Fierce thunderstorms have crossed the nation's heartland with numerous tornadoes, large hail and damaging winds. Now with the 2011 corn crop emerging from the ground, farmers who may have not purchased crop-hail as an annual ritual, are thinking "Is this the year to add crop-hail insurance?"
The answer could be a resounding "Yes" for several reasons, explains Steve Griffin, a West Des Moines, Iowa, based crop insurance consultant.
Reasons to consider buying add-on crop hail coverage this year
* "First, we have never had as much crop value vulnerable to hail damage," he points out. "The 15% to 35% deductible on federal crop insurance has never represented more cash. Net returns to a harvested crop are at their highest. With net return, twice to three times average, it could be devastating to a farm's long term future to lose a crop this year more than usual."
* Second, many farmers may have upped their overall multi-peril crop insurance or MPCI coverage, but have also taken the "enterprise" unit discount that cuts MPCI farmer paid premiums approximately 50%. Rather than limiting the deductible to cropland in a single section or basic unit (determined by ownership split), the use of enterprise units potentially exposes such tracts to the full force of a hailstorm while the rest of the unit is untouched. "Protection from spotty loss events like hail is more important with this large pool of uninsured risk (the deductible) of enterprise units," advises Griffin.
* Third, crop insurance companies are providing hail insurance at historically low rates, he says. According to filings made to state insurance departments, crop-hail rates are significantly less than their expected losses based on 60 years of experience. Current crop-hail rates would have to be twice as high as current rates to cover claims and expenses in an "average" year.
Odds of coming out ahead with hail insurance favor farmers in 2011
Griffin, a quantitative economist himself, says "The 'odds' of coming out ahead with hail insurance this year favors the farmers instead of the insurance companies and that does not even count in the possible continuing effect of this year's beginning turbulent weather."
Griffin thinks crop insurers this year are using such teaser or fire-sale rates on crop-hail coverage in order to gain more multiple peril crop insurance business. Some insurers require farmers to transfer the MPCI policies to the insurer in order for the farmer to buy the insurer's crop-hail insurance coverage.
Sort various crop-hail insurance coverage choices before you decide
There are a number of choices in crop-hail insurance coverage, particularly for those farmers interested in dove-tailing coverage with their multiple peril crop insurance, he explains. Some companions call the products by different names, but traditional "companion" hail offers spot loss, top-down coverage of 25%, 35% and 50% of the expected crop with accelerated payouts. Note the expected crop may be greater than the APH yield so the coverage is not necessarily one minus the APH coverage level (50% to 85%).
"Production Plan" crop-hail offers coverage more precisely tied to the MPCI deductible, but with MPCI units (versus per acre coverage) and less payout if the unit production exceeds the estimated hail losses. Some companies allow coverage for crops expected to produce yields greater than the unit's actual production history by 10% to 20%. Deductibles and qualifying losses also vary by insurer.
In all cases, if this is the year to add crop-hail insurance to your risk management plan, consult a knowledgeable insurance agent to determine the best option and risk management value for you. Remember most crop-hail policies require a 24-hour waiting period before coverage begins so you can not wait until the thunderhead appears on the horizon.
Editor's note: Steve Griffin is a crop insurance expert (but not an agent) who consults for crop insurers, farmers, and the USDA Risk Management Agency. He can be contacted at www.aggiexpert.com.