2. RMA Insurance Overview
In this lesson, you will learn about the following:
Topic 1: Overview of RMA insurance
Topic 2: Insurable units
Topic 3: Actual Production History or APH
Speaker Notes:
In the lesson, Risk Management Agency (RMA) Insurance Overview, we will identify the terms associated with different insurance types and will investigate the broad categories of crop insurance. You will learn the differences among the types of insurance coverage available, recognize the difference between optional basic and enterprise units and be able to calculate Actual Production History or APH.
Insurance products are offered by private-sector insurance companies that sell and service the insurance policies. The Risk Management Agency (RMA) is part of the US Department of Agriculture. Its role is to help producers manage their business risks through effective risk management solutions. The RMA was created in It operates and manages the Federal Crop Insurance Corporation (FCIC), which is a public corporation that has provided crop insurance to American producers since RMA also sponsors educational and outreach programs on the general topic of risk management.
While the type of insurance, terms, and available tools offered vary by crop, most offer risk protection against the loss of yield or revenue for a commodity, such as alfalfa seed, sugar beets, barley, canola, corn dry beans and over 100 other crops. There are some livestock price insurance programs available also.
In general, the purchase of crop insurance is not required for production. Depending on the risk attitude of the farmer or rancher, he or she may elect to be “self-insured” and not purchase insurance for a particular operation of their enterprise, even though they may purchase insurance for their automobiles or farm buildings.
Multiple peril crop insurance, through auspices of FCIC, is offered for insurable units. To obtain multiple peril crop insurance a producer must establish actual production history for each crop to be insured. As we will see in this lesson, understanding insurable units and actual production history is essential for the efficient use of multiple peril crop insurance.

3. RMA Insurance Overview: Topic 1
In this topic, you will learn about:
Types of Insurance products
Terms used in RMA insurance products
Speaker Notes:
In this topic, we’ll discuss the various RMA insurance products available to you.

4. RMA Insurance Overview: Choices for Managing Your Production Risk
Production risk management options available to you are:
Self-insured is where you assume the risk yourself
Single-peril insurance that covers one type of loss
Multiple peril offerings that cover many types of loss
Speaker Notes:
As a producer, you have three basic choices for managing your production risk:
You can assume the risk- you- yourself
Purchase single-peril insurance that covers one commodity for one type of loss or
Purchas Multiple peril insurance that covers a wide range of loss types

5. RMA Insurance Overview: Categories of Insurance
These are three broad categories of RMA-approved insurance products:
Yield insurance pays indemnities when per acre yields are low
Revenue insurance pays indemnities when per acre revenue (price X quantity) is low or when whole farm revenue is low due to losses in production and declines in product quality and price
Price insurance pays indemnities when per unit output prices are low (currently this type of insurance is available only for certain classes of livestock)
Speaker Notes:
Types of insurance are often abbreviated with acronyms that can become confusing until you are familiar with them. Part of this lesson is to help you to be able to read through offerings of the RMA, understand what the acronyms mean, and make intelligent decisions based on your insurance needs.
There are three broad categories of RMA approved insurance available. They are yield insurance, livestock price insurance and revenue insurance.
Basically, yield insurance protects crops against low yields, revenue insurance protects against low revenues that are received and price insurance protects against low market prices for livestock.

6. RMA Insurance Overview: RMA Insurance Categories
Speaker Notes:
Looking at the RMA Insurance categories diagram on this page, you can see the three types of insurance we just mentioned- Yield, Revenue Insurance, and Price Insurance on the left, and two types of plans- Individual Plans and Group Plans, along the top.
Yield insurance can be purchased by an individual farm as Multiple Peril Crop Insurance (MCPI). Any claims made by the producer will require individual farm yield information, that is, the “historical average” of the producer’s yield or Actual Production History (APH). For certain commodities, you can purchase a Group Risk Plan (GRP) with payments for loss made on the average of yields for the county in which are grow the commodity. And for certain commodities, you can also purchase Group Risk Income Protection coverage that compensates when average per acre incomes for a crop are below specified levels.
The revenue insurance plans available in Wyoming are Crop Revenue Coverage (CRC) and AGR-Lite. CRC is available for certain crops and pays indemnities when per acre revenue (price x quantity) is low. AGR-Lite is a whole farm product and pays indemnities when whole farm revenue is low due to losses in production and declines in product quality and price. A wider variety of individual and group plans is offered in many other states. As you investigate types of insurance coverage, it’s important that you determine whether or not those plans are offered in your county or state.

