1. CROP INSURANCE

2. Crop Insurance Definitions
Agricultural producer – a business that grows and sell crops for a profit
Crop Insurance – Insurance that covers losses to a crop’s profitability
Two types:
Crop-yield – insures against losses to actual crops
Crop-revenue – insures against losses to crop value when prices change or the crop is damaged
Crop Insurance Definitions

3. Crop-Yield Insurance Covers physical losses to the insured crop
2 common forms:
Crop-Hail Insurance
Multi-peril crop insurance (MPCI)
Crop-Yield Insurance

4. Crop-Hail Insurance Private Insurers Type of Crop-Yield Insurance
Covers more perils than just hail
Typically available through private insurers
Not reinsured or government subsidized
This is because hail is a limited peril that does not tend to affect widespread areas all at once; private insurers usually have no problem paying all hail claims from their reserves.

5. Coverage Details – More Important Details
Rated on an acreage basis
Coverage can be a percentage of expected crop value
Policies sometimes have a minimum amount of losses required before they will pay anything
EXAMPLE
$10,000 policy on 10,000 acres
5% minimum loss percentage
If 10% loss to crop (which exceeds the 5% minimum), the policy would pay $1,000 (10% of $10,000)

6. Crop-Hail Insurance – Covered Peril
In addition to hail
Fire
Lightning
Wind (by endorsement)
Transit to storage after harvest
Wildfire

7. Typical Exclusions Failure to harvest a mature crop
“unit normal visible stand” (i.e. crop must be up to be covered)
“Before effective hour” (i.e. damage prior to start of policy)
Crops that can be recovered by harvesting
Crop not owned by the insured (e.g. share crops)
Damage to trees bushes, fruit or nut crops
Damage to leaves or plants, unless affecting the actual crop
Typical Exclusions

8. Multi-Peril Crop Insurance (MPCI)
Weather-Related:
Other perils
Wind
Drought
Excessive moisture
Frost
Flood
Lightning
Tornado
Hurricane
Hail (by endorsement)
Volcano
Earthquake
Disease
Insects & wildlife
Insect infestations (if unavoidable)
Irrigation failure (if unavoidable)
Low/poor quality yields
Prevented planting
Late planting/replanting

9. Government Support & Regulation
MPCI creates massive exposure for insurers
Government solution:
Subsidizes it with the Federal Crop Insurance Corporation (FCIC)
Regulates it through the U.S. Department of Agriculture (USDA
Because so many crops can be affected at the same time, insurers who provide MPCI risk being exposed to massive losses, which could “break the bank” for smaller private sector insurers. To keep this from happening, the government subsidizes MPCI through the Federal Crop Insurance Corporation (FCIC) and regulates it with the U.S. Dept. of Agriculture (USDA).
This is one of the biggest differences between MPCI and Crop-Hail insurance: MPCI is government-backed and regulated; Crop-Hail is private.

10. Multi-Peril Crop Insurance
Rules for Policy Changes
Policy changes and increases only allowed before sales closing date
Requires planting to be done by set planting dates
No changes during growing season; must remain in effect for an entire crop year
After the first crop year, a farmer may change or cancel policy, but only before the cancellation date

11. For example, farmers may only buy MPCI at certain predetermined times, and they can only request changes or increases before a defined “sales closing date”.
In other words a farmer can't change or increase coverage at random during the growing season, like right in the middle of a drought!
Coverage starts when the crop is planted, and planting must be finished before government established “planting dates”.
Similarly, insurers may not cancel policies except at specific times and for specific reasons.
As the government puts it, “[The] MPCI is a continuous policy and will remain in effect for each crop year after the original application is accepted."

12. MPCI excludes losses caused by:
Neglect or malfeasance
Failure to reseed
Failure to follow good farming practices
Losses are also excluded if they are due to a failure to follow what are called “good farming practices.” Examples of a “poor farming practice” could include not spraying for weeds or insects, or harvesting late.
No records: use 65% of the Transitional Yield as farmer’s APH
1 year of records: use 80% of the Transitional Yield for the missing 3 years
2 Years of records: use 90% of the Transitional Yield for the missing 2 years
3 years of records: use 100% of the Transitional Yield for the missing year

13. Crop-Hail vs. MPCI Differences Between Crop-Hail and MPCI
Crop-Hail insurance:
Private
Uses agreed-upon purchases times
Insurers can choose whom to insure
Multi-Peril Crop Insurance:
Government subsidized
Has restricted purchase time
Government forces insures to cover any farmer

14. More Difference Between Crop-Hail and MPCI:
With Crop-Hail insurance:
Coverage levels based on acreage
Helps when hail destroys part of a field without touching the rest of the crop
Under Multi-Peril (MPCI) Coverage:
Coverage based on “units” (one unit = all of a farmer’s acreage in one county).
This is partially because hail, unlike other perils such as drought or flood, can completely destroy crops in one portion of a field, but leave the rest of the field untouched. Crop-hail coverage lets the farmer file a claim for the damaged acres, without considering how the rest of the crop is doing. By contrast, MPCI bases the loss amount (called the “reduced yield”) on an average loss in all the fields of the “unit.”

15. Example
Farmer John insures a 1,000 acre field with a crop-hail policy:
Hail destroys north half
Crop-hail policy pays for each damaged acre
The claim will not consider how the undamaged half of the crop is doing
Farmer John insures same field with MPCI:
Drought destroys north half
MPCI considers net losses to entire field
If crops are average, it will pay for lost ½ of crop yield
If crops were twice as good as normal, MPCI may not pay their value, since south half makes up for losses to north half

16. Federal Jurisdiction of Crop Insurance
Multi-Peril Crop Insurance is supervised by the National Crop Insurance Services (NCIS)
NCIS:
International not-for-profit organization
Provides risk management tools to producers
Writes over a million policies each year
Issues both crop-hail insurance and MPCI

17. Federal Crop Insurance Act
Federal Crop Insurance authorized in 1930 and expanded by Federal Crop Insurance Act in 1980
Act applies more coverages, crop types, and regions to NCIS jurisdiction
Still voluntary, but most of America’s producers choose to purchase crop insurance
Federal Crop Insurance Act

18. Risk Management Agency
Promotes sound risk management practices
Subsidizes the premiums of crop growers for federal crop insurance policies
Reimburses private insurers for administrative costs
Sets critical production dates
Assigns commodity market prices to protect the producer’s revenue
Risk Management Agency

19. Crop Policy Changes and Pilots
Pilot program lets the RMA test policies in small areas before releasing to the rest of the country
During this time, the RMA collects data on how the new policy performs
New policies are typically pilots for several years
Crop Policy Changes and Pilots

20. Review: Crop-Yield Insurance
Provides coverage for physical loss to the crop
Crop-Hail Insurance
Privately sold, offering coverage for a few specified perils
MPCI
Government subsidized and regulated, offering wide coverage for many perils
Government support
Subsidized by the Federal Crop Insurance Corporation (FCIC) and regulated by the U.S. Dept. of Agriculture
Review: Crop-Yield Insurance

21. Multi-Peril Crop Insurance (MPCI)
Many types, covering yield losses, revenue losses, or both
Other bundled together under Common Crop Insurance Policy Basic Provisions
Combining coverages like this helps the farmer manage all of his risks without duplication or unnecessary paperwork.