Crop insurance losses are expected to top $11 billion for 2011 following drought, floods and damaging weather, according to the U.S. Department of Agriculture's Risk Management Agency (RMA). For many agricultural producers (farmers)*, crop insurance is an important risk management tool. To better understand how crop insurance can provide an economic backstop to unforeseen agricultural losses, we offer the following overview.
Crop insurance policies are issued by private insurance companies and sold by licensed local agents. There are two main types of insurance for farmers: crop hail insurance and multi-peril crop insurance. Crop hail insurance is limited to losses due to hail and/or fire. Multi-peril crop insurance (MPCI) provides extensive coverage for losses from weather to pests and even loss of revenue. In many cases, multi-peril policies are subsidized and backed by a federal reinsurance program.
Crop hail coverage comes in several different forms and can be added as a rider to a MPCI policy. The extent of coverage depends on the type of crop insured. A crop hail policy may also provide coverage for losses caused by fire, lightning, wind (when accompanied by hail or when added as an endorsement to a policy), vandalism or malicious mischief. Coverage for the crops during transportation and storage may also be available. Crop hail coverage is sold by private insurers and regulated by the state insurance departments. It is not part of a federal government program.
The Federal Crop Insurance Program
There is a federal program providing a variety of multi-peril crop insurance products. The Federal Crop Insurance program was created in 1938. Today the RMA administers the program, which provided policies for more than 255 million acres of land in 2010. Insurance companies selling MPCI coverage must be licensed by the RMA.
Unlike other types of insurance, crop insurance is dependent on established dates that apply to all policies. These dates are determined by the RMA ahead of the planting season and published on its website. Dates vary by crop and by county. These are the important dates farmers should expect to meet:
Crop insurance applications are very detailed and must be filled out completely and accurately to ensure correct coverage. Because a MPCI policy is subsidized and reinsured by the federal government, any inconsistency with information filed with other agencies (such as the Farm Services Agency) could result in a denial of claim. When filling out an application, expect to have to choose an insurance plan type, coverage and price levels, and a unit structure.
There are many variables that can trigger a claim on a crop insurance policy from adverse conditions that prohibit a farmer from planting to damaging weather that eradicates part of the yield. When a crop is damaged by a covered peril, it is the farmer's responsibility to notify their insurance agent or broker. Do not destroy or replant before a crop insurance adjuster has surveyed the damage. The RMA has more information about what to expect when filing a claim here.
When looking at material describing crop insurance products, be aware that there are two uses of the term producer. The U.S. Department of Agriculture and the RMA refer to farmers as producers because they are producing farm products. The term producer in the insurance community means a licensed insurance agent or broker. In other words, an insurance producer is a person who is producing an insurance product. Be aware of these differences and be careful as you review written materials. To prevent confusion, this consumer alert avoids the use of the term producer. Other published information will not.
You can contact our Consumer Services Division at (800) 852-5494 or (501) 371-2640 for assistance in understanding the wide ranging options of crop insurance, and to verify that a crop insurance agent or broker is licensed to sell crop products in Arkansas. For more information about the options available for a crop insurance policy plus a list of definitions, coverages and specific policy dates, visit the RMA's Crop Insurance website.