Federal Crop Insurance ~
(Continued from Page D 32)
them, because the coverage
provided was too low.
In an attempt to answer these
criticisms, the Federal Crop In
surance Corporation developed
Individual Yield Coverage (IYC)
and Grower Yield Certification
(GYC). For selected crops, a
grower may use IYC provisions to
substitute his or her particular
farm’s yield base for the FCIC
area yield.
A farmer opting to use IYC must
produce verificable records to
ASCS for yields realized over at
least the first three years of a 10-
year base period for which the crop
has been planted. ASCS uses an
indexing procedure to calculate
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individual farm yields for those
years the grower is unable to
submit verifiable records.
The indexing procedure used by
ASCS for FCIC is based on planted
acreage yields versus the typically
reported ASCS yields from har
vested acreage. If a farmer’s IYC
yield exceeds the area yield,
he/she will be eligible for greater
yield coverage without additional
premium cost, which reduces the
effective premium rate. Crops
eligible for IYC during the 1984-45
crop year are barley, dry beans,
flax, oats, rye sunflowers,
soybeans, and wheat.
Both the IYC and GYC
programs, however, focused on
improving the insurable yield from
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the farmer’s viewpoint, but many
still complained that the
premiums, while certainly not
higher, could not be lower because
the premiums were also based on
the historical performance of all
farmers in a given area.
That is, the premiums were not
based on the likelihood of crop
failure by the individual producer.
To rectify this, the FCIC developed
the Actual Production History
program, or APH.
In 1983, FCIC decided to replace
area coverage with the Actual
Production History of each
producer for purposes of deter
mining future yield guarantees.
This substitution is to be gradually
phased in, but will be completed in
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the near future.
Crops in APH during the 1984-85
crop year are cotton, nee, corn,
gram sorghum, tobacco, and
peanuts. Farmers who are in
terested in APH, however, should
leam the details of the program
and start their recordkeeping now
if they haven’t done so already.
All crops, including forages are
to be covered starting in 1987. As is
the case with IYC, the APH
program is designed to offer yield
guarantees that reflect the actual
production history of each
producer.
However, the APH program
differs from IYC in two fun
damental ways. First, premium
rates for APH will not necessarily
be the same as area rates. APH
premium rates will be based on the
APH yield, not the area yield, and
whether the farmer is in a high or
low risk area. Second, area yield
coverage will no longer be
available when APH is fully im
plemented.
Current insurance policy
provisions, written under APH,
require the farmer to provide
ASCS with verifiable records of
acreage and production evidence
for the most recent crop year on an
annual basis. The best time to
verify records is immediately
following harvest when receipts
are available and stored com
modities can be accurately
measured.
It is important to remember that
the records must be verified. Farm
Management account books will
not be acceptable unless proof of
final disposition of the crop is
provided by the grower.
How is the value
of the crop determined?
In addition to selecting coverage
levels for a crop, the grower must
also select a commodity price
level, or price election. Three
levels are available: low, medium,
and high. By law, the lugh price
level is at least 90 percent of the
anticipated market price. The
price selected by the grower is
used to compute insurance
coverage and the amount of the
indemnity if a production loss
occurs.
flow Do I Get
Started in APH?
Yield guarantees will be based
on the grower’s individual records
when the grower has three or more
years of verifiable records. If the
farmer has ten years of records,
the guarantee is based exclusively
on his ten-year average yield.
If records are available for only
three or more years, yields for the
missing years will be indexed
using a relationship between the
yields for which the grower has
records and the Statistical
Reporting Service adjusted county
average yield for those missing
years.
Furthermore, when the grower
is able to provide three or more
years of actual yields, the high and
low yields (may be actual or in-
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dexed yields) m the ten-year senes
will not be included in calculating
the grower’s average yield.
Farmers with less than three
years of verifiable records may
still participate in APH. If no
records are available, the farmer
will have his guarantee based
transitional yields. The tran
sitional yield can be obtained from
either the insurance agent or the
local ASCS office. Of course, where
the farmer has one to two years of
verifiable records, yields from
these records will be used, tran
sitional yields will only apply for
the missing year (s).
Consequently, every farmer,
regardless of whether or not
he/she has records or has
previously dealt with ASCS, can
obtain crop insurance under the
APH program.
Historically, crop insurance
premium rates were based only on
actuarial data for the area in
which the grower was fanning.
Such data included historical
yields, soil type, and the historical
incident of events causing in
surable losses.
The premiums also varies with
the yield guarantee level and the
price election selected by the
grower. Under the new APH
program, this information will also
influence the premium rates, but
the grower has more influence in
the determination of coverages
and premiums by keeping
production records and providing
them to the FCIC.
The grower has the option to buy
multiple peril insurance with or
without fire and hail coverage. If
fire and hail insurance is not
desired, premium costs are
reduced. Growers opting not to
purchase multiple peril hail and
fire coverage must, however,
provide proof that an equivalent
level of fire and hail coverage is
being purchased from a private
insurance company.
Premiums are due at harvest
and if not paid within 30 days of
billing, interest at IM>% per month
must be paid. Premium payments
are a tax deductible expense. Also,
insurance indemnities are taxable
income.
To encourage broader par
ticipation, congress has authorized
a 30% subsidy for premiums at the
50% and 65% yield levels. If a
farmer chooses 75% yield coverage,
he must pay the full additional
premium cost over the 65% level.
Thus, the dollar amount of the
subsidy is the same at the 65% and
75% levels, but the relative subsidy
drops a little under 20% at the 75%
yield guarantee.
Premiums paid by farmers are
not used to cover operating ex
penses or agent commissions.
Those expenses are covered by
congressional appropriations.
(Turn to Page D 34)
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What Does Multiple
Peril Crop
Insurance Cost?