1. Multi-Peril Crop Insurance

2. Multi-Peril Crop Insurance
Many types, covering yield losses, revenue losses, or both
Often bundled together under Common Crop insurance Policy Basic Provisions

3. Actual Production History (APH)
History of a farm’s crop yield over several years (requires at least 4 years of records)
APH Policy
Yield Guarantee
* Protects against low yield
* Guarantees the crop will produce a set percentage of its APH
* Crops typically insured at 50% to 85% of the APH
This guaranteed minimum amount is called the policy’s “yield guarantee.” For
* The minimum amount of yield that the policy guarantees for the insured crop
* Coverage kicks in if the crop produces less than this amount
For example, say Farmer Giest has a 40-acre corn farm. On average, his crop produces 100 bushels of corn per acre. When he buys an APH policy, he sets the yield guarantee at 75% of his APH. This means that Giest’s policy will pay an indemnity if his crop produces less than 75 bushels per acre.

4. Yield Guarantee
So, if the farmer’s average yield is 60 bushels per acre and he chooses 50% coverage, then you would multiply 60 bushels per acre by 0.5, which comes to 30 bushels per acre.
This is the farmer’s yield guarantee.
When buying an APH crop policy, the farmer also selects a percentage of the RMA’s established price for that crop, usually between 55% and 100%.
In other words, the farmer looks at how much each bushel is expected to be worth when harvest time comes, and he assigns his insured crop a percentage of that price.
Then, if a covered loss occurs, the insurer pays the agreed-upon price for each bushel.
(APH yield per acre) x (percentage of coverage)
Example: With 50% coverage, you multiply the “per acre APH” by .5 to get the yield guarantee.
PERCENTAGE of Projected Price:
* Insured chooses a percentage of the expected price of insured crop
* Expected price is determined by the RMA (Risk Management Agency)
* That is what the insurer pays, regardless of how much the crop is actually worth at harvest time

5. Doing the Math (Yield Guarantee – Actual production)
Calculating the indemnity for a covered loss under an APH policy: first, take the farmer’s yield guarantee and subtract the farmer’s actual production.
The result will be the number of bushels that the insurer needs to indemnify the farmer for.
Now calculate the indemnity by multiplying that number of bushels by the price per bushel that the farmer agreed upon when he bought the policy.
Finally, multiply the result by the farmer’s insured share in the crop. If the farmer owns the entire crop, this share will be 100%.
(Yield Guarantee – Actual production)
X Percentage of crop price
X Crop price (set by RMA)
X Insured’s share in the crop
___________________________
= Total Indemnity

6. Doing the Math Calculations (Yield Guarantee – Actual production)
Example
Farmer Giest’s 40-acre corn farm:
Yield guarantee: 75 bushels/acre
Insured share: 100%
RMA expected price for corn: $3/bushel
Percentage of projected price: 100%
Actual production: 60 bushels/acre
(Yield Guarantee – Actual production)
X Percentage of crop price
X Crop price (set by RMA)
X Insured’s share in the crop
___________________________
= Total Indemnity
Calculations
75 bushels/acre (yield guarantee) – 60 bushels/acre (actual production) = 15 bushels/acre
15 bushels/acre x 40 acres (total acreage) = 600 bushels
600 bushels x $3/bushel (100% of projected price) = $1,800
$1,800 x 100% insured share = $1,800

7. Transitional Yield (T-Yield)
Actual Production History (APH) requires at least 4 years of records
If farmer does not have 4 years of records, data is taken from other farms in the county known as “transitional yields” or “T-Yields”
However, there is a limit on how much of the transitional yield a farmer can use to fill in missing data. This limit changes depending on how many years of records the farmer does have.
Calculating APH using Transitional Yields
If Farmer has:
No records – 65% of the Transitional Yield as farmer’s APH
1 year of records – 80% of the Transitional Yield for missing 3 years
2 years of records – 90% of the Transitional Yield for missing 2 years
3 years of records – 100% of the Transitional Yield for missing 1 year
Exceptions to the four years can only be counted if the crop was not planted at all during one of the four years; a poor production year is still counted.

8. Crop-Revenue Insurance

9. How it works? Crop-Revenue Insurance
Insurance that protects against loss of crop value
Includes losses from:
* Decline in prices during the growing season
* Low crop yields
* A combination of both (crop-yield insurance and price insurance)
Depending on the type of policy, it will protect a farmer’s revenue from covered crops whenever low prices, low yields, or a combination of both causes revenue to fall below a guaranteed level selected by the farmer. Basically, crop-revenue insurance guarantees the farmer a minimum amount of income on a crop.