7. RMA Insurance Overview: RMA Insurance Plans
Individual Farm Plans
(Available in Wyoming)
Speaker Notes:
Again as a reminder, the only individual insurance plans for crops available in Wyoming are those shown in this diagram: MPCI [Multiple Peril Crop Insurance], CRC [Crop Revenue Coverage], and AGR-Lite [Adjusted Gross Revenue-Lite].

8. RMA Insurance Overview
RMA Insurance Plans Group Plans
(Available in Wyoming)
Speaker Notes:
The group insurance plans for crops or livestock available in Wyoming are those shown in this diagram: GRP or Group Risk Plan, Group Risk Income Protection and LRP or Livestock Risk Protection.
LRP coverage is, in reality, a hybrid plan that involves the individual’s cattle but a market price.

9. RMA Insurance Overview: Topic 1 Summary
Let’s summarize what you have learned in this topic:
Various insurance products available to reducing production, revenue, and price risks
RMA approved Group Insurance plans
RMA approved Individual Farm Insurance plans
Plans that are available in Wyoming
Speaker Notes:
In this topic, you became familiar with the many acronyms, terms and definitions associated with RMA approved insurance products aimed at reducing production, revenue and price risks. You also learned which individual and group insurance plans are available to producers in Wyoming.

10. RMA Insurance Overview: Topic 2
In this topic, you will learn about the following terms:
Optional unit
Basic unit
Enterprise unit
Speaker Notes:
In this topic, let’s look at the types of insurable units.
When we talk about crop insurance, we are talking about “optional units,” “basic units” and “enterprise units” as these affect each crop, not as they affect the entire farm.
Decisions need to be made by the producer on what unit level to select to insure at for each crop. There are reasons to choose one unit level over another. These reasons will be discussed further during these lessons.

11. RMA Insurance Overview: Insurable Units: Important Terms
Optional unit: land that’s in different sections
Basic unit: land that’s operated under the same share arrangements such as an owner/operator or with the same single tenant and landlord
Enterprise unit: all of the land farmed in a particular crop in the county by the producer
Speaker Notes:
A unit is an area of your farm that is grouped together and is insured as a single entity for example: one field, several fields or a section of the same crop or by type or practice if allowed by the policy. Insurance may be available at the optional, basic or enterprise unit level depending on the crop and insurance type.
Optional units are land pieces that are in different sections. A section is one square mile or 640 acres.
A basic unit is a piece of land operated under the same crop share arrangement and involving the same landlord and tenant.
The third term is the enterprise unit. Enterprise units represent all land within the county that the producer farms in a particular crop. When we talk about crop insurance, we are talking about optional units, basic units and enterprise units as they affect each crop, not as they affect the entire farm.
A decision needs to be made by the producer on what unit level to select for the purchase of crop insurance. There are reasons to choose one over another. These will be discussed further during these lessons.

12. RMA Insurance Overview: Insurance Units Pyramid
Speaker Notes:
A pyramid will help to demonstrate the differences among the different units.
Let’s say that you are farming four farms (A, B, C, and D) all in the same county. Farms A and B are operated at 100% crop share-owned and operated by the farm operator. The farms are located in separate sections, so as a producer you can have two separate optional units.
Farm C is leased from Larry at a 1/3-crop share. Farm D is in a different section and also is owned by Larry and leased at a 1/3 crop share.
How do you think these units should be handled? Well, A and B can be aggregated as an optional unit because there is a 100% share of the crop. C and D can also be aggregated as basic units, or all of the farms can be grouped together as an enterprise unit.
It is important that you work with your crop insurance agent and or the RMA representative to ensure that your crops are properly represented and that the coverage is complete in the event that a claim needs to be filed.
All four farms are in the same county
A & B are operated under 100% crop share (may be owned or cash leased) but in separate sections
C is leased from a landlord-1/3 share
D is leased from same landlord, different section- 1/3 crop share

13. RMA Insurance Overview: Example
Comparing Optional and Basic Units (MPCI)
Speaker Notes:
Let’s look at the previous example again and think about why we would want to combine optional units into basic or enterprise units. Taking the optional units A and B and combining them into the basic unit 1, we can work through the numbers to determine the Total Dollar Indemnity.
If fields A and B are each 100 acres and are operated in different geographical sections (a requirement of optional units), then combining the units gives us 200 acres. We can assign APH yields of 100 bushels per acre for each unit giving us an overall average of 100 bushels per acre. It is not necessary to specify a crop for this example, since the programs generally work the same for most of the commodities.
Coverage levels will be discussed later, but for now we will assign a 70% yield coverage giving us a yield guarantee of 70 bushels. Assigning an elected price of $2.00 per bushel gives us all the information we need to finish the calculations. If the fields averaged more than the yield guarantee of 70 bushels, no insurance payment would be due. If they averaged less, then a crop insurance payment would be due from the crop insurance company. Determining your level of insurance protection agent can guide you through.
With a few years of production and a better understanding of the program you will be able to make decisions that will be increasingly beneficial to your operation.

