As of 2022, two major kinds of crop insurance are available to American agricultural producers: multiple peril crop insurance, and crop-hail insurance. They are not mutually exclusive of one another. Indeed, a farmer or rancher may decide to purchase both types of coverage simultaneously.
Knowing the difference between the two primary types of crop insurance is crucial whether you are just going into business or shopping for the insurance policy which best suits your already established agricultural business’s unique needs. Furthermore, understanding the utility of crop revenue insurance can help you fully protect your investment in your land.
Multiple Peril Crop Insurance: The Federal Government’s Crop Insurance
Multiple peril crop insurance (MPCI) is offered by the Federal Crop Insurance Corporation (FCIC), a wholly-owned government entity which is subject to the supervision of the U.S. Secretary of Agriculture. The United States Department of Agriculture Risk Management Agency (USDA RMA) currently sets annual prices and authorizes over one dozen private companies to write MCPI policies. These companies reinsure the various MPCI policies they offer, as well as adjust and process any claims their agricultural clients may file.
Over 90% of American farmers who purchase crop insurance choose MCPI. This is due in no small part to the program’s versatility, as MCPI is currently available for over 120 different types of crops and other agricultural products including corn, soybeans, milk, swine and cattle. Even relatively niche agricultural products such as figs, caneberries and Hawaiian tropical trees may be protected under MCPI policies. Not all crops can be covered in every geographic region, however, and MCPI policies must be purchased (A) each growing season and (B) before the insured crops are planted (when applicable).
The federal government’s interest in making MCPI available to all American farmers is simple: They wish to keep a vital American industry viable in the event of lower yields or total crop losses resulting from natural disasters, including:
- Insect damage
- Destructive wind
- Irrigation failure resulting from unavoidable causes
- Volcanic eruption (not a great risk to Midwest farmers, admittedly, but Hawaiian tropical tree growers are justifiably concerned about it)
When purchasing an MCPI policy, the producer selects the amount of their average yield they wish to insure, which may range from 50 to 85% depending on which geographic region they operate within. The policy holder also selects a percentage for the predicted price of their insured crop, which may range between 55 and 100%.
Crop-Hail Insurance: The Private Sector’s Crop Insurance
Crop-hail insurance (CHI) policies are not offered as part of the FCIC. They are sold by private insurance companies and as such are not federally subsidized, although they are regulated by the policy holders’ respective state insurance departments.
Contrary to what its name implies, a CHI policy does not exclusively provide coverage in the event of a damaging hail event. Depending on the crop and the policy holder’s region, a CHI policy may additionally cover losses resulting from wind, vandalism, lightning or fire. Unlike MPCI, CHI does not provide coverage in the event of drought, flooding or killing frost.
Crop insurance is typically sold according to an acre-by-acre basis. This enables farmers to selectively insure higher-risk areas of their property and collect in the event that crops are damaged on an isolated patch of land. For example, if a corn farmer has repeatedly lost crops on a part of their land because it is frequented by local teenagers recklessly driving pickup trucks, they may insure those at-risk acres with a CHI policy.
Crop Revenue Insurance: A Hedge Against Poor Yields and an Unpredictable Market
Whereas MPCI and CHI typically cover farmers in the event of disastrous weather, crop revenue insurance (CRI) provides coverage when they have low yields – or, alternatively, when the market rates for their crops are unusually low.
In the case of yield coverage, the CRI provider references the policy holder’s actual production history (APH) in order to calculate their payout. For price coverage, the provider considers both the policy holder’s APH and futures market prices as determined by the Chicago Mercantile Exchange.
If you are just entering the business of agriculture, it is crucial that you insure your livelihood against natural disasters, vandalism and an unpredictable market. But even if your agricultural business is already firmly established, it is possible that you are currently underinsured.
The Hoffman Agency has assisted farmers, ranchers and other agricultural producers throughout the greater Sioux City, Iowa area for several decades. We welcome you to contact us today for all your crop insurance and other insurance needs!