Crop Insurance 101 & BeyondRisk Management Basics & Strategies for your Operation
Brad Heinrichs, Crop Insurance Specialist & Agent
NFB Crop Insurance Inc.
402-984-6474
About Me
Brad Heinrichs, Agent – NFB Crop Insurance Inc.
Partnered with NFBI to start NFB Crop Insurance, Inc. in 2009
Grew up by Carleton, NE (“The Milo Capital of Nebraska”)
UNL – Agri-business Degree
Worked with Nebraska Soybean Board prior to getting involved
in the crop insurance industry
Been involved with agriculture my whole life.
Row crops & Livestock
Wife, Renae – Daughters Ellie (4) & Sophia (2 ½)
Farmer-Agent – Live it. Know it. Understand the farmer’s
perspective.
Licensed in Crop Insurance since 2009.
Nebraska Farm Business, Inc.
Nebraska Farm Business Inc. provides financial analysis, business planning, tax
planning, and tax preparation.
Started in 1976 as part of the Cooperative Extension through the University of
Nebraska-Lincoln.
In 2002 moved off campus to another location in Lincoln but still works with
UNL on collecting financial data on farming operations.
Financial Analysis, Business Planning, Tax Planning & Tax Preparation Services
NFB Crop Insurance, Inc.
In 2009, NFB Crop Insurance, Inc. was launched to provide a full service crop
insurance agency to farmers across Nebraska.
NFB Crop Insurance, Inc. partnered with Nebraska Farm Business Inc. to work
with clients to develop tailored risk management plans through financial
decision
Can use a client’s financial analysis as a tool to better understand what risk is
covered for clients
Do not need to work with Nebraska Farm Business Inc to be a client of NFB
Crop Insurance.
Our agency only sells crop insurance to better specialize in service to its
customers
A different approach – not your typical crop insurance agency.
Thoughts on Crop Insurance?
What comes to mind when you hear crop insurance?
Have you had experience with crop insurance?
Do creditors need you to carry insurance?
Does your current “Risk Plan” involve insurance coverage?
Why is Crop Insurance Important?
Top Risk Management Tool
Allows farmers to recover from natural disasters & volatile market
fluctuations
Provides confidence to make long-term investments
Thriving Economy is Dependent upon Agriculture Industry Thriving
During 2012 Drought – Crop Insurance saved 20,900 jobs with annual labor income
of 721 Million in IA, NE, SD & WY combined (FCS of America study)
Every 1 in 4 jobs in Nebraska is related to agriculture
5% of the US Economy is Agriculture –10% of all US employment is related to
agriculture
(NCIS)
BASICS of PROGRAM
FarmersInsurance Sales Agent
(Responsible for Sales/Premium Collection of Farmer-Paid Portion and processing)
Private Insurance Companies
•15 Companies can sell Federal Crop Insurance
Federal Crop Insurance Corporation
(Managed by USDA/RMA)
What does the Agent do?
Identifies a need for risk management
Explains product options
Sells insurance contract
Collects production and acreage report
Notifies company in case of loss
Informs farmer about changes to the program
Processing of paperwork & policy changes
Local, professional, trusted contact for farmer
What does the Insurance Company do?
Insures crops
Provides agent training for the processing of all paperwork
Contracts agents and independent loss adjusters
Ensures all claims are fairly and promptly paid
Accepts risk on the insurance policies
Interacts with RMA/Agents/Farmers
Trains Agents and Adjusters
What does the Federal Government do? Subsidizes insurance
▪ Pays delivery reimbursement (A&O)
▪ Pays premium subsidy
▪ Offers reinsurance
Sets rates and establishes insurance policy provisions
Regulates insurance companies
Why a Government Program?
