Your guide to crop insurance basics
Crop insurance is a necessity for many farmers. In fact, according to the USDA, the majority of farmland acreage in the U.S. is insured under the Federal Crop Insurance Program - more than 300 million acres, to be exact.
But there is a lot of information to know about crop insurance that those new to farming - and even those who have been around it their entire lives - must know. Here's a good primer on the basics of crop insurance that everyone, no matter their experience level, can find useful.
Crop insurance quick facts
So, we've already mentioned that there are hundreds of millions of insured farmland acres through the federal government's program, but here are a couple of other quick facts to know about crop insurance:
- The Federal Crop Insurance Programbegan in 1938. It was created through the Federal Crop Insurance Act.
- The program was expanded in 1980 to make it more affordable and to encourage broader participation. However, improvements were made in the 1990s and 2000s that continued attempts to increase participation.
- There are 14 private companiesthat provide insurance policies under the Federal Crop Insurance Program.
- Private companies oversaw the issuance of over 1.1 million policies last year.
Two types of crop insurance
There are two types of crop insurance that are made available to farmers in the U.S - crop-hail insurance and multiple peril crop insurance, also known as simply MPCI.
One of the major differences between the two insurance types is that crop-hail insurance is sold by private insurers, whereas multiple peril insurance is offered to farmers through a federal government-supported program. Crop-hail insurance isn't supported by the government MPCI is.
Hail can devastate crops in one portion of a field while sparing other portions completely. That is why farmers operating in areas of the country where hail is a common weather hazard often opt to purchase a crop-hail policy. Crop-hail insurance are provided directly to farmers through private insurances. These policies are separate from those written by the 14 companies that provide policies through the federal program.
Crop-hail insurance can also cover other events in addition to hail, including fire, lightning, wind vandalism and other events. The specific details and cost of this coverage will vary based on the insurance provider.
These policies can protect high-yielding crops that farmers rely on for their business operations. They can be purchased at any time during the growing season. Crop-hail insurance policies can also help farmers if their losses don't met the threshold for federal coverage to kick in.
Multiple peril crop insurance (MPCI)
Unlike crop-hail insurance policies, MPCI policies have to be purchased before planting. The other key difference, as you can probably tell by the name, is that MPCI insurance policies cover many different types of natural events that can damage crops.
Some of those events include drought, too much moisture, freezes and crop diseases. Policies may also offer coverage options that combine yield and price protection, which protects farmers from potential revenue losses that could be due to either low yields or market price fluxuations.
An MPCI policy are often based on either yield or revenue. A yield-based policy gives pays farmers if they suffer a yield loss that would be lower than their usual yield. There are different levels to this type of policy that determine how much lower that yield needs to be. Revenue-based policies, on the other hand, can protect a farmer from revenue loss due to yield declines and/or harvest price decreases.
Through the Federal Crop Insurance Program, 14 private companies are authorized in the U.S. to offer these policies. This is through a partnership between the companies and the Department of Agriculture's Risk Management Agency. These companies are required to sell insurance to any requesting farmer who is eligible. They also keep a large portion of the risk on many of the policies.
The companies handle writing and reinsuring policies, marketing, adjusting, processing claims and more. The Risk Management Agency handles program oversight and regulations, while also setting chargeable rates and also determining insurable crops for specific areas of the country.
Federal subsidies make MPCI insurance affordable
As we mentioned above in the quick facts section, the federal government has tried to encourage farmers to participate in its insurance program. One of these ways in which the government does this is by subsidizing the premiums that farmers pay in order to reduce the total cost that comes out of farmers' pockets.
On the partnership side, the federal government reimburses the private insurance companies. This assists in offsetting the costs of operating and administering the insurance policies. Without this reimbursement the farmers' premiums would have to increase to pay for those costs.
In the end, federal support makes this crop insurance much more affordable to farmers and helps the private companies by sharing the risk of offering insurance.
Crops covered by MPCI
Not all crops are eligible to be covered by MPCI. Most common crops covered by MPCI include corn, cotton, soybeans and wheat.
It's up to the RMA to decide what crops are insured in each county throughout the United States. This decision is one that is made every year. What crops are made eligible in a county usually depends on both the demand for coverage in the county and loss risk in the county.
Why work with Midwest Land Management
There is a lot more detail to dive into on crop insurance, but this is a start. For farmers searching for crop insurance, Midwest Land Management makes sense. That's because we offer one-on-one professional crop insurance to all landowners and farmers located within our trade territory.
We work very closely with our insurance providers so that we can provide our clients with the most accurate and current insurance information. We know crop insurance is constantly changing - as are your specific insurance needs. We'll pay close attention to make sure your needs are met even as they shift from year to year.
If you would like more information about securing crop insurance through Midwest Land Management, please contact us today and a member of our team will be in touch with you as quickly as possible.