Farm Horizons, August 2014
Federal Crop Insurance questions answered
By Ivan Raconteur
Extreme weather, including drought, floods, and severe storms, can affect crops.
The Federal Crop Insurance Corporation (FCIC) promotes the economic stability of agriculture through a system of crop insurance.
Management is vested in a board of directors, subject to the general supervision of the Secretary of Agriculture.
For specific information, the FCIC recommends that producers contact a local insurance agent or one of the insurance companies that sell and service crop insurance policies in their state.
For general questions, the FCIC website provides a question-and-answer section to help the public understand what federal crop insurance is and how it works.
Following are some of the frequently asked questions (FAQs) provided by the agency:
Q: Do I really need crop insurance?
A: Buying a crop insurance policy is one risk management option. Producers should always carefully consider how a policy will work in conjunction with their other risk management strategies to insure the best possible outcome each crop year. Crop insurance agents and other agri-business specialists in the private and public sectors can assist farmers in developing a good management plan.
Q: Does crop insurance cover crops in the event of natural disasters?
A: Producers who purchased crop insurance are covered for all natural causes of loss listed in their policies. For those without insurance, the Noninsured Crop Disaster Assistance Program (NAP), managed by USDA’s Farm Service Agency, provides financial assistance to producers of non-insurable crops when low yields, loss of inventory, or prevented planting occurs due to natural disasters.
Q: How does the federal crop insurance program work, and how do I apply for coverage?
A: Federal Crop Insurance Corporation (FCIC) programs are administered by the Risk Management Agency (RMA), which underwrites crop insurance policies for hundreds of crops and livestock in the United States. Crop insurance policies are sold and serviced by private insurance companies.
For information about insurance products available in your area, contact a local insurance agent or one of the insurance companies that sell and service crop insurance policies in your state. RMA also has 10 regional offices, in various locations across the country, that you may contact for information specific to your area. Your local insurance agent can describe the different insurance products available, and the policy rates and terms. Your agent will help you choose the best coverage for your crop based on your particular farm operation and your risk management and budgetary needs.
Q: My crop insurance company denied all or part of my claim after I experienced a loss. Can RMA help me get a payment on my claim?
A: RMA has a Standard Reinsurance Agreement with insurance providers to sell and service crop insurance policies according to Federal Crop Insurance Corporation policies and procedures. As a reinsurer, RMA does not have an appeal process available for producers. Producers may seek to resolve their disputes by exercising their rights under Section 20 or Section 25, in the crop insurance policy Basic Provisions.
Q: Crop insurance seems complicated. What are some of the common mistakes that producers make that can cost them money?
A: Here are some of the most common mistakes that could cost the producer money:
• Underreporting your planted acreage per unit. Production to count for an insured crop is derived from all planted acreage for that crop per unit, whether you reported all of the acres in that unit or not. Therefore, if you underreport your acres, your yield will be artificially inflated and you will receive a lower indemnity payment.
• Over reporting your planted acreage per unit. If you have over reported your acres, your production to count will be derived from all planted acreage for that crop per unit. The acreage will be reduced to the correct number of acres. Your indemnity will be slightly less due to the reduction in your total guarantee (not your per acre guarantee) and you will be refunded any overpayment of premium.
• Failure to report all farm serial numbers (FSNs) planted to the insured crop. If you fail to report all of the FSNs planted to the insured crop, the unreported FSNs will not have coverage. This oversight generally seems to occur with added land, but many times occurs because the producer fails to insert the planted acreage figure under the farm number on their acreage reporting form. The indemnity payment will be reduced.
• Failure to report the production for all farm serial numbers (FSNs). If you do not report all of your FSNs, with production information, on or before the production reporting date, the production cannot be added at acreage reporting time. The unit without production will be assigned a yield based on the variable T-yield procedure discussed previously. This yield is generally lower than the grower’s actual yields. The yield guarantee will be reduced and any indemnity payment will be less.
• Failure to elect “New Producer” status. If you are a new producer and fail to elect New Producer status on or before the production reporting date for the insured crop, the yield on the crop will be assigned using the variable T-yield method (a percentage of the county T-yield) instead of a more favorable method of using 100 percent of the county T-yield. The yield guarantee will be reduced and any indemnity payment will be lower.
