Why Crop Insurance?
Crop insurance is the best risk management approach for growers, government policy and taxpayers.
Growers: Crop insurance is the superior risk management tool for growers because it responds and protects against individual losses or disasters. The coverage is flexible, as each grower decides the amount of protection they need and the deductible that best fits their economic situation. The premium costs can be included in the crop input financing.
Government Policy: Crop insurance is the best public policy for disaster and risk management assistance. When an individual grower makes advanced decisions of needed protection, it responds automatically rather than requiring legislation or the bureaucracy to make benefits available. Providing a premium subsidy is an incentive for growers to adequately protect themselves with better coverage that is cost effective for both taxpayers and growers.
The crop insurance program fits well into a downsized government philosophy because it permits broad utilization of the private insurance industry and growers pay much of the cost. Government is gradually moving towards the role of a reinsurer and regulator which minimizes its need to be proactive.
Who is Eligible to Purchase Crop Insurance?
Growers who have an ownership share in a crop (that meets the requirements of the actuarial table) may insure. The enrollment must be done prior to the calendar deadline which generally is well before planting for annual crops and before the risk period begins for perennial crops.
Yield Protection (YIP) (Plan 01)
YP provides protection against a loss in yield due to unavoidable, naturally occurring events. For most crops, that includes adverse weather, fire, insects, plant disease, wildlife, earthquake, volcanic eruption, and failure of the irrigation water supply due to a naturally occurring event. Like the APH plan of insurance, VP guarantees a production yield based on the individual producers APH. Unlike the APH plan of insurance, a price for VP is established according to the crops applicable commodity board of trade/exchange as defined in the Commodity Exchange Price Provisions (CEPP). The projected price is used to determine the yield protection guarantee, premium, any replant payment or prevented planting payment, and to value the production to count. The coverage and exclusions of VP are similar to those for the APH plan of insurance. An indemnity is due when the value of the production to count is less than the yield protection guarantee. Crops covered under this plan include barley (includes malting type), canola/rapeseed, corn, cotton, grain sorghum, rice, soybeans, sunflowers and wheat.
Revenue Protection (RP) (Plan 02)
Revenue protection provides protection against a loss of revenue caused by price increase or decrease, low yields or a combination of both (for corn silage and rapeseed, protection is only provided for production losses). This coverage guarantees an amount based on the individual producers APH and the greater of the projected price or harvest price. Both the projected price and harvest price are established according to the crops applicable commodity board of trade/exchange as defined in the Commodity Exchange Price Provisions (CEPP). While the revenue protection guarantee may increase, the premium will not. The projected price is used to calculate the premium and replant payment or prevented planting payment. An indemnity is due when the calculated revenue (production to count x harvest price) is less than the revenue protection guarantee for the crop acreage. Crops covered under this plan include barley (includes malting type), canola/rapeseed, corn, cotton, grain sorghum, rice, soybeans, sunflowers and wheat. (Please note the Maximum Price Movement for rapeseed and corn silage.)
Actual Production History (APH) (Plan 90)
APH is the oldest insurance product listed on this comparison. The APH plan of insurance provides protection against a loss in yield due to nearly all natural disasters. For most crops, that includes drought, excess moisture, cold and frost, wind, flood and unavoidable damage from insects and disease. Like YP, the APH plan of insurance guarantees a yield based on the individual producers actual production history. Unlike YP, the available price elections are established by the Risk Management Agency. An indemnity is due when the value of the production to count is less than the liability. Of the small grain crops, only oats, rye, flax, and buckwheat remain covered under the APH plan of insurance for the 2011 crop year. Potatoes and Sugar Beets have APH coverage only.