By Cynthia Ries ,AFIS Licensed Agent, Stockman Insurance
Not usually a dinner conversation, but definitely could be. Take a moment this evening to assess your plate of food. Steak, baked potato, green beans, slice of wheat bread, bowl of fruit? Perhaps you’re a salad eater – greens, almonds, chickpeas, cucumbers, tomatoes. If crop insurance didn’t have its place, you may be staring at an empty plate. And what about those clothes you wear? Any cotton fabric? Thank you crop insurance!
Crop insurance, across the United States, ensures the people who put those products on your table and on your back, can continue to do so year after year. Unlike many of our jobs that continue regardless of weather, crop and livestock producers hang on the words of daily weather forecasts knowing it could affect the outcome of their income for the year. Enter crop insurance – to help mitigate their risk, as well as the risk of the bankers who invest in them.
It’s not “just” crop insurance
For those of us who sell this “animal,” there are two primary types of crop insurance – crop hail insurance and multi-peril crop insurance (MPCI). For the sake of simplicity, we will look at the basics of these two types of insurance. Crop hail insurance – just like it sounds – insures against damage to crops caused by hail. MPCI covers crop loss due to all types of weather-related disasters – crop hail, drought, excessive moisture, and excessive heat – as well as plant disease, insects, wildlife, earthquake, volcanic eruption….the whole gamut!
Let’s narrow it down to Montana
Although Montana is one of the larger states, we are not considered one of the big players in the crop insurance world. As a small grains state, primarily wheat and barley (plus hay, corn, oats, canola, safflower, sugar beets, potatoes, dry peas, sunflowers, apples, cherries, bees, livestock, etc.) reports indicate there are 10.5 million acres covered by crop insurance, with farmers paying $67.7 million for crop insurance. For a comparison, look at the smaller state of Georgia that grows primarily cotton, peanuts, hay, and sweet corn. 2.7 million acres are insured and farmer premium is at $62 million. 75% less acres insured than Montana and farmers paying a premium equal to 90% of ours! Bigger cash crops worth a lot more per acres….more to lose per acre!
Because we know Montana
In Northcentral Montana, I am familiar with wheat, barley, dry pea varieties, hay, canola, oats, and flax. How do the farmers in my area decide the “right way” to insure their crops? They crunch numbers with their bankers, we look at different options available for their crops, run quotes, analyze numbers for a total crop loss vs partial loss, how much they can budget for premiums….and more. Over 90% of insurable farmland in the US is covered by MPCI… almost a given for farmers. And, because it is a federally subsidized insurance, it is “affordable” for farmers. MPCI is usually the underlying insurance for the bulk of the farmers. Crop hail insurance is then stacked on top of the MPCI for some farmers. Why?
Farmers who live in hail prone areas of our state are very familiar with crop hail insurance because odds are they will see hail damage at some point in every crop year. Crop hail insurance pays a loss from a whole different approach than MPCI. And, a farmer could suffer substantial hail damage and still not receive a payment from their MPCI policy. What??
Here’s why –again, a simplified explanation of the difference between MPCI and hail insurance:
MPCI losses are determined by the amount of crop that is REMAINING. For MPCI, your crop is insured based on crop yields that are determined by a rolling average of what YOU grow on your farm. When you have a loss, the adjuster will look at what part of your crop is still harvestable. 5 bushels? History has proven you can grow 30 bushels? You will receive a payment for a percentage of those bushels that make up the difference.
HAIL losses are determined by the amount of crop that is GONE. Hail insurance is purchased by dollars per acre. No history involved. What value do you think your crop is, or your expenses are, that you have exposed in the field and want to recover? $100/acre? $400/acre? Within the limits set by companies, you have plenty of choices on how to apply crop hail. Typically, $100/acre is where most of my customers will start and add on more coverage (something you can do with crop hail, not MPCI) as the crop matures. So, a hail storm comes through and an adjuster is sent out. The adjuster will take counts in the field and determine what percent of the crop IS GONE. It doesn’t matter if you have a 15 bushel crop or a 60 bushel crop. If 50% of the crop is gone, you will get paid 50% of the $100/acre.
Trust me, this is a simplified explanation of crop insurance! I have been a licensed agent, specializing in crop insurance, for nearly 30 years and every year, I have the opportunity to learn something new about crop insurance, particularly MPCI. Unlike crop hail insurance, which remains basically the same year-after-year, MPCI – for the most part, changes every year!
So, look at your dinner plate tonight and know that more than likely, all those food items are insured with some kind of crop insurance. They don’t come from a grocery store. They come from a field somewhere that is exposed to Mother Nature and crop insurance helps to ensure it gets to your table.