• Failure to indicate “Added Land” on your acreage report. If you fail to indicate Added Land on your acreage report for new farms, the yield will be calculated using the variable T-yield method instead of more favorable methods. The yield guarantee will be reduced and any indemnity payment will be lower.
• Harvesting the crop in a manner other than insured. If you are harvesting the insured crop in a manner other than intended without informing the crop insurance carrier and have a claim, you will have a problem. For example: the producer has insured his corn as grain, but harvests the corn as silage. If there is no actual harvested grain for the adjuster to measure, the crop must be field appraised for grain content before harvested. The adjuster cannot appraise the grain content of harvested corn silage and the production to count will be assessed at the full guarantee. No indemnity will be paid.
• Destroying the insured crop without the company’s approval. Production for a crop that is destroyed before the claim adjustment is made will be assessed at the full production guarantee and no indemnity will be paid.
Q: Federal crop insurance isn’t available for my crop in my county, but it’s available in other nearby counties. Why can’t I get federal crop insurance for my crop?
A: Congress requires that RMA strive for actuarial soundness in all federal crop insurance programs that it administers. In support of this goal, RMA has a very deliberate process for new program development. New pilot programs must be approved by the FCIC board of directors before they are made available to producers. Under certain circumstances, new pilot programs must be authorized by Congress before RMA can begin program development.
Most pilot programs are expected to operate for about three years so that RMA may gain insurance experience and test the program components before the pilot programs are made more broadly available or are converted to permanent programs.
However, RMA is authorized, under certain circumstances on a case-by-case basis, to underwrite Multiple Peril Crop Insurance (MPCI) insurance offers when standard rates or coverage is not available. RMA can enter into a written agreement with the insurance provider and can underwrite an individual policy if the grower’s particular crop production plan will be actuarially sound under modified rates and terms.
If you are interested in expansion of the federal crop insurance program to your area and your crop, you should contact the regional office that serves your area. RMA staff will ensure that your request is given full consideration.
If the federal crop insurance program cannot be made available in your county for your crop, RMA will advise you if an individual written agreement is possible or if coverage is available through the private sector.
Q: Why isn’t insurance available for the same crop in every county and state?
A: Since the development of crop insurance policies depends first of all upon the demand for them, RMA does not initiate policies or expand existing programs where there are no requests. In some cases, a crop may not be grown by many, if any, farmers in a county. For example, there aren’t many cultivated clams raised in Sheridan County, NE; the cotton production is relatively low in Kittson County, MN, and there aren’t a lot of cherries grown in Jackson County, MS.
In areas where an established crop policy is not available, farmers may request that their RMA regional office expand the program to their county the next crop year. They may also contact their local crop insurance agent to see if a written agreement is available for the current crop year.
Q: What is a crop year?
A: The crop year is designated by the year in which the planted crop is normally grown and harvested. For example, crops planted in the fall of 2004 are considered to be grown in the 2005 crop year because they are harvested in the spring or early fall of 2005. Crops planted in the spring of 2005 are also considered to be grown in the 2005 crop year because they are harvested in the fall of 2005.
Q: In layman’s terms, what is RMA’s role in the crop insurance program?
A: Along with other congressionally mandated functions, RMA provides policies for more than 100 crops. (This number would be much higher if every insurance plan available for the crops insured in every county were counted.) RMA also conducts studies to determine the feasibility of insuring many other crops, and is conducting pilot programs for some new crop policies in selected states and counties. Federal crop insurance policies typically consist of the Common Crop Insurance Policy, the specific crop provisions, and the policy endorsements and special provisions.
Q: Will the Risk Management Agency extend final planting dates because of the unfavorable planting conditions?
A: Most crop insurance policies cover policyholders who are unable to plant until after the final planting date, but at a reduced coverage level to reflect the additional risk of planting later. Studies show a greater chance of crop yield loss for planting later. Premium rates reflect the timeliness of planting, and the reduced coverage for late planting reflects the increased risk for yield loss. Final planting dates are a term and condition of the insurance policy, and are part of the contractual agreement between policyholders and the approved insurance providers that deliver and service federally reinsured crop insurance policies. The policy specifies that all changes to the policy must be made by the contract change date.
