THE SUPPLEMENTAL COVERAGE OPTION (SCO)

Transcription

1 THE SUPPLEMENTAL COVERAGE OPTION (SCO) This presentation highlights features of Risk Management Agency Programs and is not intended to be comprehensive. The information presented neither modifies or replaces terms and conditions of the basic policy, the crop provisions, or the county actuarial documents. Consult a crop insurance agent for further details

2 OVERVIEW 2

3 3 What is SCO? Area-based coverage for a portion of your insurance deductible Coverage was first available in 2015 for select grain crops. In 2016, coverage was expanded to additional areas and crops, including peaches in Illinois. Available with the following plans of insurance Actual Production History (APH) Yield Protection (YP) Revenue Protection (RP) Revenue Protection with the Harvest Price Exclusion (RP-HPE) 65% premium subsidy Regardless of coverage level of the underlying policy

4 4 Overview of SCO Must be purchased with an underlying individual crop policy Coverage depends on the liability, coverage level, and approved yield of underlying policy For peaches, underlying policy is yield-based (APH), so SCO provides yield coverage Liability is based on your expected crop value Pays when the area has a loss of more than 14% Similar to Area Risk Protection Insurance (ARPI) Indemnity payments based on whether the yield or revenue for the area falls below its expected level Payment begins: Final Area Yield (Revenue) < 86% of Expected Area Yield (Revenue) Max payout: Final Area Yield (Revenue) <= Coverage Level % of Expected Area Yield (Revenue)

5 5 Example: Grower purchases an individual revenue policy, 75% coverage Percent of Expected Grower Revenue 100% 95% 90% 86% 80% 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% SCO Coverage Individual Loss Individual Revenue Policy (75% coverage) Area-Based Loss SCO Revenue (86% to 75%)

6 AVAILABILITY AND COST 6

7 7 SCO Availability in Illinois - Crop Year 2016 Apples: Not available in any IL counties Peaches: Calhoun Jackson St. Clair Union

8 8 Cost Separate Premium and Administrative Fees ($30) for SCO by crop/county Premium rates for SCO peaches in Illinois for 2016: Underlying Policy Coverage Level SCO Premium Rate 50% 22.17% 55% 24.06% 60% 26.08% 65% 28.18% 70% 30.43% 75% 32.64% Assume 250 bu/acre approved yield, established price of $23.50, 75% yield coverage on underlying policy Amount of SCO Coverage: $648 per acre Grower SCO premium: $74 per acre

9 CONSIDERATIONS 9

10 10 SCO Considerations Applications for SCO must be completed by sales closing date Underlying policy and SCO coverage is continuous SCO will provide coverage based on the changes to the coverage level or plan of insurance of the underlying policy Example: If you change coverage levels on your policy from 75 percent to 70 percent. SCO coverage range will change from 11 percent to 16 percent. SCO covers planted acreage of the crop covered by the underlying policy Acreage report will establish the amount of coverage and premium for the underlying policy and SCO

11 11 SCO Considerations Factors to consider Area coverage how closely does your yield move with area average yield ( basis risk )? If they do not move together, greater chance of not getting paid when there is a loss, vice-versa Production area includes all 4 Illinois peach counties How much risk can you tolerate? If you cannot tolerate significant losses, then a higher coverage level for the underlying policy (less SCO coverage) should be considered

12 12 SCO Indemnity Claim Will be determined later than the claim process for the underlying policy SCO indemnities are calculated following FCIC s release of the final area yields and revenues For most crops this will be in the spring of the subsequent year Loss will be paid within 30 days after FCIC releases the final county yields and revenues

13 EXAMPLES 13

14 14 Example Scenario Underlying Policy Insurance Plan - APH Coverage Level - 70% Acres - 10 APH Share - 100% Established Price - $23.50 Underlying Liability = $36,190 Supplemental Protection County Loss Trigger - 86% Supplemental Coverage Range = 16% Expected Crop Value = $51,700 Supplemental Protection = $8,272 SCO Premium SCO Premium Rate Producer Premium Rate SCO Premium = $2,517 Subsidy Amount = $1,636 Producer Premium = $881 SCO Indemnity Expected Area Yield Final Area Yield County Performance 74.51% Payment Factor = Indemnity = $5,939 Total Liability = $44,462

15 15 SCO Calculations Supplemental Protection Expected Crop Value is the liability of the underlying unit divided by Coverage Level of the underlying policy Coverage Range of SCO is the County Loss Trigger minus the Coverage Level of the underlying policy The Supplemental Protection for a unit is the Expected Crop Value multiplied by the Coverage Range Underlying Liability = $36,190 (220 x 70% x $23.50 x 10 x 100%) Expected Crop Value = $51,700 ($36,190 70%) Coverage Range = 16% (86% - 70%) Supplemental Protection = $8,272 ($51,700 x 16%)

