Guide to Crop Insurance


The Federal Crop Insurance program is authorized by the Federal Crop Insurance Act and administered by the Department of Agriculture (USDA) and its Risk Management Agency. The USDA offers catastrophic (CAT) coverage to producers who grow an insurable crop. For a premium, farmers can buy additional coverage beyond the CAT level. Crops for which insurance is not available are protected under the Noninsured Assistance Program (NAP). Federal crop insurance is sold and serviced through private insurance companies. A portion of the premium, as well as the administrative and operating expenses of the private companies, is subsidized by the federal government. The Federal Crop Insurance Corporation reinsures the companies by absorbing some of the losses of the program when indemnities exceed total premiums.

Crop insurance products are available to all producers within Kentucky. Crop insurance is necessary because of the many factors that may affect the cultivation of crops, and the financial volatility of agricultural input prices and finished crop prices. The insurance coverage is provided to farmers by a group of government approved insurance companies, and their network of insurance agents / brokerages.

The Risk Management Agency (RMA, created in 1996) of the U.S. Department of Agriculture, is responsible for the operation and management of all of the programs of the Federal Crop Insurance Corporation (FCIC). Within the FCIC, the Insurance Services division has oversight (uniform underwriting and consistent claims processing) of the private sector insurance companies who provide federally subsidized crop insurance coverage to the agricultural sector. Multi-peril insurance programs are authorized by the Risk Management Agency (RMA).

Risk Management Agency   www.rma.usda.gov/

Federal Crop Insurance Corporation (FCIC)   www.rma.usda.gov/fcic/

The Standard Reinsurance Agreement (SRA) is negotiated between the USDA and the private insurance companies, and the SRA spells out the administrative and operating (A&O) expense reimbursements and risk-sharing by the government, including the terms under which the government provides subsidies and reinsurance to the insurance companies on eligible crop insurance contracts sold or reinsured by insurance companies, and also specifies the compliance and quality control procedures. As a result, the SRA plays a central role in determining crop insurance program costs. The SRA does not affect policy premiums paid by farmers, which are based on RMA?s estimates of risk and on subsides set in statute. Standard Reinsurance Agreement (SRA) and the Livestock Price Reinsurance Agreement (LPRA):   www.rma.usda.gov/pubs/ra/.