▪ Weather tends to impact a large area
▪ Without federal subsidies premiums would be too high for most farmers to
participate
▪ Without federal reinsurance, federal capital requirements would be too
high for most companies to participate
FCIC Premium Subsidy Percentages
Coverage
Level
50/55
CAT50% 55% 60% 65% 70% 75% 80% 85%
Basic Unit 100% 67% .640 .640 .590 .590 .550 .480 .380
Optional
Unit
NA .670 .640 .640 .590 .590 .550 .480 .380
Enterprise
Units
NA .80 .800 .800 .800 .800 .770 .680 .530
Admin
Fee
$300 $30 $30 $30 $30 $30 $30 $30 $30
RMA (Risk Management Agency)
RMA manages the Federal Crop Insurance Corporation (FCIC) which provides
innovative crop insurance products.
Approved Insurance Providers (AIP) sell and service Federal crop insurance
policies through a public private partnership.
RMA has 3 key areas
Insurance Services - Responsible for promoting and supporting sound risk
management solutions for our farmers.
Product Management - Responsible for developing, testing, crop insurance products
Compliance - Responsible for safe guarding the integrity of the program
Types of Crop Insurance Multi-Peril (MPCI)
Federal
YP - Yield Protection - Protects against a production loss
RP - Revenue Protection - Covers weather related causes of
loss, certain other unavoidable perils and price fluctuations.
RPHPE - Revenue Protection Harvest Price Exclusion - RPHPE
coverage excludes the use of the harvest price in the
determination of the revenue protection guarantee
ARP - Area Risk Plan - An area based insurance program that
provides insurance protection against widespread loss of
revenue in a county .
Types of Crop Insurance Cont.
Whole Farm Revenue – Works best with Multiple Crop/Livestock enterprises,
Uses Schedule F, Long Claim Process (Multi-Year)
Margin Protection – Area based plan protecting against fluctuations in Revenue
and Expenses
Pasture, Rangeland, Forest (PRF)
Helps protect loss of forage due to decreased rainfall
Select a time interval (2 months) as well as a grid ID location (17 miles x 17 miles)
70-90% Coverage level
Supplemental Coverages
Crop-Hail
Private Sector
Companion Hail (CP)
Production Plan (CHPP)
Production Plan Enterprise Units
APH – Actual Production History
Actual Production History - a yield history for a farm for a specific crop. The
APH can contain up to 10 years of previous yields.
If a farmer would rotate corn and soybeans every other year. It would be
possible to have yields up to 20 years old in the APH database.
Unit Structure
Enterprise Units
Optional Units
Basic Units
How does it affect my losses?
Cost differences?
Most Popular?
Risk Tolerance?
Enterprise Unit An enterprise unit combines all the acres of an insured crop in the county into one
county-wide unit, regardless of ownership, share or rental arrangement. A varying premium discount will apply, based on the number of planted acres of the crop insured. In order to qualify, an enterprise unit must contain all of the insurable acreage of the same insured crop in:
Two or more sections, if optional units are available by sections;
Two or more section equivalents, if optional units are available by section equivalents;
Two or more FSA farm numbers (FNs), if optional units are available by FSA FNs;
At least two of the sections, section equivalents, FSA FNs must each have planted acreage that constitutes at least the lesser of 20 acres or 20% of the insured crop acreage in the enterprise unit. If there is planted acreage in more than two sections, section equivalents, FSA FNs or units established by written agreement, these can be aggregated to form at least two parcels to meet this requirement.
Enterprise Unit by Practice
Enterprise by Practice
Enterprise units by practice provide for separate coverage by irrigated and
non-irrigated practices. Acreage for each practice will need to meet all the
requirements for enterprise units listed above.
2018 Changes
Optional Unit
Optional units are divisions by sections or section equivalents, by irrigated &
non-irrigated practices.
Typically more expensive than Enterprise Units, but likelihood of collecting if
damage occurs is higher as each unit stands alone.
Basic Unit
A basic unit is all acreage of the crop in the county of which the insured
has 100% ownership or shares with the same person.