14. RMA Insurance Overview: Example
Problem 1: Comparing Optional And Basic Units
Speaker Notes:
Let’s revisit the previous example that compares optional units A and B. This time we will change the actual yields to give us a situation where the Total Dollar Indemnity might be greater than zero. Let’s say that optional unit A has an actual yield of 60 bushels and optional unit B has an actual yield of 80 bushels, both with a yield guarantee of 70 bushels. With a yield guarantee of 70% (70 bushels for A and B), an elected price of $2.00, and a unit size of 100 acres, we can calculate the Total Dollar Indemnity for each unit.

15. RMA Insurance Overview: Answer
Problem 1 (Answer): Comparing Optional And Basic Units
Speaker Notes:
We see that the 60-bushel per acre yield in Unit A is 10 bushels per acres short of the Yield Guarantee of 70 bushels. Multiplying the 10-bushel per acre shortfall by the $2,00 per acre Elected Price by 100 acres give a Total Dollar Indemnity of $2,000.
Calculating the same information for Unit B, we see that there is no Per Acre Bushel Indemnity, since the actual yield of 80 bushels per acre is greater than the Yield Guarantee. Therefore, treating the two units as separate optional units gives us a net payment of $2,000.
If we calculate the two units together as a basic unit, we see that the average of the two units combined is equal to the Yield Guarantee. In this case then, the Per Acre Bushel Indemnity would be zero and there would be no indemnity payment made.
How you set up your individual production units makes a difference in the indemnity payments that are made. In this case, the producer would consider treating Unit A and Unit B individually as optional units, especially if there was a production history that shows insurable perils impact yields on units A and B differently.
But the producer must remember treating units A and B as a basic unit results in a 10% premium discount.
Conclusion: Treating the two units as separate Optional Units, rather than the one Basic Unit, provides an insurance payment of $2,000

16. RMA Insurance Overview: Topic 2 Summary
Let’s summarize what was covered in this topic:
What insurable units are
How to compare insurable units
Speaker Notes:
This is the end of the topic Insurable Units, where you became familiar with some more terms and definitions. You learned about insurable units, how to compare them and considerations relative to the unit levels to select when you insure your crops.

17. RMA Insurance Overview: Topic 3
In this topic, you will learn how to:
Establish an Actual Production History (APH)
APH calculation
Transitional Yield
Guidelines for an incomplete APH history
Establish an APH when records are not available
The APH and low yields
Speaker Notes:
In this topic, you will learn about Actual Production History, or APH.

18. RMA Insurance Overview: Establishing An Actual Production History (APH)
Establishing an Actual Production History (APH) is a critical part of the insurance process:
A history of 4 to 10 consecutive years is required by the RMA
The history must start with most recent crop year
APH values may change when producers change cropping practices
New producers can work with their insurance agent to establish APH values for each insurable unit
Speaker Notes:
Establishing an annual record of yields or Actual Production History (APH) for each insurable unit is a critical part of the insurance process. As we have seen from the previous example, once a Yield Guarantee is set, all Actual Yields are compared to your yield or production guarantee for payment. You may confer with your crop insurance agent on how to establish APH yields. New producers can check production records that were submitted from previous years. Your farming practices, use of fertilizers and chemicals and cropping practices may change your Actual Production History over subsequent cropping years.

19. RMA Insurance Overview
Establishing An APH When Records Are Available
Speaker Notes:
Let’s look at two producers, Allan (Producer A) and Ben and Jeri (Producer B). Allan has yield records for 4 years. Adding the yields together and dividing by four years gives an average yield of 69 bushels per acre. This is the APH that will be used in determining his Yield Guarantees.
Ben and Jeri have yield records for ten consecutive years. Adding the yields together and dividing by ten give an average yield of 77 bushels per acre. This is the APH that will be used in their calculations.

