Crop insurance 101
By KRISS NELSON
The March 15 deadline for signing up for crop insurance for the 2019 growing season is quickly approaching. In order to help those be better informed on understanding crop insurance policies, the Center for Rural Affairs recently hosted a series of webinars regarding the subject.
Anna Johnson, policy manager for the Center for Rural Affairs, kicked off the series with a lesson on the basics of crop insurance, explaining why producers have it and what it does.
What is crop insurance and what does it do?
Johnson explained that crop insurance is managed by a public/private partnership between the USDA Risk Management Agency (RMA) and private businesses that are Approved Insurance Providers (AIPs).
“The USDA Risk Management Agency sets the crop insurance policy with those private businesses that are called Approved Insurance Providers,” she said. “Those AIPs in turn, work with individual crop insurance agents to sell you crop insurance policies.”
When buying a crop insurance policy, Johnson said the parameters of those policies come from the partners of the USDA and the AIPs.
Something else to note about crop insurance is that it is subsidized by the federal government.
“This happens in two ways,” she said. “The first is in your crop insurance premium, which is the amount you pay for your policy. You’ll receive a subsidy so you pay a lower premium.
The other way that Johnson said “crop insurance is subsidized is through arrangements with the AIP – they receive subsidies as well.”
She added there are other crop insurance policies out there that are managed completely by private companies, such as many forms of hail insurance.
Why do we have crop insurance?
“Obviously you all know this – farming is really risky,” Johnson said. “Markets can fluctuate. We can have weather events like dry spells, or heavy rains and these and other types of events can impact both harvest and prices so crop insurance is there to help manage certain aspects of risks.”
Crop insurance is also helpful to an operation when it comes to obtaining financing.
“Many banks require proof of insurance to qualify for a loan, so in addition to helping you manage risk, it can also help with accessing credit,” she said.
Before purchasing crop insurance, Johnson said it is good idea to understand what losses your policy will and will not cover.
“It depends on the plan, but what is usually covered are natural causes like drought, excessive moisture, hail, wind, frost, insects and disease,” she said. “Changes in prices can also be covered, but some types of losses that will not be covered can include damage from pesticide drift, fire, negligence and a failure to follow what’s called good farming practices.”
Good farming practices is a system the USDA has set up to determine if a loss was due to poor crop management.
Crop insurance participation basics
On the RMA’s website are outlines for the producer’s obligations and expectations, which includes things you are going to want to know going into a crop insurance agreement.
“It’s things that producers are expected to do when purchasing a crop insurance policy such as to report acreage and other required protection accurately, meet policy deadlines, pay premiums when they are due and report losses immediately,” she said.
Other tools available on the RMA website will help producers go about learning what insurance options might be available and to help them make an informed decision for their operation.
There are several tools available from the RMA to the public, Johnson said. The first of these tools is an “actuarial info browser.”
This tool will allow producers to explore what insurance plans are available in their specific county.
“Crop insurance varies county by county,” she said. “Some crops may be covered in one county and not in another. These tools provide a quick way of finding out if there is insurance coverage for the crop you are wanting to insure.”
Once you have decided to buy a crop insurance policy, what’s next?
“It’s important to get in touch with an insurance agent and get that conversation started,” she said. “March 15 is the common filing deadline for crop insurance policies and when you think about the process of meeting with an agent, getting them familiar with your operation, going through the details of the coverage that your are interested in.”
“All of that is not a short process.”
The RMA also provides an agent locator tool that includes a database of crop insurance agents across the country.
Crop estimator tool
Johnson said it is important if a producer wants to purchase a crop insurance policy to figure out how much it is going to cost.
“You can get an estimate on how much your crop insurance premium will be using the RMA’s cost estimator tool,” she said. “The final cost is determined through working with your agent, but the online tools are very helpful.”
One thing Johnson said to keep in mind is the level of coverage a producer chooses will impact the cost of the policy.
“Coverage losses range from covering 50 percent loss up to 85 percent loss – that is the general range,” she said. “If you wanted to purchase a plan that’s going to cover an 85 percent loss, that is going to be more of an expensive plan, so that insurance premium will be higher.”
Catastrophic coverage is the term for purchasing that type of higher protection.
Summary of business tool
The RMA website also has a summary of business tool. Johnson said this will show a bigger view of what insurance options are sold in a producer’s area, as well as how many of a certain type of policy was purchased in your state.
After researching crop insurance policies, Johnson said it is time to contact an agent to discuss options.
“First thing, obviously, is the type of plan you are considering,” she said. “And you also want to talk about your level of coverage, or level of loss you want to insure and that’s the 50 percent to 85 percent loss.”
Johnson said a producer will also want to be sure to understand how big the premium will be and how much they are responsible for. Understand the payment deadlines; what kind of reporting is required before, during and after the coverage period and if there is a loss, how to document and file a claim.
“The timeline for that could be pretty short,” she said. “Sometimes around 72 hours, so you want to know that at the beginning and speak to them about the timing of processing claims.”
It is possible your agent might not be as familiar with your farm business model.
“Especially if you raise crops or livestock that are less common in your area,” she said. “You might want to bring educational materials about your operation and markets to the meeting with your agent to get them familiar with what you are doing.”
Crop insurance also allows coverage for cover crops, Johnson said.
“There has been a lot of work done to make sure the RMA makes accommodations for planted cover crops,” she said. “They have some resources on their website if you want to learn more about that, but it is also something to talk to your agent about.”
Johnson said there are some provisions around crop insurance that beginning farmers should be aware of.
“If you have not been farming for up to five years, you count as a beginner under crop insurance,” she said. “A 10 percent bonus is available to use to help beginners get established and catastrophic coverage fees are waived.”
For those growing organic crops, or considering the switch to grow organic, Johnson said there is an increase in organic crop insurance options, as well as crop specific policies available in certain counties.
“You can find out if there is an organic option for your crop in your county,” she said. “To look up to see if there is an organic price election available you can use the actuarial info browser on the RMA website.”
Types of insurance policies
“As you are scrolling through these various resources I have been sharing, you will come across the different types of plans,” she said.
According to the RMA website, insurance plans provide different types of insurance coverage to specific commodities.
Insurance plans include: actual production history, actual revenue history, area risk protection insurance, commodity exchange price provisions (CEPP), common crop insurance policy – basic provisions, dollar plan, group risk plan, high-risk alternate coverage endorsement, margin protection for corn, rice, soybeans and wheat; pasture, rangeland, forage; rainfall index, revenue protection, vegetation index, yield protection and whole-farm revenue protection.
Here is a list Johnson provided of important deadlines:
– Sales closing date, which is the last date to apply coverage
– Final planting date, the last day to plant unless you are insured for late planting
– Acreage reporting date, the last day to report acreage planted
– Date to file notice of crop damage. This is something you want to make sure you talk about with your agent, Johnson said, as there are several different dates that can be filed
– Date you decided to discontinue caring for a crop prior to harvest or end of insurance period whichever is earlier
– End of your insurance period, the latest date of insurance coverage
– Premium due date
– Cancellation date
– Production reporting date the last date to report production for a couple of the different plans available
– Debt termination date which is the date approved insurance provider will terminate a policy for nonpayment
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