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Take A Hard Look at Crop Insurance After 2012

Take A Hard Look at Crop Insurance After 2012
If you didn't buy it before, should you buy it now?

The answer would seem automatic. If you didn't have crop insurance this year and took a big hit, or watched neighbors take a big hit, you would surely want to purchase it next year. While that seems logical, Chris Hurt, Purdue University Extension ag economist, says that not everyone may look at it that way.

"There are people who don't buy crop insurance because they basically rely on being self-insured," he says. "If they believe they have enough equity to survive a bad year, they would rather forego paying premiums and run the risk of having a hit than to pay the premiums every year and see no return in most years."

losses in the year when things go sour and crop insurance pays off. To insure or not? Those who believe in self-insurance may have had to prove they believe it this year. Will they stay with their strategy or take out crop insurance next year?

The problem with the strategy is that this was the one year in 20 or 25 when Mother Nature reminded farmers it can trump everything man does, even plant high-tech genetics. This was the one year that those who forego crop insurance, saying they can handle a bad year if it comes, now have to step up and handle the bad year.

It will be interesting to see if people who have adopted that strategy will change their minds after this year, Hurt says. The odds are still the same. Seeing a year with this magnitude of disaster are probably no better than one in 20 to 25. The problem is that there is no guarantee that 2013 won't be another one year in 25.

"Every year there is about a three to four percent chance you're going to have a major hit," he says. "This was the year."

"It's like flipping a coin. Just because it came up bad this year doesn't mean it will be another 25 years before it comes up bad again. It could happen again next year, although the odds are against it."

For those who didn't have crop insurance, they will have until March 15 to reassess their strategy, and see if they believe they're better off not paying premiums in the long haul, but then forking out to cover the losses in the year when things go sour and crop insurance pays off.

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