Crop Insurance 101 & Beyond

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1 Crop Insurance 101 & Beyond Risk Management Basics & Strategies for your Operation Brad Heinrichs, Crop Insurance Specialist & Agent NFB Crop Insurance Inc

2 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.

3 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

4 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.

5 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?

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13 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)

14 WHAT DO YOU WANT TO KNOW?? Write your question! We ll Answer!!

15 BASICS of PROGRAM Farmers Insurance 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)

16 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

17 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

18 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

19 FCIC Premium Subsidy Percentages Coverage Level 50/55 CAT 50% 55% 60% 65% 70% 75% 80% 85% Basic Unit 100% 67% Optional Unit Enterprise Units Admin Fee NA NA $300 $30 $30 $30 $30 $30 $30 $30 $30

20 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

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22 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.

23 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

24 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.

25 Unit Structure Enterprise Units Optional Units Basic Units How does it affect my losses? Cost differences? Most Popular? Risk Tolerance?

26 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

27 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 Changes

28 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.

29 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.

30 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)

31 V6 Corn 6/15/2017 Hail Damage Clay County, Nebraska (Photo by Jennifer Reese, Nebraska Extension cropwatch.unl.edu) 6/3/2014 Dodge County, Nebraska (Photo by Nathan Mueller, Nebraska Extension cropwatch.unl.edu) Hail Risk and Managing that Risk (Video) Knee High Crop prior to Hail 6/4/2014 Saline County, Nebraska (ketv.com)

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33 HAIL Crop Insurance Risk Management and Hail

34 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

35 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

36 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 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.

37 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.

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39 Who shoulders the risk? 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 Share the Risk Farm Bill Ahead

40 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

41 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

42 Sales Closing Application Process What does this information mean?

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44 Quoting Revenue Protection - Combination of Yield and Price Loss Scenario 1 Low Harvest Prices, Low Yield Harvest Price $3.00 * Yield 160 = Farm Revenue $480 $ = $195 Indemnity Yield Protection - Using Scenario = 11 Bushel loss 11 * $3.95 = $43 Indemnity

45 Quoting Revenue Protection Scenario 2 Low Prices, Average Yield (Revenue Loss) Harvest Price 3.00 * Yield 201 (APH) = $603 $675 - $603 = $72 Indemnity

46 Quoting RPHPE - Does not re figure guarantee Using Scenario 3 $675 - $675 = $0 No indemnity

47 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

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49 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

50 Summary of Coverage

51 Production Reporting April 30 th for previous crop years bushels Why does a high/low aph matter? Report IRR and NONIRR separate if you have separate units Problems

52 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.

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54 What happens when the storm comes?

55 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

56 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

57 Is Replanting feasible? cont. Initial Planting Dates: Corn April 10 th 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

58 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

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60 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

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66 Data Courtesy of Nebraska Farm Business Inc

67 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

68 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

69 WHAT DO YOU WANT TO KNOW?? Write your question! We ll Answer!!

70 Thank You! Contact me for a FREE Policy Review! Brad Heinrichs, NFB Crop Insurance brad@nfbi.net