Agriculture has always come with inherent natural risks ever since our ancestors began farming crops and settled in one place. While the nature and intensities of those risks have changed over the course of time, the risks remain the same.
Although our experience and modern science have allowed us to understand and mitigate many of the risks to some extent, human activities have led to further exacerbation and created others.
Moreover, with the current agricultural economy and market trends, it is becoming increasingly difficult for farmers of all scales to make risk management decisions in their operations. This is where farming Insurance comes in.
The United States and most nations understand the value of food security and thus have facilitated the crop-insurance policies that offer farmers a much-needed safety net.
However, agriculture insurance differs from any other type of insurance available and it is essential to understand the different types of crop insurance to choose the best option which is explained later in this article.
What is crop insurance?
The basic concept of crop insurance is as simple as the name suggests: Agriculture insurance is insurance that insures crops of agricultural businesses and individual farmers. In other words, Crop-insurance protects farmers from identifiable and mostly predetermined risks that are not within their control such as:
- Cold/Wet weather
- Market Price Shifting
Besides these common factors, there might be factors that are specific to a certain geographical location or a specific crop. Moreover, the type of insurance also varies based on the actual probability of occurrence of the risk factors.
Risk factors can be categorized based on the level of their frequency as well as their potential of causing economic loss or severity.
For example, the availability and nature of agriculture insurance against drought will differ in a place where drought is common from a place where drought doesn’t occur frequently. To make informed decisions while purchasing insurance for your crops, you need to understand how it is that farming insurance policy really works.
How does agriculture insurance work? Who sells it?
Agri insurance under the Federal Crop-Insurance Program (FCIP) is provided by approved insurers that are supported by the government. USDA’s Risk-Management-Agency operates the FCIP program in collaboration with the insurers.
The supermarkets sell, distribute, and manage insurance by employing certified individual agriculture insurance agents.
The role of the federal-government is to back the insurers in case they pay the amount in claims that they have generated from collecting premiums. In return, the government also gets a share when profit is made.
The crop insurance policies under FCIP are known are multiple-peril farming insurance policy and are based on yield or revenue.
However, not all crops are insured by these policies. While the federal-government issues notice regarding the crops to be insured for each other, the most commonly insured crops include corn, cotton, soybeans, and wheat while many other crops may be insured where they are found more commonly.
The working mechanism of agri insurance lies in the concept of reference-yield or reference-revenue, which is basically yield or revenue benchmarks that are calculated by running statistical operations on historical data from the farms of the area.
It is by comparison with this reference and by using the government market price of the crops that claims can be made and coverage is distributed.
It is worth remembering that farmers should purchase multiple-peril insurance policies before planting the crops before the deadline or the sales closing date (SCD).
Farmers decide on the coverage (usually 50%-75%), pay the premium on time, report the acres in a timely manner, and file for the claim within the predetermined duration from the discovery of the damage using a form called the Notice of Loss (NOL).
Different from the FCIP Insurance policies, Crop hail insurance is not associated with the government and is entirely sold by private companies that can be bought at any time during the crop cycle.
Hail coverage, unlike the name suggests, covers crops from risks other than hail like fire, lightning, wind, vandalism, etc. This can be a great option to cover the crops that are not coverable by federal insurance policies.
Types of crop insurance
There are major two types of crop-insurances, namely, yield-based crop insurance policies, and revenue insurance policies.
1. Yield based:
Yield-based insurance policies are the ones that provide coverage if the actual yield obtained becomes less than the expected yield. There are two types of insurance policies that work on the yield basis:
- Multiple peril agriculture insurance: As discussed earlier, MPCI provides coverage for multiple natural risks like hail, wind, rain, insects, etc. when they result in the loss of crop production upon harvesting. When entering into the contract with the insurers, farmers choose the volume of the yield to be insured (which might be between (50-85)% depending upon needs) as well as the protection rates of the government.
- Group risk plan: While MPCI uses the reference yield obtained from the historical data of the farmers to determine the loss, Group-Risk-Plan (GRP) uses a county yield index. This is decided by National-Agricultural-Statistics-Service (NASS). Since these calculations can take time, the time of payment upon claims can take more time than MPCI payments.