Types of federally reinsured Multi-Peril Crop Insurance (MPCI) policy coverage (insurance programs authorized by the Federal Crop Insurance Reform Act of 1994):
  • Actual Production History (APH) is a compilation of the property's previous annual yield, which consists of planted acreage and harvested production. The insurance coverage provides protection against yield losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. The producer selects the amount of average yield to insure; from 50-75 percent (in some areas to 85 percent). The producer also selects the percent of the predicted price to insure; between 55 and 100 percent of the crop price established annually by RMA. If the harvested plus any appraised production is less than the yield insured, the producer is paid an indemnity based on the difference. Indemnities are calculated by multiplying this difference by the insured percentage of the price selected when crop insurance was purchased and by the insured share.
  • Actual Revenue History (ARH) is similar to APH above with the primary difference being that instead of insuring historical yields, the plan insures historical revenues. The policy is structured as an endorsement to the Common Crop Insurance Policy Basic Provisions. It restates many of the APH yield procedures to reflect a revenue product. Each crop insured under ARH has unique crop provisions. Like current revenue coverage plans, the ARH pilot program protects growers against losses from low yields, low prices, low quality, or any combination of these events.
  • Adjusted Gross Revenue (AGR) provides protection against low revenue due to unavoidable natural disasters and market fluctuations that occur during the insurance year. Covered farm revenue consists of income from agricultural commodities, including incidental amounts of income from animals and animal products and aquaculture reared in a controlled environment. To determine the AGR, the underwriter reviews the historical Internal Revenue Service (IRS) tax form (Schedule F or equivalent forms) information (minimum of 5 consecutive years) and an annual farm report as a base. All policies must be purchased or cancelled on or before January 31 of each year (uncancelled policies automatically roll over).
  • Apiculture - Rainfall Index Plan
  • is based on weather data collected and maintained by NOAA?s Climate Prediction Center. The index reflects how much precipitation is received relative to the long-term historical average precipitation received for a specified area and timeframe. The insured must select the grid where the insured colonies are physically located
  • Apiculture - Vegetation Index Plan
  • is based on the U.S. Geological Survey's Earth Resources Observation and Science (EROS) normalized difference vegetation index (NDVI) data derived from satellites observing l ong-term changes in greenness of vegetation of the earth since 1989. The policy coverage provides protection against a decline, caused by natural occurrences, in an index value that is based on the long-term historical average for the same area of land for the same period of time. It is best suited for producers whose past production correlates with the historical average vegetation index patterns for the grid.
  • Catastrophic (CAT) crop insurance protection coverage provides compensation to a farmer for crop yield losses exceeding 50% of yield and at a price equal to 60% of maximum spot / market price. The premium for CAT is completely subsidized by the federal government.
  • Crop Revenue Coverage (CRC) provides revenue protection based on price and yield expectations, and the indemnity is paid on losses below the guarantee amount.
  • Dollar Plan of Insurance, which provides protection against declining value due to damage that causes a yield shortfall. The amount of insurance is based on the cost of growing a crop in a specific area. A loss occurs when the annual crop value is less than the amount of insurance. The maximum dollar amount of insurance is stated on the actuarial document. The insured may select a percent of the maximum dollar amount equal to CAT (catastrophic level of coverage), or purchase additional coverage levels.
  • Group Risk Income Protection (GRIP) is a county-based insurance coverage, which provides protection in the event the actual county revenue falls below the county trigger revenue selected by the policyholder. GRIP policies use a county revenue index as the basis for determining a loss by using the estimated county yield for the insured crop, as determined by National Agricultural Statistics Service (NASS), multiplied by the harvest price. If the county revenue falls below the trigger revenue level chosen by the producer, an indemnity is paid. Unlike GRP, it is not necessary to have a decline in yield to be indemnified, as long as the combination of price and yield results in a county revenue that is less than the trigger revenue. Payments are not based on individual producer?s crop yields and revenues. Coverage levels are available for up to 90 percent of the expected county revenue.
  • Group Risk Income Protection with Harvest Revenue Option (GRIP - HRO) is a supplemental endorsement to the GRIP Basic Provisions. The Harvest Revenue Option changes the trigger revenue to be the result of multiplying the expected county yield by the greater of the expected price or the harvest price and by the producer chosen coverage level percentage. If the county revenue for the insured crop, type, and practice falls below the GRIP-HRO trigger revenue, an indemnity is paid.
  • Group Risk Plan (GRP) is based on an expected county yield, which is calculated annually by utilizing the years of data compiled by the National Agricultural Statistics Service (NASS). The purchaser selects a coverage level and a dollar amount of insurance per acre.
  • Grower Yield Certification
  • Income Protection (IP) provides protection against reductions in gross income when crop price or yield decline from early season expectations.
  • Indexed Income Protection (IIP) individual property yields are indexed to county yields in order to mitigate any formula distortion caused by the inclusion of actual low yields.
  • Livestock Gross Margin (LGM) provides protection against the loss of gross margin (market value of livestock minus feeder cattle and feed costs) on cattle. The indemnity at the end of the 11-month insurance period is the difference, if positive, between the gross margin guarantee and the actual gross margin. The LGM for Cattle Insurance Policy uses futures prices to determine the expected gross margin and the actual gross margin. Adjustments to futures prices are state-, and month-specific basis levels. The price the producer receives at the local market is not used in these calculations. Producers can sign up for LGM for Cattle twelve times per year and insure all of the cattle they expect to market over a rolling 11-month insurance period.
  • Livestock Risk Protection (LRP) available for cattle, dairy and swine. Livestock are required to be owned by the producer within the last 30 days of the insurance period or the policy is terminated with premium owed, but no indemnities payable.
  • Pasture, Rangeland Forage (PRF) - Rainfall Index Plan is based on weather data collected and maintained by NOAA?s Climate Prediction Center. The index reflects how much precipitation is received relative to the long-term historical average precipitation received for a specified area and timeframe. The insured must select the grid where the insured acreage is physically located, or assigned if contiguous acreage, by providing a point of reference. The grid must be selected using the maps contained on RMA?s web site. Indemnity payments are earned by eligible insureds only when the final grid index is less than the trigger grid index. The insured?s amount of production is not considered when determining eligibility for an indemnity payment. Because the Rainfall Index plan of insurance is an area plan and does not measure, capture, or utilize any actual crop production, an insured may experience a loss of production and not receive an indemnity payment. However, it is also possible for an insured to receive an indemnity payment without suffering a loss of actual production.
  • NOAA/ National Weather Service, Climate Prediction Center: www.cpc.ncep.noaa.gov/index.php
  • Pasture, Rangeland Forage (PRF) Grid Locator: agforceusa.com/rma/vi/prf/maps
  • Pasture, Rangeland Forage (PRF) - Vegetation Plan is based on the U.S. Geological Survey's Earth Resources Observation and Science (EROS) normalized difference vegetation index (NDVI) data derived from satellites observing l ong-term changes in greenness of vegetation of the earth since 1989. The policy coverage provides protection against a decline, caused by natural occurrences, in an index value that is based on the long-term historical average for the same area of land for the same period of time. It is best suited for producers whose past production correlates with the historical average vegetation index patterns for the grid. The Vegetation Index plan of insurance does not measure, capture, or utilize the actual crop production of any producer or any of the actual crop production within the grid. Each grid covers an area equal to approximately an 8 kilometer by 8 kilometer area. The grids do not follow state, county, or other geopolitical boundaries. The grids for the Vegetation Index plan of insurance are created by RMA using U.S. Geological Survey EROS 1 kilometer by 1 kilometer gridded data aggregated to an 8 kilometer by 8 kilometer area. Each grid is assigned a specific grid ID, and is individually rated based on the U.S. Geological Survey EROS historical NDVI data for that grid. Indemnity payments are earned by eligible insureds only when the final grid index is less than the trigger grid index. The insured?s amount of production is not considered when determining eligibility for an indemnity payment. Because the Vegetation Index plan of insurance is an area plan and does not measure, capture, or utilize any actual crop production, an insured may experience a loss of production and not receive an indemnity payment. However, it is also possible for an insured to receive an indemnity payment without suffering a loss of actual production.
  • U.S. Geological Survey's Earth Resources Observation and Science (EROS): eros.usgs.gov/

