclusion (RPHPE)

Provides protection in the same manner as RP policies, except the amount of insurance protection is based on the projected price only.

The amount of insurance protection is not increased if the harvest price is greater than the projected price

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Revenue Protection with Harvest Price Exclusion (RPHPE)

YP Subsidized Premium Cost per Acre -$22. YP Only Triggers Claim With A Yield Loss,

RP Subsidized Premium Cost per Acre - $34. RP Will Trigger Claim 3 Ways:

By Yield Loss, Price Change, Or A Combination Of Both

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Group Risk Plans (GRP

Policy uses a county index as a basis for determining a loss.

When the county yield for the insured crop, as determined by the National Agricultural Statistics Service (NASS), falls below the trigger level chosen by the farmer, an indemnity is paid.

NOT paid based on individual farmer’s loss records.

Yield levels available for up to 90% of the expected county yield.

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Group Risk Income Protection (GRIP) Makes indemnity payments only

when the average county revenue falls below the revenue chosen by the farmer.

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Dollar Plan

Provides protection against declining value due to damage that causes a yield shortfall.

The amount of the insurance is based on the cost of growing a crop in a specific area.

When the annual crop value is less than the amount of insurance. The maximum dollar amount is stated on the actuarial document.

Producers selects an amount from CAT or additional levels of coverage

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Actual Revenue History (ARH) Offer revenue coverage to crops for which

no representative futures market exists. The plan is based on the producer’s own

historical crop revenues and offers protection for price, yield, and quality-based losses.

ARH Guarantees based on the producer’s historical revenue as supported by sales documents.

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Actual Revenue History (ARH) ARH values the crop at the point of first

sale Includes picking and hauling Require producers to certify up to ten

years of historical revenue and production.

In the absence of four years, use transitional yields and revenues.

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Livestock Risk Protection (LRP) Not traditionally thought of in Crop

Insurance products Newer to the crop insurance arena Designed to insure against declining

market prices of livestock and not any other peril

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Livestock Risk Protection (LRP) Coverage determined using futures & options

prices from the Chicago Mercantile Exchange Group (CME).

Ex. Cattle, swine, lamp Producers decide on the number of head to

insured and the length of the coverage period. If the ending price is less than the producer

determined beginning price an indemnity is due.

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Livestock and Gross Margin (LGM) Dairy provides coverage for the difference

between the milk price & feeding costs. If the producer determined gross margin is

greater than the actual gross margin an indemnity is paid

Biggest challenge for insurance producers has been the Capacity Limit Cap stated by RMA

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New Products on the Horizon—Subsidies, What’s

Next?

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Adjusted Gross Revenue (AGR) Insures the revenue of the entire farm

rather than an individual crop by guaranteeing a percentage of average gross farm revenue.

Uses producer’s Schedule F tax return forms and the current year’s expected farm revenue to calculate policy revenue

Has a limitation for livestock income * Not available in all states/counties

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AGR Lite

Variation of Adjusted Gross Revenue –no livestock limitation.

Originally created by the PA Department of Agriculture, but has now been expanded to many more states

*not available in all states/counties

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Rainfall Index (RI)

Coverage for lack of rainfall only based on weather data collected and maintained by the National Oceanic & Atmospheric Administrations Climate Prediction Center (NOAA).

The index reflects how much precipitation is received relative to long-term average rainfall for a specified areas & timeframe.

Pilots available in select counties EX. Pasture, Rangeland, Hayland (PRF) policies

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Vegetation Index (VI)

Observes the long-term changes in the greenness of vegetation of the earth based on the US Geological Survey’s Earth Resources Observation & Science (EROS) normalized difference vegetation index (NDVI) data derived from satellites

Pilots available in select counties

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Catastrophic Coverage (CAT) Pays 55% of the price established by RMA on

crop losses in excess of 50% The premium for CAT is FREE to producers as it

is 100% subsidized by the Federal government, however, producers must pay a $300 Administrative fee for each crop insured in each county

CAT coverage is NOT available on all types of policies

NOTE: Limited-resource producers may have this fee waived

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Written Agreements

If an established crop policy is not available in a particular state or county, producers can request through their insurance agent for a Written Agreement request to the RMA Regional Office to expand the program to the county.

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Written Agreements

Rules & Regulations are available in the Crop Insurance Handbook (CIH) Unit

Each Parcel Of Land That Is Insured Independently Of Other Parcels.

It Is Possible To Have A Loss On One Unit And Receive A Loss Payment While Other Units Have Normal Yields.

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Written Agreements

Basic Unit Have different units for different owners of the

land Each crop is kept separate

Optional Units Basic Units May Be Divided In Optional Units Annual Crops – By Section Tree & Vine –By Noncontiguous Need Separate Production Records To

Obtain.

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