Options
Coverage Level by Practice (LP)
Enterprise by Practice (EP)
Trend Adjustment (TA)
Yield Adjustment (YA)
Yield Exclusion (YE)
Yield Cup (YC)
Prevent Plant Plus 5% (PF)
V6 Corn – 6/15/2017 Hail Damage – Clay County, Nebraska
(Photo by Jennifer Reese, Nebraska Extension cropwatch.unl.edu)
Knee High Crop prior to Hail
6/4/2014 – Saline County, Nebraska (ketv.com)
6/3/2014 – Dodge County, Nebraska
(Photo by Nathan Mueller, Nebraska Extension cropwatch.unl.edu)
www.aganytime.com
Hail Risk and Managing that Risk (Video)
Production Plan Hail
Coverage Level in Conjunction with Multi-Peril Policy
Covers the top portion of the crop revenue not covered by your Revenue
Protection.
Can Insure up to 120% of your yield
No deductible wind and hail
Some can now quote you Production Plan Enterprise Units
Less cost than Companion – Rates are Cheaper but tend to have more
coverage per acre
WATCH YOUR PREMIUMS
Production Plan Example
220 APH (with Trend) * 120% = 264
Bushels
Protection under RP Multi-Peril:
220 * 70% = 154 Bushels * $3.95 = $608
Total PP + RP Coverage: 264 * $3.95 =
$1,043
$1,043 - $608 = $435 Limit of Insurance
Production Plan
Example
Adjusts at wind/hail loss 30%
264 * 30% = 79 Bushel loss * $3.95 = $312
Take to harvest
Harvest 200 Bushels/Acre
264 Bu - 200 Bu = 64 Bushel Production loss * $3.95 (Spring Price)= $253
Amount Payable would be the production deficiency. Take the lesser of the two. Not to exceed limit of insurance.
Companion Hail Designed to cover, on an acre basis, the portion of the
crop not insured under an MPCI policy identified as the
difference between the potential yield and the yield
guaranteed by the MPCI coverage.
This plan provides the grower protection against any
percentage of loss caused by hail and/or fire.
Losses can be paid immediately after the adjustment has
been maid.
Who shoulders the risk?
Share the Risk
Farm Bill Ahead
Farmers
• Pay Premium
• Deductibles
Crop Ins. Providers
• Pay Indemnities on own for most claims
• Typically incur Underwriting Losses
Federal Government
• Reinsurance Carrier
• If incur Underwriting Losses, they also can receive gains in good years
Deadlines. Deadlines. Deadlines.
Many crop insurance procedures are focused upon DEADLINES
Hail Policies do not have the March 15/October 1 deadlines or sales, however
they do need to be in place before the weather event occurs. Typically 3+
hours.
Sales Closing (MPCI)
March 15 - Spring Seeded Crops
October 2 – Fall Seeded Crops (ie wheat)
November 15 - PRF
When you can change a policy, cancel a policy, transfer coverage from one agent to
another, write a new policy
Deadlines Cont.
Acreage Reporting
July 16 – Spring Seeded Crops
November 15 – Fall Seeded Crops (ie wheat)
November 15 – Pasture Range Forage PRF
Record Acreage data for planted acres for valid coverage
Production Reporting
April 30 – Spring Seeded Crops (for previous crop year bushels)
November 14 – Fall Seeded Crops (ie wheat)
Record bushels for APH purposes or for claim purposes
QuotingRevenue Protection - Combination of Yield
and Price Loss – Scenario 1
Low Harvest Prices, Low Yield
Harvest Price $3.00 * Yield 160 = Farm
Revenue $480
$675 - 480 = $195 Indemnity
Yield Protection - Using Scenario 1
171 - 160 = 11 Bushel loss
11 * $3.95 = $43 Indemnity
QuotingRevenue Protection – Scenario 2
Low Prices, Average Yield (Revenue
Loss)
Harvest Price 3.00 * Yield 201 (APH) =
$603
$675 - $603 = $72 Indemnity
Acreage Reporting How it works?
What to look for when reporting acres?
Be sure to carefully review information
Cross reference Planting Data
If you provide information to FSA first, ensure it matches actual planting data
Will be billed based upon what is submitted
Make sure all persons sharing is accurate
Problems with Acreage Reports
Cannot go back & change easily
Ties into Crop-Hail policy
When reporting production, farmer wants to change acreage
Summary of Coverage
Review, Review, Review
Guarantee How is it figured? Prices and Yield?