USDA cannot extend planting deadlines because extending the deadline would be a change in the terms and conditions of the insurance policy after the contract change date. If USDA were to extend the planting deadlines, it would create a breach of contract. The Federal Crop Insurance Corporation is prohibited from waiving or modifying the terms of the policy except as provided in the policy. Any change to the contract at this time shifts risk to the approved insurance providers from previously negotiated financial commitments within the terms and conditions of the Standard Reinsurance Agreement.
Q: If I chose enterprise units, can I now change to basic or optional units because flooding has damaged my planted crop acreage?
A: Establishment of unit structure is a term and condition of the insurance policy and part of the contractual agreement between policyholders and the approved insurance providers. Because unit structure impacts the premium cost, and in the case of enterprise units, also the premium subsidy, the policyholder’s decision to elect enterprise units is made no later than the sales closing date to reflect the binding contractual agreement between the two parties when neither has the advantage of knowing the potential risk of loss. Allowing a change now to the enterprise unit would likely create a guaranteed loss payment on the damaged acreage that may otherwise be off-set, to some degree, under an enterprise unit. This would be similar to lowering the deductible for a car or homeowner policy after a loss has occurred. Changing the enterprise unit structure would be a contractual violation between the approved insurance providers and the policyholder, and leave the government vulnerable to a breach of contract. Therefore, any change to the contract at this time shifts risk to approved insurance providers from previously negotiated financial commitments within the terms and conditions of the Standard Reinsurance Agreement.
Q: Can an on-site inspection be waived prior to completing a claim? If I am physically unable to get to a field for planting, am I covered by prevented planting?
A: While on-site field inspections cannot be waived in their entirety, if the loss adjuster determines a physical on-site inspection is impossible, the loss adjuster can document the circumstances and complete the claim. For example, the loss adjuster makes an attempt to inspect the field, but determines the insured acreage is underwater and would remain unplanted or the planted crop would be destroyed.
Prevented planting payments can be made if an insured cause of loss resulted in there being NO way into a field that otherwise could be planted. These types of cases are expected to be very limited. If there is ANY way into the field, even if it means the producer has to drive out of the way to reach the acreage, then the producer would be expected to do so if the field was dry enough to plant. Prevented planting payments would not be made if there was any access to the acreage. Producers, however, are not expected to go to extreme measures like airlifting equipment into a field.
Q: If I am prevented from planting by the final planting date, what are my choices under the terms of my policy provided I meet all other policy provisions and I do not qualify for double cropping?
A: You may:
• plant the insured crop during the late planting period, if applicable, and insurance coverage will be provided. The late planting period is generally 25 days after the final planting date. but varies by crop and area. For most crops, the production guarantee is reduced 1 percent per day for each day planting is delayed after the final planting date.
• plant the insured crop after the late planting period (or after the final planting date if a late planting period is not applicable), and insurance coverage will be provided. The insurance guarantee will be the same as the insurance guarantee provided for prevented planting coverage.
• leave the acreage idle (black dirt) and receive a full prevented planting payment.
• plant a cover crop and receive a full prevented planting payment provided the cover crop is not hayed or grazed before Nov. 1, or otherwise harvested at any time. If the cover crop is hayed or grazed before Nov. 1, the prevented planting payment on the first crop is reduced to 35 percent of the first crop prevented planting guarantee.
• plant another crop (second crop) after the late planting period, or after the final planting date if no late planting period is applicable, and receive a prevented planting payment equal to 35 percent of the prevented planting guarantee.
Q: If my first insured crop was planted and failed, what are my choices under the terms of my policy provided I meet all other policy provisions and I do not qualify for double cropping?
1) If it is not practical to replant the first insured crop:
• The acreage may be left idle (black dirt), or planted to a second crop and not insured, and receive a full indemnity for the first insured crop.
• Plant and insure a second crop and receive a 65-percent reduction in indemnity for the first insured crop the policyholder pays 35 percent of the premium for the first insured crop.
