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The Federal Crop Insurance Program Protects Farmers in Case of Loss

 

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Farming is a risky business. The average American won’t borrow as much money in their lifetime as a farmer might borrow for just one season. And even if you don’t have to borrow, one bad season could still take you out of business or prevent aspiring farmers from ever getting started.

Not only that, but commercial property and farm insurance policies don’t include crops as covered property. Because of this, farmers must purchase crop insurance to cover losses related to weather and equipment failures.

There are two primary categories of crop insurance: multiple (multi-) peril crop insurance (MPCI) and crop-hail insurance, also known as named peril. Multi-Peril Insurance is subsidized by the federal government, whereas crop-hail insurance, which is sold through private insurers, is not.

Overview & History of the Federal Crop Insurance Program

The Federal Crop Insurance Program (FCIP) is a partnership between the federal government and private insurers. The FCIP is operated and managed by the Risk Management Agency, which is part of the USDA.

In the 1930s, the Great Depression and the Dust Bowl left many farmers unable to grow enough food to feed their own families let alone make any money. So, Roosevelt leveraged the New Deal to create the first federal safety net for agriculture.

What is now the Federal Crop Insurance Program has grown significantly through the decades as new legislation has expanded the program and made it more and more affordable. Today, many farmers purchase insurance through the FCIP and reap the benefits in times of need.

According to the USDA, roughly 83 percent of U.S. crop acreage is insured under the FCIP. In 2020, the Federal Crop Insurance program insured more than 380 million acres of farmland through more than 1.1 million crop insurance policies.

How Multi-Peril Crop Insurance Works

There are 13 private insurers who manage the policies offered through the Federal Crop Insurance Program, which are all approved by the USDA. These private insurance companies work through independent agents to collect premiums, issue policies, and pay claims. When a farmer files a claim for crop losses, they usually receive payment within 30 days.

The FCIP insures the insurance companies, so if a claim exceeds the premium that the insurer has collected, the government covers their losses and vice versa. So if the insurer collects more in premiums than it pays out in claims, the government gets a share of the profit.
The Federal Crop Insurance Corp (FCIC) is the program’s overseeing arm of the federal government. The FCIC determines the rates and develops the policies based on market data from recent years. This entity also subsidizes administrative expenses for participating insurers.

Farmers who wish to purchase insurance must do so before laying down seeds.

What Crops Do the Federal Crop Insurance Program Cover?

The FCIP does not cover all crops, only a select few. The USDA Risk Management Agency determines which crops each county will insure each year based on the demand for coverage and risk of loss in that county.

The crops that are typically insured under the FCIP include:

  • Corn
  • Wheat
  • Soybeans
  • Potatoes
  • Cotton
  • Dry peas
  • Apples
  • Blueberries
  • Citrus
  • Pumpkins
  • Walnuts

If your crop isn’t covered in your area, you or your insurance agent may ask the Risk Management Agency to expand the program to cover that crop in your county.

What Policies are Available through the FCIP?

Multi-peril policies can cover a loss of yields or revenue due to frost, drought, disease, excess moisture, and other natural causes.

A yield-based policy will provide a payout if your yield is less than your historical yield, and thus requires a few years of history to purchase. Catastrophic coverage, which is the basic policy, will pay out if your losses exceed 50 percent of your typical yield. You receive 55 percent of the estimated market price of the crop. It does not require a premium, only an administrative fee. You can purchase a higher level of coverage if you pay a percentage of the premium–the government covers the rest.

Most farmers will choose a revenue-based policy to cover a single crop. Alternatively, they can purchase whole-farm revenue protection to cover all of their crops. These types of policies protect your revenue in case of lower yields or a decline in harvest prices, or both. Revenue protection policies cover yield losses due to natural causes such as hail, frost, drought, excessive moisture, wind, disease, or pests. Also when harvest prices differ from their projected prices at the time of planting, these policies can help recoup your losses.

If you are considering a revenue-based policy, you will select the amount of coverage you want based on the percentage of yield averages. The majority of farmers will choose between 50 and 75 percent, but you may cover up to 85 percent of the yield average.

If your farm experiences a loss on a crop that is not covered by the Federal Crop Insurance Program, then you may apply for crop disaster assistance. Losses covered under this program include inability to plant, lower yields, or loss of inventory caused by natural disasters.

Crop-Hail (or Named Peril) Insurance

Crop-Hail Insurance, also called Named Peril Insurance, offers farmers additional coverage that provides a cushion for when your crop losses don’t meet the minimum threshold to claim the federal coverage. Crop-Hail policies must be purchased through private insurers and are not subsidized by the government.

Insurers offer different levels of coverage with varying deductibles. Despite its name, Crop-Hail Insurance can cover more than just hail. Other disasters covered under these policies include wind, fire, lightning, vandalism, and malicious destruction of property. They may also cover costs incurred from replanting.

Crop Insurance: The Bottom Line

Farmers have a lot to consider when it comes to choosing your crop insurance policies each planting season. Every farm is different, so every farm should have a customized insurance plan that is designed to help you reach your business goals.

At Scott Colville Crop Insurance, we take extra care to help our farmers understand all the different options, look at all the factors that come into play, and calculate which combination of policies will serve them best. We want our farmers to sleep soundly at night knowing that they have a solid plan in place to shield them from disaster.

Contact us today to request a visit to your farm. We would love to see the business you have built and help you protect it as best we can.

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