  • Pasture, Rangeland Forage (PRF) Grid Locator: agforceusa.com/rma/vi/prf/maps
  • Revenue Assurance (RA) provides protection for a producer?s crop revenue whenever low prices or low yields, or combination of both, causes the crop revenue to fall below the guaranteed revenue level.
  • Revenue Protection (RP) provides coverage against lost revenues caused by low yields, low prices, or both, if the crop revenue declines below the guaranteed crop insurance revenue. The projected price for each crop is determined by the Commodity Exchange Price Provisions, which is derived from the average of the daily closes for a specific month futures contract on the CME Group Globex exchange. The guaranteed amount is then computed by multiplying the projected price by the property's approved APH (Actual Production History) yields. Many consider this the best type of policy coverage to have because it provides both yield and price protection.
    An example of the Revenue Protection equation: APH / Actual Production History (147 bushels per acre) X Coverage Level (75.0%) X Projected Price ($3.75 per bushel) = Guaranteed Revenue ($413.44 per acre)
  • Revenue Protection with Harvest Price Exclusion (RPHPE) is smililar to Revenue Protection (RP) except the amount of insurance protection is based on the projected price only (the amount of insurance protection is not increased if the harvest price is greater than the projected price). If the harvested plus any appraised production multiplied by harvest price is less than the amount of insurance protection, the producer is paid an indemnity based on the difference.
  • Yield Protection (YP) provides protection against a loss in yield due to unavoidable, naturally occurring events such as adverse weather, fire, insects, plant disease, wildlife, and failure of the irrigation water supply due to a naturally occurring event.
  • The primary difference between YP and APH is how the price is determined. Crops insured through YP have a price set through a commodity exchange price provision. The APH plan is available for crops that do not have prices set by a commodity exchange. The price for APH is set by the Risk Management Agency (RMA).

    Beginning with the 2011 crop year, Risk Management Agency (RMA) introduced a Common Crop Insurance Policy, known as the COMBO plan, which combines the previous yield and revenue plans into one standardized plan. Crop Revenue Coverage (CRC), Income Protection (IP), Indexed Income Protection (IIP), Revenue Assurance (RA), and Actual Production History (APH) plans of insurance previously available have been discontinued for barley, canola and rapeseed, corn, cotton, grain sorghum, rice, soybeans, sunflowers, and wheat.   www.rma.usda.gov/policies/combo.html

    MPCI policies must be purchased prior to planting. The Risk Management Agency (RMA) underwrites crop insurance policies for hundreds of crops (and livestock) in the United States. Crops include Almonds, Apples, Apiculture, Avocados, Barley, Beans, Blueberries, Cabbage, Canola and Rapeseed, Cherry, Chile Pepper, Citrus (fruit and trees), Clams, Corn, Cotton, Cranberry, Fig, Flax, Florida Fruit Trees, Forage Production, Grain Sorghum, Grape and Table Grape, Green Peas, Hawaii Tropical Fruit, Livestock, Macadamia Nuts, Macadamia Trees, Millet, Mint, Nursery Crops, Oats, Organic Crops, Pasture, Pea, Peanut, Pear, Pecan, Plum, Potatoes, Prune, Pumpkin, Rangeland, Rice, Rye, Safflower, Soybeans, Sugar Beets, Sugarcane, Sunflowers, Tomatoes, Wheat. Swine, dairy and feeder cattle are also covered.   www.rma.usda.gov/policies/2013policy.html

    Pilot programs are expected to operate for about 3 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. Crop policies and pilots:   www.rma.usda.gov/policies/2013policy.html

    The 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. The 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. A Written Agreement is a document designed to provide crop insurance for insurable crops when coverage or rates are unavailable, or to modify existing terms and conditions in the crop insurance policy when specifically permitted by the policy.

