RISK MANAGEMENT

1. RISK MANAGEMENT CROP INSURANCE Submitted by Darrell Boatright Modified by Georgia Agriculture Education Curriculum Office June 2007

2. HISTORY OF CROP INSURANCE • Federal Crop Insurance Corporation created in 1938 to carry out the program • 1980 Federal Crop Insurance Act expanded the program to many more crops and areas of the U.S.

3. 1994 Act • Catastrophic coverage was created • Participation was mandatory to be eligible for deficiency payments • 1996 act repealed the mandatory requirement • Risk Management Agency was created to administer FCIC programs and other non-insurance-related risk management and education programs to help support U.S. Agriculture

4. 2000 Legislation • Expanded the role of the private sector • Allowed more entities to conduct research and develop new insurance products and features • Restrictions on insurance products for livestock were removed • Premium subsidies were increased to encourage purchase of higher levels of coverage

5. Crop Insurance Contract • Commitment between insured farmers and their insurance providers • Either party may cancel the contract • Farmer agrees to insure all eligible acreage of a crop planted in a particular county

6. Crop Insurance Contract • Insurance provider agrees to indemnify (protect) the insured farmer against losses that occur during the crop year • Insurance covers loss of yield exceeding a deductible amount • Loss must be due to unavoidable peril beyond the farmer’s control

7. Types of Policies • Multiple Peril Crop Insurance (MPCI) • Actual Production History Coverage (APH) • Insures against yield losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease • Average yield insured is 50-75% • Farmer insures a percent of the predicted price between 55 and 100 % • If harvest is less than the yield insured the farmer is paid an indemnity based upon the difference

8. Types of Policies • Group Risk Plan (GRP) • Uses a county index as the basis for determining a loss • County yield must fall below a “trigger” level chosen by the farmer • Yield levels available up to 90% of the expected county yield

9. Types of Policies • Revenue Insurance Plans • Group Risk Income Protection (GRIP) • Makes indemnity payments only when the average county revenue for the insured crop falls below the revenue chosen by the farmer • Adjusted Gross Revenue (AGR) • Insures the revenue of the entire farm rather than an individual crop • Guarantees a percentage of average gross farm revenue

10. Types of Policies • Revenue Insurance Plans • Crop Revenue Coverage (CRC) • Provides revenue protection based on price and yield expectations by paying for losses below the guarantee at the higher of an early-season price or the harvest price • Income Protection (IP) • Protects producers against reductions in gross income when either a crop’s price or yield declines from early season expectations

11. Policy Endorsements • Catastrophic Coverage (CAT) • Pays 55 percent of the established price of the commodity on crop losses in excess of 50% • The premium on CAT coverage is paid by the Federal Government • Producers must pay a $100 administrative fee for each crop insured in each county • Not available on all types of policies

12. Producer Obligations • Producers must • Report acreage accurately • Meet policy deadlines • Pay premiums when due, and • Report losses immediately