2. Revenue insurance:
Revenue Insurance policies, on the other hand, provide protection against a decrement in generated revenue which might be a result of loss of production as well as the change in the market price of the crops, or even both.
- Crop revenue coverage (CRC): It makes use of two varied prices, i.e. the price projected initially and the harvest price which is calculated just before harvesting. The actual time of determining the price depends on location as well as the crop.
- Revenue assurance (RA): RA includes the grower choosing a monetary sum to be covered that lies from (65-75) % of anticipated revenue. However, as farmers, you can also opt for the harvest-price option which in case it looks like a CRC except you’ll have no upside limit on harvest-price protection, unlike CRC. If production falls and prices increase, CRC/ RA_HPO will have a higher value and vice-versa.
- Group revenue insurance policy (GRIP): This type of policy is based on providing protection if and when the average county revenue under insurance drops below the revenue that is selected by the grower.
Crop insurances are vital to the financial sustainability of any farmland. Although the basic concept of agriculture insurance is as simple as it is necessary to understand, choosing the best type of insurance that suits your specific needs from a plethora of insurance policies can be a challenging task.
The types of insurance policies discussed above will have given you a general idea about what might be the one for you. To make this critical decision, it is always recommended to consult with agronomic experts and agro-service providers like GeoPard .
Frequently Asked Questions
1. Is crop insurance worth it?
It can be worth it for farmers as it provides financial protection against unpredictable events like crop failures, natural disasters, or price fluctuations. It helps mitigate the risks associated with farming and provides a safety net to recover losses.
The decision to purchase it depends on factors such as the farmer’s risk tolerance, the value of their crops, and the likelihood of potential hazards.
It is important to carefully evaluate the coverage options, costs, and potential benefits to determine if it is a worthwhile investment for a specific farming operation.
2. How to get crop insurance?
Getting it involves a few simple steps. First, farmers should contact their local U.S. Department of Agriculture (USDA) Farm Service Agency (FSA) office or a licensed crop insurance agent. They will provide information on available insurance programs and assist in selecting the right coverage.
Next, farmers will need to provide details about their crops, acreage, and historical production data. The insurance agent will help complete the necessary paperwork and submit the application before the specified deadline.
It’s important to stay updated with any policy changes or requirements and communicate regularly with the insurance agent throughout the process.
3. What is agricultural insurance?
Agricultural insurance is a type of insurance specifically designed to protect farmers and agricultural businesses from financial losses caused by various risks. It helps farmers recover their investment and stabilize their income during challenging times.
It plays a crucial role in managing risks associated with farming and promoting the sustainability of agricultural operations.
4. How much does crop insurance cost?
Its cost varies depending on several factors. These include the type of coverage selected, the level of risk associated with the crop, the farmer’s historical yield data, and the geographical location of the farm.
Premium rates are set by the insurance provider and are influenced by factors such as crop type, coverage level, and any additional endorsements. Generally, its cost is a percentage of the insured value and can range from a few dollars per acre to a significant portion of the potential crop revenue.
It is recommended to consult with a licensed insurance agent to get accurate cost estimates based on individual circumstances.
5. Does crop insurance cover drought?
Yes, it can provide coverage for drought conditions. Depending on the specific policy and coverage options chosen, drought-related losses may be included. However, it’s important to note that coverage for drought may have certain limitations or requirements.
For instance, the policy might have specific criteria regarding the severity and duration of the drought, as well as the impact on crop production.
Farmers should carefully review their insurance policy and consult with their insurance agent to understand the extent of coverage for drought and any other weather-related risks.
Crop monitoring is a crucial tool that allows crop growers to detect problem areas and mitigate the risk of yield losses.
Easily monitor your crop development by relying on the latest satellite imagery. Add your field boundary to the system and access the complete satellite imagery archive on one screen:
- Assessment of crop development conditions.
- Detection of vegetation anomalies in near-real time.
- Scout spots with different levels of crop development.
- View through the clouds.
Translate the satellite imagery crop monitoring insights into fieldwork actions and benefit from making the data-driven decisions:
- Detect the difference in crop vegetation between the latest images and scout the focused areas for tissue sampling.
- Create Variable Rate Application maps for crop protection and in-season fertilization based on near-real-time field assessment and collect the execution report.
- Mark the damaged field areas after a weather disaster or a disease or a pest attack and send reports to the insurance.