The Future of Crop Insurance

Corn maturing on the stock
12 Jan 2022
Those who have carried crop insurance the past 20 years may remember the days when the toughest decision regarding coverage was whether to take Crop Risk Coverage (CRC) or Revenue Assurance (RA). Both products worked the same with the exception of price movement limitations and when harvest prices were set. Oh, to have those days back!

Most recently, we’ve based decisions on two main products: Yield Protection (YP) to protect yields; or Revenue Protection (RP) to protect both yield and price. However, the risks faced with today’s volatile weather and markets need to be protected with coverage options that were not previously considered in the past, and with more statistical information and less guess work

Crop insurance continually evolves with new products introduced each year. In recent years, we’ve seen more new area-based products offered than any other type of coverage.  

So, what are area-based plans? An area plan is a highly subsidized type of coverage based on county expected and actual yields, and revenues, determined by the Risk Management Association. As with multi-peril crop insurance, a guaranteed yield and revenue are established. Failure for the county to exceed these guarantees results in an indemnity. The individual producer’s guarantees and production have no bearing on the area policy. 

Some of the more recent area plans include the Enhanced Coverage Option (ECO), which insures at a 95% level; Supplemental Coverage Option (SCO), which insures from the individual’s MPCI level of coverage up to 86%; and Margin Protection, which protects rising input costs, and Pasture, Rangeland, Forage (PRF) insuring for lack of rainfall.

These plans may not seem appealing to all. Putting money on the county could seem risky. But if you’re willing to take a deeper look into these, you may find more advantage than risk.

So, how do you determine if an area-based product is right for you? AgCountry recently invested in Optimum, an exclusive tool to the Farm Credit System. Insurance specialists have gone through extensive training on the use of Optimum, and analysis of the information from your policy insured through us, which is loaded within it.  

When your policy is accessed, approximately 100,000 simulations are run.  The mathematical analysis then provides data, including on how your operation compares to the county, how options have performed in the past, provides indemnity probability predictions, along with product and coverage level suggestions to best fit your needs. In addition, specialists can run through various product and coverage scenarios  illustrate “what-ifs” to aid in making final determinations.

With the use of Optimum, a lot of the guess work involved in decision making can be eliminated, and we can use the math to guide us through that process. Although there are no guarantees of indemnity payments with this tool, we can rely on the data to help you make sound decisions.

In addition to tools which now provide statistical data on policy history and future probabilities, producers need to be more open to considering area-based products as they may be the products of the future. With on-going waste, fraud and abuse within the program, plans of coverage are continually sought, which might help combat the issue.  Costs of administering individual coverage, working claims, and monitoring abuse is significantly reduced, and help keep the program sound and affordable. 

Although we don’t know what the future of crop insurance actually looks like, we do know that the program will continue to evolve.  As your co-op, we, too, will continue to evolve with the program and offer the latest technology, explore coverage options, and provide statistical information to aid you in the process. 

Are you interested is seeing what Optimum can provide for you, or how an area-based policy fits into your coverage plans? Speak with one of our insurance specialists and we’ll be happy to sit down and look at all options with you.
 
A headshot of Paige Altermatt
Written By: Paige Altermatt
Sr. Insurance Specialist/Coordinator - Redwood Falls