• If there is not a loss on the second crop, the policyholder will receive the remaining 65 percent of indemnity on the first insured crop and pay the full premium on the first insured crop; or
• if the second crop receives an indemnity, the first crop indemnity remains at 35 percent and the second crop indemnity is fully paid (no reduction). The policyholder may choose to not accept the second crop indemnity and receive a full indemnity on the first insured crop.
2) If it is practical to replant the first insured crop and it is not replanted, no coverage for the first insured crop will be provided.
3) If it is practical to replant the first insured crop and the first insured crop is replanted, a replanting payment will be made and coverage for the first insured crop will remain at the production guarantee.
FCIC FAQs from the 2014 Farm Bill
Q. What exactly is the Supplemental Coverage Option (SCO)?
A: SCO is a county level revenue or yield-based optional endorsement that covers a portion of losses not covered by the deductible of the same crop’s underlying policy. Indemnities will be payable once a 14 percent loss has occurred in the county, and individual payments will depend upon coverage levels selected by producers. Any crop for which Agricultural Risk Coverage (ARC), which is offered by the Farm Service Agency (FSA), is elected on the farm will not be eligible for SCO coverage on that farm. The premium subsidy is 65 percent. Producers may not enroll a crop in both SCO and Agricultural Risk Coverage (ARC), which is offered by the Farm Service Agency (FSA). However, producers may participate in both SCO and Price Loss Coverage, another program administered by FSA.
Q. What if I decide I want to enroll into the ARC program after I’ve selected SCO coverage for winter wheat?
A: Producers who enroll their winter wheat in SCO may elect to withdraw from SCO prior to their acreage reporting date without any penalty. This allows producers additional time to make an informed decision related to whether to enroll in the Agricultural Risk Coverage (ARC) or the Price Loss Coverage (PLC) program. If they choose ARC, they will not be charged a crop insurance premium so long as they withdraw from SCO prior to their acreage reporting date.
Q. Will I be able to purchase SCO for the 2015 crop year?
A: It depends. RMA is making every effort to offer SCO to as many producers as possible. SCO will be available for corn, grain sorghum, rice, soybeans, spring wheat, and winter wheat in selected counties for the 2015 crop year. Program details and eligible counties were made available in the early summer of 2014.
Q. What exactly is the Stacked Income Protection Plan for Producers of Upland Cotton (STAX)?
A: STAX protects against countywide revenue losses and can supplement a producer’s underlying cotton policy, or be purchased as a standalone policy. Producers can elect coverage of up to 20 percent of expected county revenue, depending on the coverage level of their individual cotton insurance policy. STAX payments begin when county revenue falls below 90 percent of its expected level. The premium subsidy for this coverage is 80 percent. Any acres covered by a STAX policy may not be covered by a SCO optional endorsement.
Q. Will I be able to purchase STAX for the 2015 crop year?
A: It depends. RMA is making every effort to offer STAX to as many producers as possible. STAX will be available in selected counties for the 2015 crop year. Program details and eligible counties will be made available in the summer of 2014.
Q. I have heard that the farm bill has provisions that will both help new and beginning farmers purchase crop insurance and enhance the crop insurance beginning farmers already have.
A: Yes, a beginning farmer and rancher will be exempt from paying the $300 administrative fee for catastrophic coverage policies, and receive premium subsidy assistance for additional coverage policies that is 10 percentage points greater than what is otherwise available.
It defines a “beginning farmer and rancher” to be a person who has not actively operated and managed a farm or ranch with a bona fide interest in a crop or livestock as an owner-operator, landlord, tenant or sharecropper for more than five years. In addition, in certain instances, a beginning farmer may use the production history of another farm operation they were previously involved with in the decision making or physical involvement in the production of the crop.
Lastly, if the beginning farmer experiences a poor yielding crop, they may replace the poor yield in their yield history for determining next year’s guarantee with 80 percent of the county T-Yield, which is 20 percentage points higher than they previously would have received.
Q. Is there anything available for whole farm policy coverage?
A: The Federal Crop Insurance Corporation Board of Directors approved a new Whole-Farm Revenue Protection policy on May 8, 2014. The new policy is being offered as a pilot program and is expected to be available for the 2015 crop year.