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Understanding insurance rules, options can be tricky proposition in 2004

LUBBOCK, Texas – Scattered storms over the past week have provided more than a few producers with just what they needed in terms of moisture to either germinate recently planted seed or to keep young stands adequately supplied with moisture.

Unfortunately, those same storms brought some people more than they bargained for when they sent in their request for rain. As a result some producers are dealing with crop loss situations and the need to move forward with crop insurance claims on damaged or destroyed acreage.

Each year when these situations arise the potential for confusion exists as producers and insurance providers begin wading through the rules to determine what can or cannot be done and when.

While the 2004 crop year includes a new rule that applies to secondary crops and insurance coverage, the provisions that apply to appraisals on crops remain unchanged. For crops damaged or lost to adverse weather events, or that fail to emerge, the rules remain the same as they were in 2003.

The most confusing situations generally involve non-emerged seed. Over the past couple of years there have been several changes in the rules that apply to non-emerged seed and how acreage that is caught in this situation is treated.

For emerged crops the rules have not changed significantly for several years and allow for timely appraisal of damaged or destroyed acreage, especially if that damage occurs after the applicable final planting date.

Generally speaking any crop planted before the final planting date that emerges to a stand is eligible to receive an adjustment almost immediately after the loss event is reported to the insurance company.

In order to allow for a proper evaluation most appraisals are scheduled three to five days after the damage report is received. This allows the adjuster to see how well damaged acreage rebounds from the event.

The bottom-line for producers that have recently lost standing cotton to high winds, localized flooding or hail is that a minimal waiting period can be expected before an adjustment is made, but the process can be put into motion immediately after the damage report is submitted to insurance.

For producers that have cotton in the ground but do not receive adequate moisture to bring the crop to a stand, insurance rules are different and require a specific waiting period after the final planting date before an appraisal can be scheduled.

For non-emerged seed the current rule states that no adjustment can be made until after the end of an eight-day deferred appraisal period that begins at the end of the crop's late planting period. For cotton, that means that non-emerged acreage cannot be appraised for 23 days after the applicable final planting date.

For counties with a June 5 final planting date, insurance appraisals on non-emerged acreage will begin no sooner than June 28. For counties with a June 10 final planting date appraisals cannot begin until July 3.

In the past, the additional waiting period after the 15-day late planting period has been revised by RMA. Whether or not a similar relief from the rules will be allowed in 2004 has yet to be determined although it appears the situation could develop that warrants such consideration.

Double insurance provision

While the rules that pertain to crop damage and appraisals have not changed from 2003 to 2004, there has been one important change that will affect producers who lose crops early in the 2004 season.

In 2004, growers who wish to plant a second crop on failed cotton acreage will have to make several important decisions that could impact the level of coverage they receive on their first crop.

The crux of the change involves the implementation of a new "double insurance" provision that was originally included in the Agricultural Risk Protection Act of 2000. The purpose for the new rule is to prevent a producer from collecting crop insurance indemnity payments for multiple crop losses on the same acre in the same crop year.

The final rule, as implemented, requires for the first time that growers who lose their first insured crop may only receive 35 percent of the calculated indemnity (and only pay 35 percent of the first crop premium) if they elect to plant a second insured crop on the same acreage.

In an attempt to provide more discretion to the grower that incurs an early season loss, Plains Cotton Growers and the National Cotton Council worked with the Risk Management Agency to craft an alternative that gives the growers more flexibility.

The result of that effort was inclusion of an option that the grower can exercise to receive 100 percent of the first crop indemnity if they elect not to insure a subsequent crop on the acreage during the balance of the growing season.

Growers that lose crops early in the season have the following options.

They can:

  1. Opt not to take insurance on a subsequently planted crop. This option is to be exercised on a unit-by-unit basis and the producer must make their insurance provider aware of their decision before the acreage reporting date for the second crop or when the claim is signed for the first insured crop; or,
  2. Insure the second crop, but decline to accept any second crop claim payment. Producers who insure a second crop but later choose not to accept payment for a second crop claim will receive the remaining 65 percent of their first crop claim less the remaining 65 percent of the premium due on the first crop and 100 percent of the premium due on the second crop. Producers may decline to accept a second crop indemnity up until the time the claim check is cashed.
Shawn Wade writes for Plains Cotton Growers Inc.


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