    The Standard Reinsurance Agreement (SRA) is negotiated between the USDA and the private insurance companies, and the SRA spells out the administrative and operating (A&O) expense reimbursements and risk-sharing by the government, including the terms under which the government provides subsidies and reinsurance to the insurance companies on eligible crop insurance contracts sold or reinsured by insurance companies, and also specifies the compliance and quality control procedures. As a result, the SRA plays a central role in determining crop insurance program costs. The SRA does not affect policy premiums paid by farmers, which are based on RMA?s estimates of risk and on subsides set in statute. Standard Reinsurance Agreement (SRA) and the Livestock Price Reinsurance Agreement (LPRA):   www.rma.usda.gov/pubs/ra/.

    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 2012 are considered to be grown in the 2013 crop year because they are harvested in the spring or early fall of 2013. Crops planted in the spring of 2013 are also considered to be grown in the 2013 crop year because they are harvested in the fall of 2013.

    Federal crop insurance is dependent on established dates that apply to all policies. These dates are determined by the RMA ahead of the planting season and are published on its website. Dates vary by crop and by county. There are several important dates farmers should expect to be able meet:
  • Sales Closing Date ? All crop insurance applications for the designated county and crop are due by this date.
  • Final Planting Date ? Crop must be planted by this date; a penalty is placed on the amount of coverage for each day late.
  • Acreage Reporting Date ? Acreage report includes a list of crops planted, number of acres planted (each crop), and share of crop (if ownership is shared).
  • End of Insurance Date ? Crop is no longer covered after this date; losses must be reported before this date. A claim for indemnity declaring the amount of the loss must be filed no later than 60 days after the end of the insurance period or no later than 60 days after the Harvest Price is released.
  • Termination Date ? This is when a policy premium must be paid.
  • Every policy has Basic Provisions. If a dispute in any way involving a policy or procedure interpretation, regarding whether a specific policy provision or procedure is applicable to the situation, how it is applicable, or the meaning of any policy provision or procedure, then both parties must obtain an interpretation from the FCIC in accordance with 7 CFR part 400, subpart X or such other procedures as established by FCIC.

    In general, the Basic Provisions of crop insurance policies indicate that insurance is provided only against the following causes of loss which occur within the insurance period that results in an unavoidable loss of revenue:
  • Adverse weather conditions
  • Fire
  • Insects, but not damage due to insufficient or improper application of pest control measures
  • Plant disease, but not damage due to insufficient or improper application of disease control measures
  • Wildlife
  • Earthquake
  • Volcanic eruption
  • Failure of the irrigation water supply if due to a a specific cause
  • A decline in the fall harvest price below the projected harvest price
  • Note: RMA does not include, nor consider, terrorism
    The per-acre premium on a unit / group coverage is determined using a premium calculator:
  • Basic unit: The annual premium for a basic unit equals the per-acre premium, times the number of insured acres in the unit, times the producer's share. The Basic unit is all acreage of the insured crop in the county on the date coverage begins for the crop year.
  • Optional unit: The annual premium for an optional unit equals the per-acre premium times an optional unit surcharge factor, times the number of insured acres in the optional unit, times the producer's share. The Optional unit is the subdivide the basic units by practice, section or section equivalents. An additional premium must be paid to elect to do this.
  • Whole-farm unit: The annual premium for a whole-farm unit equals the per-acre premium, times the number of insured acres in the unit, times the producer's share. The insured per-acre premium decreases as the number of legally defined sections on which the producer has insured acreage increases up to a maximum of 10 sections. The per-acre premium also depends on the proportion of insured crop acres on the unit. For example, if the unit contains sunflowers, soybeans, and corn, the per-acre premium will depend on the ratio of sunflowers to soybean insured acres, the ratio of sunflowers to corn insured acres, and the ratio of soybean to corn insured acres.
  • Replanting payments for corn and soybeans are allowed if the corn and soybeans are damaged by an insurable cause of loss to the extent that the remaining stand will not produce at least 90.0% of the per-acre revenue guarantee for the acreage and it is practical to replant. The projected harvest price is used to determine if 90.0% of the per-acre revenue guarantee can be achieved.

