RISK MANAGEMENT CROP INSURANCE Submitted by Darrell Boatright Modified by Georgia Agriculture Education Curriculum Office June 2007

HISTORY OF CROP INSURANCE Federal Crop Insurance Corporation created in 1938 to carry out the program 1980 Federal Crop Insurance Act expanded the program to many more crops and areas of the U.S.

1994 Act Catastrophic coverage was created Participation was mandatory to be eligible for deficiency payments 1996 act repealed the mandatory requirement Risk Management Agency was created to administer FCIC programs and other non- insurance-related risk management and education programs to help support U.S. Agriculture

2000 Legislation Expanded the role of the private sector Allowed more entities to conduct research and develop new insurance products and features Restrictions on insurance products for livestock were removed Premium subsidies were increased to encourage purchase of higher levels of coverage

Crop Insurance Contract Commitment between insured farmers and their insurance providers Either party may cancel the contract Farmer agrees to insure all eligible acreage of a crop planted in a particular county

Crop Insurance Contract Insurance provider agrees to indemnify (protect) the insured farmer against losses that occur during the crop year Insurance covers loss of yield exceeding a deductible amount Loss must be due to unavoidable peril beyond the farmer’s control

Types of Policies Multiple Peril Crop Insurance (MPCI) Actual Production History Coverage (APH) –Insures against yield losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease –Average yield insured is 50-75% –Farmer insures a percent of the predicted price between 55 and 100 % –If harvest is less than the yield insured the farmer is paid an indemnity based upon the difference

Types of Policies Group Risk Plan (GRP) -Uses a county index as the basis for determining a loss -County yield must fall below a “trigger” level chosen by the farmer -Yield levels available up to 90% of the expected county yield

Revenue Insurance Plans –Group Risk Income Protection (GRIP) –Makes indemnity payments only when the average county revenue for the insured crop falls below the revenue chosen by the farmer –Adjusted Gross Revenue (AGR) –Insures the revenue of the entire farm rather than an individual crop –Guarantees a percentage of average gross farm revenue Types of Policies

Revenue Insurance Plans –Crop Revenue Coverage (CRC) –Provides revenue protection based on price and yield expectations by paying for losses below the guarantee at the higher of an early-season price or the harvest price –Income Protection (IP) –Protects producers against reductions in gross income when either a crop’s price or yield declines from early season expectations Types of Policies

Catastrophic Coverage (CAT) –Pays 55 percent of the established price of the commodity on crop losses in excess of 50% –The premium on CAT coverage is paid by the Federal Government –Producers must pay a $100 administrative fee for each crop insured in each county –Not available on all types of policies Policy Endorsements

Producers must –Report acreage accurately –Meet policy deadlines –Pay premiums when due, and –Report losses immediately Producer Obligations