If finding error on SOC later in season would have to be inspected, verify
with FSA mapping, increasing liability, late reporting and could be uninsurable
ifloss
Production Reporting
April 30th for previous crop years bushels
Why does a high/low aph matter?
Report IRR and NONIRR separate if you have separate units
Problems
Production Reporting
2. The Yield line will show an “I” next to the year when the yield was imposed (and actual production was not subsequently submitted).
3. Be sure to report production figures on all yield lines with acres! If there is a loss on a policy the insured must report production on all non-loss units by PRD.
Claims/Losses? Notify your agent immediately
No cost to have an adjuster look at your crops if you think you have
damage
If you are not sure you have a revenue loss - submit the claim, get
load summary sheets from harvest available, adjust any necessary
bins
Difficult to know if you have an enterprise unit (Practice) loss.
Can miss a claim if you determine a loss and report production
after the claim filing deadline. This happens shortly after
harvest.
If thinking a claim is present prior to replanting or harvesting, be sure
to contact your agent/adjuster. Be sure to leave:
4 rows wide by the length of the field for the first 20 acres
10-foot strip for every 40 acres after that
Is Replanting feasible? Turn in a claim as soon as damage has ocurred.
Determine replant date relative to final planting
dates and late planting period.
Practical to Replant
Is it physically possible to replant acreage
Is seed germination, emergence & formation
of healthy plant likely
It would be practical to replant through the
10th day after the Final Planting Period if the
crop has a LPP of 10 days or more
Is Replanting feasible? cont.
Initial Planting Dates:
Corn April 10th
Soybeans April 25th
Final Planting Dates:
Corn May 25th
Late Planting Period 20 Days after Final Planting Date
Soybeans June 10th
Late Planting Period 25 Days after Final Planting Period
Corn replant payment 8 Bushels * Projected Price 3.95 = $31.60 per
acre
Soybean replant payment 3 Bushels * Projected Price $10.12 =$30.36
per acre
Additional Replant payments with Companion Plan but not Production
Plan
Important that you get approval from the adjuster before you replant
the crops. Could get denied a claim if a farmer replants and doesn't
get approval
Risk Tolerance
Find out your risk tolerance to find what type of
coverage you want
Utilize a “Crop Insurance Analyzer” at NFB Crop
Insurance with Farm Analysis Information through
NFBI
2018 Changes to crop insurance
Unit Structure Update
Insured may select an enterprise unit for either Irrigated or non-irrigated practice and choose a different unit structure on the other practice. The insured must meet all the qualifications for the elected unit structure. Example: A producer may have enterprise unit on irrigated ground and optional unit on non-irrigated ground.
Chemical Damage & Crop Insurance
Chemical damage/drift is considered an Unavoidable Uninsurable Cause of Loss. There is no indemnity paid for losses. In 2018 if you receive damage due to chemical or chemical drift the production and acres affected will not be included in the APH database but premium will be assessed. Allows a farmer's APH to not be affected/lowered by the damage. Submit your claim immediately and production from affected area cannot be commingled.
Yield Cup (YC) Option
New to have the option on your policy. It guarantees all insureds will have the maximum APH available for the 2018 Crop Year. Automatically added to NFB Crop Insurance policies
Common Problems
(from the Insurance company perspective)
Ensure interest % are correct when reporting acres
IRR & NON IRR acres correct
Ensure SBI information is correct
POA and Tenant is accurate
Have AD-1026 on file with FSA
Many times “hands are tied” as it is Federally Regulated by RMA
Can only cancel by Sales Closing Date
If Landlord dies, notify agent/company
If losses paid to landlord, Fed government could void any losses and premium
subsidy Have to pay back as Landlord was not alive
Thank You!
Contact me for a FREE Policy Review!
Brad Heinrichs, NFB Crop Insurance
402-984-6474