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USA - Crop Insurance Coverage Details

Crop insurance policies fall under two primary categories: crop hail insurance and multi-peril crop insurance. Crop hail insurance is limited to losses due to fire and/or hail. Multi-peril crop insurance (MPCI) provides extensive coverage for losses from weather to pests and even loss of revenue. In many cases, multi-peril policies are subsidized and backed by a federal reinsurance program.

Drought Damage

There are several options available for an insured crop severely damaged by drought as many insurers change policies due to climate change concerns.

The first option is to do nothing out of the ordinary. Wait out the season to see what will finally happen. When the crop is finally harvested, yields should be reported to the crop insurance company and the insured would receive any indemnity for reduced yields.

A second alternative for corn is to harvest the crop as silage.

“However,” insurance expert Ray Massey, economist with the Commercial Agriculture Program, says, “before harvesting corn planted for grain as a silage crop, the farmer must first contact his insurance company and ask that an adjuster come to determine yield in the field. The adjuster may make a determination of yield upon inspection of the field or may ask that a strip be left until harvest, which will be used to determine the yield of the field. Once the insurance adjuster has determined how to estimate expected yield, he will be able to give permission to harvest the crop as silage.”

Crop hail coverage comes in several different forms and can be added as a rider to a MPCI policy. The extent of coverage depends on the type of crop insured. A crop hail policy may also provide coverage for losses caused by fire, lightning, wind (when accompanied by hail or when added as an endorsement to a policy), vandalism or malicious mischief. Coverage for the crops during transportation and storage may also be available. Crop hail coverage is regulated by the state insurance departments. It is not part of a federal government program.

The Federal Crop Insurance Program

There is a federal program providing a variety of multi-peril crop insurance products. The Federal Crop Insurance Program was created in 1938. Today the RMA administers the program, which provided policies for more than 255 million acres of land in 2010. Insurance companies selling MPCI coverage must be licensed by the RMA.

Unlike other types of insurance, crop insurance is dependent on established dates that apply to all policies. These dates are determined by the RMA ahead of the planting season and published on its website. Dates vary by crop and by county. These are the important dates farmers should expect to meet:

Sales Closing Date – All crop insurance applications for the designated county and crop are due by this date.
Final Planting Date – Crop must be planted by this date; a penalty is placed on the amount of coverage for each day late.
Acreage Reporting Date – Acreage report includes a list of crops planted, number of acres planted (each crop), and share of crop (if ownership is shared).

End of Insurance Date – Crop is no longer covered after this date; losses must be reported before this date.
Termination Date – This is when a policy premium must be paid. (Note: Premiums are generally due the fall after the crops are planted.)

Application Process

Crop insurance applications are very detailed and must be filled out completely and accurately to ensure correct coverage. Because a MPCI policy is subsidized and reinsured by the federal government, any inconsistency with information filed with other agencies (such as the Farm Services Agency) could result in a denial of claim. When filling out an application, expect to have to choose an insurance plan type, coverage and price levels, and a unit structure.

Insurance Plan Type – A basic crop insurance policy is called catastrophic (CAT) coverage. Premiums for these policies are completely subsidized by the federal government; the farmer is only responsible for an administrative fee. Coverage by this basic policy provides 50/55 coverage –or claim payment on losses in excess of 50% of normal yield, equal to 55% of the estimated market price of the crop. Coverage is assessed based on the farmer’s actual production history (APH). CAT coverage may not be available for all types of crops.

Provisions beyond the basic CAT policy are considered “buy up” coverage. In addition to increasing the standard CAT percentages for additional catastrophic coverage, a farmer can buy up protection against wider yield or revenue losses.

Yield insurance protects against production losses and can include coverage for losses due to natural causes, declining value due to yield shortfall and even losses based on county averages instead of individual production history.

Revenue insurance protects against lost revenue caused by declines in yields or prices. These products combine production guarantees with a price guarantee to create a target revenue guarantee. In 2011, the RMA combined its most often selected revenue products into a single Common Crop Insurance Policy (COMBO). This policy combines Crop Revenue Coverage, Revenue Assurance, Income Protection and Indexed Income Protection into a single uniform policy.

Crop policies are highly adaptable by a wide range of policy endorsements and other options that a licensed insurance agent can help farmers understand.

Coverage and Price Levels – These two levels help determine premium and are used to determine a guarantee per acre. Coverage levels vary by plan type, but typically begin at around 50% and increase in 5% increments. A farmer’s APH multiplied by the level equals the policy guarantee or coverage. For revenue plans, farmers can also select a production price level which determines the guarantee as revenue. Generally, higher coverage levels result in higher guarantees and higher premiums.

Unit Structures – This selection determines how the crops on a farm are parceled out for the purpose of the insurance coverage. There are four types of units: optional, basic, enterprise and whole-farm. Optional units cover production by serial number and require a farmer to keep production separate. Basic units insure production by crop, county (or parish) and entity/share.

Insurable interest in the proposed crops is determined with an acreage report included with the application. The report must include the total acreage, the percentage ownership shares, the name of all landowners and the plant date. High-risk acres should also be identified.

Crop Damage Claims Issues

There are many variables that can trigger a claim on a crop insurance policy from adverse conditions that prohibit a farmer from planting to damaging weather that eradicates part of the yield. When a crop is damaged by a covered peril, it is the farmer’s responsibility to notify their insurance agent or broker. Do not destroy or replant before a crop insurance adjuster has surveyed the damage.

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