10. Crop-Revenue Insurance Guarantee
Before the policy begins and the corn is planted, the RMA can establish revenue coverage for the crop as follows:
Sample formula: (corn-yield guarantee) x (expected sell price at harvest-time)
Corn-yield guarantee is based on farmer’s production history
Policy establishes a guaranteed dollar amount
Farmer get indemnity if crop-yield and selling price combined are less than guarantee

11. MPCI Policies Wheat Barley oats flax rye buckwheat Corn grain sorghum
Small Grains
Coarse Grains
Wheat
Barley
oats
flax
rye
buckwheat
Corn
grain sorghum
soybeans

12. Small/Course Grains – Covered Perils
Hail
Drought
Excessive moisture
Fire
Wildlife
Failure of irrigation (if unavoidable)
Insect damage and plant diseases (assuming good farming practices)

13. Insurance Period
The period between when the crop is planted to when it’s harvested
Other events that can set end of insurance period
* end of the crop’s season
* complete destruction of the crop
* final adjustment of a claim
* abandonment of the crop

14. Revenue Protection
Calculated revenue = actual production x harvest market price
Revenue protection guarantee: average yield, multiply it by the percentage of coverage x projected price x insured’s share
Uses two prices:
* projected price to set coverage
* Harvest market price to determine if indemnity is due
Covers revenue losses due to low yield, low prices, or a combination of both

15. APH Policy
Yield guarantee: (APH yield per acre) x (percentage of coverage)
Insured chooses a percentage of the expected price (set by RMA) of insured crop
This is a crop-yield policy that uses the farmer’s average yield to set a guaranteed amount of yield. Then, if the crop produces less than this guarantee, the insurer pays for lost bushels using a percentage of the RMA’s projected price for that crop, which the insured set at the beginning of the policy.

16. Actual Revenue History (ARH)
Pilot policy
Similar to APH, but guarantees a percentage of average revenue, not yield
Covers lost revenue due to low yield, falling prices, bad quality, or any combination of these
Works as endorsement to the Common crop policy
Adds a unique set of provisions for each covered crops

17. Yield Protection Protects against losses due to low yield
Farmer chooses a percentage of the projected price
“projected price”: the crop’s expected sell price, according to the board of trade/exchange
Any losses are paid using the agreed-upon percentage of the projected price

18. Crop Policy Provisions

19. Duties of the Insured In the event of crop damage, the insured must:
* file a claim within 72 hours
* protect crops from further damage
* Leave samples of the damaged crop intact in each field, so the adjuster can inspect them
Acreage Reporting
*every crop year, farmer must submit acreage report, due by the acreage reporting date

20. Duties of the Insured The insured must: * plant correctly
* Maintain the crop correctly
* Use required fertilizers, pesticides, soil additives, etc

21. Site Assessment During a claims sit assessment, the adjuster records:
* Location: latitude and longitude
* Plant samples
* Soil samples
* Normal yields for the region
* Comparison with similar crops in the same area

22. Loss Payments Usually made at actual cash value
Can be made in multiple payments

23. Cancellation/Nonrenewal
*Insurance applications must be signed before closing date specified by NCIS
*Policies may not be canceled during first crop year
Insurance coverage:
* continuous
* cancellation only allowed in writing and before the cancellation date specified in the policy

24. Important Dates Production Reporting
* 45 days after the cancellation date.
* This is when all production acreage reports for the past year are due
Final Planting
* the last day the farmer is allowed to plant an insured crop, unless the policy allows for late planting payments
Acreage reporting date
* the deadline for reporting all planted acres, or the policy coverage will not apply

25. Crop Insurance Thresholds
Deductibles vs Thresholds
Crop insurance uses thresholds instead of deductibles
*”threshold” is a percentage of insured crops
*losses BELOW threshold are NOT paid
* Losses ABOVE threshold have full policy coverage
Every form of insurance that we've covered so far uses deductibles. Crop insurance, however, is different in that it doesn't really have deductibles. Rather, there is often a threshold, say 5% damage. Below the damage threshold, the policy will pay nothing, but once it is met, the policy pays the full coverage amount.
For example, let's say a you buy insurance to guarantee 60% of your revenue, with a threshold of 5%. If you experience 4% losses to your crops, you are responsible for the full cost of the damage. But, if you experience 6% losses, your policy will pay for the full 6%.