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Corn+Soybean Digest

Shuffling The Multi-Peril Deck

Kisslinger, who grows soybeans, sorghum and wheat near Glen Elder, KS, wasn't alone in 2001. Many farmers evaluated their crop insurance programs and adjusted coverage levels or even switched policies following a re-structured subsidy system.

The Agricultural Risk Protection Act of 2000 (ARPA) makes revenue insurance much more affordable for producers. Last year marked the first time that all federally backed insurance programs, including revenue insurance plans, received the same percentage premium subsidy.

In the past, the subsidy only applied to the yield portion of a revenue insurance plan. This plan covers loss in crop value due to a change in market price during the insurance period, in addition to perils that cause loss of yield.

Tim Witt, deputy administrator for the Risk Management Agency (RMA), says the increase in subsidy had two effects: “In most crop programs, we saw people buy higher coverage levels than in the past. People moved from 65% to 70-75% (coverage), and a number to 80-85%. The second change we noticed was an increase in participation in the revenue products.”

Jim Baldonado, owner of the Home Agency in Elwood, NE, agrees with Witt's assessment. “In my area of south-central Nebraska, it cost $22.25/acre to insure a crop at the 85% level (of Crop Revenue Coverage or CRC) on 160 APH (actual production history) of irrigated corn. A year ago the same coverage cost $25.25. The bottom line is the changes meant more coverage for the money.”

CRC found quick success among available revenue insurance plans when introduced several years ago. It was also the favorite insurance product in 2001. In fact, 83% of farmers who said in an online Soybean Digest survey that they purchased revenue insurance actually purchased CRC in 2001.

Steve Ackerman, a soybean and corn farmer near Gothenburg, NE, has used CRC for two years because of its broad coverage. He says it works well with his marketing objectives, too.

“CRC allows you to price up to your guarantee and know that your production risk will be covered,” Ackerman says. As a result, this year he was able to use cash forward contracts to lock in better prices for the bulk of his crops.

He reviews his insurance yearly and looked closely at his options in 2001. In the end, he stuck with CRC at 80% coverage, but switched from an enhanced product called “CRC plus” to save some premium. He also realized a cost savings because of the subsidy increase.

Regularly reviewing insurance plans is important. Changes occur frequently, not only at the national level, but also at the state level. In a future issue of Soybean Digest, we'll list what plans are available in each state. There are even substantial differences in what types of insurance are available in neighboring states.

It's also important to conduct an annual review, according to RMA sources. Unless the contract is canceled, it is normally automatically renewed the next year. In the end, producers may not receive the best insurance plans for their money. That's simply because they didn't evaluate all plans and coverage levels available to them.

Government, Industry Investigate Insurance Against Terrorism

The threat of terrorism has never been so apparent as in recent months. Industries from energy generation to water treatment plants are examining how they should prepare in case of an unspeakable attack.

The nation's food supply also could be a target, and USDA's Risk Management Agency (RMA) is reviewing its options. According to RMA Deputy Administrator Tim Witt, current insurance programs would not cover losses resulting from acts of terrorism. “Statutorily, we're only able to cover natural causes of loss,” he says.

The topic is being discussed, however, and Witt says RMA is looking at soliciting bids to facilitate a feasibility analysis for covering losses due to terrorism.

“A lot of the commercial lines are looking at this issue and the potential for some form of government involvement. If out of that process we could add it (insurance against terrorism), we'd have to consider what the rate impacts would be,” Witt says.

However, to add this type of coverage, Congressional legislative authorization would be required. Then private companies or contractors would be contacted for proposals, he says.

Gene Grimsley, senior vice president of marketing for American Agrisurance, says his company hasn't extensively looked at the issue of covering losses due to terrorism. But it would review its options should a government-backed option arise. “If one of those opportunities would come available and we felt we had the expertise, we would certainly look at it.”
by Tim McKim

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