20. RMA Insurance Overview: Transitional Yield
If there are less than 4 years of proven yields:
A transitional yield (T-yield) is specified that is based on county average yield using a 10-year base period
If a producer is unable to supply any proven production information:
Yields are limited to 65% of the T-yield if the producer has produced the crop in the past
Yields are set at 100% of the T-yield if the producer is a new producer of the crop in the county
Speaker Notes:
It is important to note that when determining the APH, consecutive years only applies to the years that a field is cropped. If it is set aside or fallowed, for one year, that year is not counted. If a field is only cropped every other year or fallowed between each year, then it will take 20 years to develop a 10-year history.
If there is less than four years of history, a Transitional Yield or T-yield is then specified and used in the calculations for yield history.
Producers who are unable to supply any proven production information are limited to 65% of the T-yield if they have previously produced the crop. New producers may use 100% of the T-yield.

21. RMA Insurance Overview: Guidelines
If you have incomplete APH history, follow these guidelines:
Speaker Notes:
What happens if a producer has records for only one, two, or three years? Rules are used to determine the APH for his or her units.
If there are proven yields for only one year, use 80% of the T-yield for the other three years.
If there are proven yields for only two years, use 90% of the T-yield for the other two years.
If there are proven yields for three years, use the 100% of the T-yield for the missing year.

22. RMA Insurance Overview
Establishing An APH When Records Are Not Provided Or Not Available
Speaker Notes:
Let’s look at an example to be sure you understand how an APH is established when records are not provided or are not available. First of all, let’s assume that the T-yield is 80 bushels per acre and that these are not new producers. Different rules apply for individuals who are producing a crop in a country for the first time.
Chuck and Becky (Producer C) have yields available for three of the four consecutive years. The first year’s yield is missing. Dave (Producer D) has produced this crop before, but did not keep any production records. We need to determine the APH value that will be used in his insurance calculations.
If the T-Yield was 80 bushels per acre these are not new producers
N.A. = Not Available

23. RMA Insurance Overview
Establishing An APH When Records Are Not Provided Or Available
Speaker Notes:
Chuck and Becky, that is, Producer C, need a yield for the missing year. If you recall from our previous discussion, since they have proven yields for three years, they are able to use 100% of the T-yield for the missing year or 80 bushels per acre in this case. Adding the four years together and dividing by four generates an APH of 66 bushels per acre.
Dave (Producer D) has no proven yields, so he is limited to 65% of the T-yield for each production year, or 52 bushels per acre. His APH is therefore 52 bushels per acre.
If the T-yield was 80 bushels per acre:
Producer C: 100% of 80 Bushels (2002)
Producer D: 65% of 80 Bushels (All Years)

24. RMA Insurance Overview: APH Yields and Low Yields
If there are some years with unusually low yields, you may choose to replace those years with 60% of the T-yield
If you choose to do this, be aware that your premiums are likely to increase
Speaker Notes:
In areas of the Intermountain West and Great Plains, crop losses due to droughts, pests and frosts or freezes do occur. Those years when low yields occur due to these conditions and adjustment to APH can be made. In many years, producers will be close to or above their APH yields. However in the years of abnormally low yields, those yield numbers can be substituted with 60% of the APH yields. Keep in mind that this may affect the premium paid for the insurance.

25. RMA Insurance Overview
APH Yields and Low Yields
Speaker Notes:
Here’s an example of a producer who has three years of abnormally low yields. Ted and Elaine (Producer E) have ten years of records. In this example, the T-yield levels are set at 80 bushels per acre.
Ted and Elaine had very low yields in three of the last ten production years. If all ten years are averaged without adjusting for the low years, the ten-year average APH yield would be 66 bushels per acre. If they chose to replace the low years with 60% of the T-yields, then the average APH yield would be 74 bushels per acre.
If the T-yield was 80 bushels per acre
Producer E: 60% of 80 bushels: (1998, 2001, 2005)

26. RMA Insurance Overview: Topic 3 Summary
Let’s summarize what was covered in this topic:
Why establishing an APH is a critical part of the insurance process
How to use an incomplete APH
How to establish an APH when records are not available
How to deal with APH and low yields
Speaker Notes:
This is the end of Topic 3 where you learned why establishing an Actual Production History (APH) is a critical part of the insurance process. You also learned how to calculate an APH, how to establish an APH when records are not provided or unavailable and how to deal with APH and low yields.

27. RMA Insurance Overview: Summary
In this lesson, you have learned about the:
Various types of insurance coverage
Optional, basic, and enterprise units
Actual Production History (APH) calculations
Speaker Notes:
This concludes the lesson, RMA Insurance Overview. You should now be able to discuss the types of crop insurance coverage available, recognize the difference among Optional, Basic and Enterprise units and be able to calculate the Actual Production History or APH.