    For crops for which revenue protection and yield protection is available, a projected price and a harvest price will be determined in accordance with the Commodity Exchange Price Provisions (CEPP). The CEPP includes the information necessary to derive the projected price and the harvest price including the applicable Commodity Exchange and the relevant futures trading days, if applicable. The Commodity Exchange Price Provisions (CEPP) are used in conjunction with the Common Crop Insurance Policy Basic Provisions and the Crop Provisions pertinent to the following crops: barley, canola (including rapeseed), corn, cotton, grain sorghum, rice, soybeans, sunflowers, and wheat.   www.rma.usda.gov/policies/cepp.html

    The Fall Harvest Price, which is the price used to value production, is derived from the CME futures contract for the specific commodity. For corn, the fall harvest price is the simple average of the final daily settlement prices in November for the CME December corn futures contract. For soybeans, the fall harvest price is the simple average of the final daily settlement prices in October for the CME November soybean futures contract. These prices are released in November for soybeans and in December for corn.

    RMA Price Discovery Reporting for crops covered by Yield Protection (YP), Revenue Protection (RP), Revenue Protection with Harvest Price Exclusion (RPHPE), and Group Risk Income Protection (GRIP):   www.rma.usda.gov/tools/pricediscovery.html

    The condition that causes the greatest level of crop failure is drought, followed by excessive moisture. It is the duty of the insured to provide notice of loss to the agent within 72 hours of adverse weather incident such as frost or freeze or initial discovery of damage. If damage resulting in a claim should occur at harvest time then it is necessary for the producer to leave a specifc length and width of the crop unharvested at both ends of the field for the adjuster to fairly and accurately determine the loss.

    Crop Insurance Providers / Livestock Price Insurance Providers List for 2013. These companies are approved by the U.S. Department of Agriculture (USDA), Risk Management Agency to provide (sell and service) federally reinsured multi-peril insurance coverage through the Standard Reinsurance Agreement (SRA). Farmers / Producers usually first contact an agent licensed to sell insurance in their area, who then contacts one of approved insurance providers (AIP). Independent insurance agents are paid sales commissions by the AIP companies. In purchasing a policy, a producer growing an insurable crop selects a level of coverage and pays a portion of the premium, which increases as the level of coverage rises. The remainder of the premium, approximately 62% on average, is paid by the federal government.
    RMA Agent Locator:   www3.rma.usda.gov/apps/agents/
    RMA Approved Insurance Providers List for 2013:   www3.rma.usda.gov/tools/agents/companies/indexCI.cfm

    All insurance policies underwritten by RMA Approved Insurance Providers are reinsured by the Federal Crop Insurance Corporation (FCIC) under the provisions of the Federal Crop Insurance Act (Act) (7 U.S.C. 1501 et seq.).

    Congress requires that RMA strive for actuarial soundness in all Federal crop insurance programs that it administers.
  • MPCI premiums paid by agricultural producers have just managed to cover indemnities. In the years 2002 through 2011, the federal government collected $51.6 billion in Premium and other income, and paid out $50.2 billion in Loss Claims.
  • As indicated above, the federal government provides a subsidy to farmers to reduce the actual premium cost paid by farmers. During the same time period (2002-2011), $36.5 billion in premium subsidies have been paid.
  • The U.S. federal government also provides financial assistance to the AIPs in the form of administrative expense reimbursements. In the same time period, the federal government paid out $11.8 billion in administrative expense reimbursements.
  • Other program fund costs incurred during the same time period amounted to $531 million, and Other administrative and operating fund costs incurred during the same time period amounted to $818 million.
  • Total government costs incurred from the Federal crop insurance program from 2002 through 2011 amounted to $48.1 million.
  • Source: www.rma.usda.gov/aboutrma/budget/fycost2002-11.pdf

    Crop-Hail policies are not part of the federal crop insurance program, and are provided directly to farmers by private insurers, and are regulated by state insurance departments. A standard Crop-Hail policy provides protection against physical damage to crops from hail (or other named perils) on an acre-by-acre basis. A crop-hail policy can be purchased at any time during the growing season, and there are usually various policies with different deductibles. A crop hail policy also usually provides coverage for loss caused by fire, lightning, wind (when accompanied by hail or when added as an endorsement to a policy), vandalism or malicious mischief. Coverage for loss or damage to the crops during transportation and storage may also be available.

    Private named-peril coverage is provided for loss or damage from wind, frost, freeze, fire, snow mold, excess moisture. MPCI add-on is usually also underwritten by private companies.