16 16 SCO Calculations Premium SCO Premium Rate is separate from the underlying policy (and usually much higher) SCO Premium Rate Subsidy Factor 65% Subsidy Factor for SCO is 65% SCO Premium is Premium Rate multiplied by the Supplemental Protection SCO Premium = $2,517 ($8,272 x ) Subsidy Amount = $1,636 ($2,517 x 65%) Producer owes about 35% of the Total Premium Producer Premium = $881 ($2,517 - $1,636)

17 17 SCO Calculations Indemnity (APH) SCO indemnities are driven by area performance Producer s individual experience is not considered Payment Factor is based on county performance and Coverage Range Measures how far into the Coverage Range the area performance fell Limited to Indemnity is Supplemental Protection times the Payment Factor Expected Area Yield Final Area Yield Area performance 74.51% ( ) Payment Factor = (86% %) 16% Indemnity = $5,939 ($8,272 x 0.718)

18 18 SCO Cost and Comparison (APH) SCO provides coverage up to 86%, instead of maximum 75% coverage that is available with APH plan. APH Coverage % APH Coverage $ SCO Coverage % SCO Coverage $ Total Coverage Producer APH Premium APH Premium Subsidy Producer SCO Premium SCO Premium Subsidy Total Producer Premium 75% $ 3,878 11% $ 569 $ 4,447 $ % $ 65 65% $ % $ 3,361 21% $ 1,086 $ 4,447 $ % $ % $ % $ 2,844 31% $ 1,603 $ 4,447 $ % $ % $ 315 This example uses Peach data for Calhoun County, Illinois. All values stated above are per acre. Producer APH Yield 220 Expected Area Yield (SCO) Established Price $23.50 Estimate Only DISCLAIMER - A producer s yield history and insurance options will affect coverage and premium cost. Consult your crop insurance agent for more information.

19 APH YIELD EXCLUSION (YE) This presentation highlights features of Risk Management Agency Programs and is not intended to be comprehensive. The information presented neither modifies or replaces terms and conditions of the basic policy, the crop provisions, or the county actuarial documents. Consult a crop insurance agent for further details

20 OVERVIEW 20

21 21 What is YE? Allows an actual yield to be excluded from approved yield calculations for the APH database Actual yields for a crop year are eligible when: RMA determines the county yield for that year was less than 50% of the county average from the previous 10 years and the crop year is identified in the actuarial documents Once elected, ALL eligible yields will be excluded UNLESS the insured identifies specific year(s) they do not wish to exclude Excluding lower yielding eligible crop years may increase the producer s approved APH yield This may result in increased insurance guarantees, indemnity payments, and premiums Only APH databases which use the YE option will have premium adjusted

22 22 APH YE Election Must be elected by the sales closing date by crop/county on an application or policy change form Election is continuous until cancelled Must be cancelled in writing on or before the cancellation date If cancelled, yield limitation (cup) will not apply the year YE is cancelled for any APH database that previously had a year excluded under YE

23 23 APH Database If yield exclusions result in less than 4 years in the APH database: The applicable T-Yield is used to complete the minimum 4-year database; and Any variable T-Yield percentage uses the number of actual/assigned yields for the crop/county before applying APH YE. Excluded yield years continue to count as a year of producing the crop for variable T-Yield, percent of yield floor, New Producer, and Beginning Farmer and Rancher purposes.

24 24 Interaction with Yield Adjustment A producer may elect and apply both YA and YE options on a policy and within an APH database. Only one option, either YE or YA, can be applied to an actual yield for an eligible crop year within an APH database.

25 AVAILABILITY 25

26 26 YE Availability When a crop year is determined to be eligible for YE for a crop in a county, insureds in contiguous counties, as determined by RMA, will also be eligible to exclude actual yields for that crop under YE Option was first available for 2015 for select grain crops. In 2016, was expanded to additional areas and crops, including Illinois apples and peaches. Only available when provided in actuarial documents for the crop and county Cannot be made available using a written agreement Not applicable for written agreements for a county without actuarial documents for the crop (XC type)

27 27 YE Availability in Illinois Crop Year 2016 Apples Calhoun 2006(P), 2007(P), 2011(P) Jackson 2007(P) Jersey 2006(C), 2007(C), 2011(C) St Clair no eligible years Union 2007(C) Peaches Calhoun 2005(P), 2007(P), 2014(P) Jackson 2007(P) St Clair no eligible years Union 2007(C) P = Primary County C = Contiguous County

28 EXAMPLES 28

29 29 Example YE Option Only A producer has an APH database for apples that contains yields from 2011 to 2015 and has elected the YE option The actuarial documents show that three crop years are excludable for apples in this producer s county 2006, 2007, and 2011

30 30 Example YE Option Only Year Eligible for Exclusion APH APH with Eligible Yields Excluded 2011 Yes by Primary County No No No No Approved APH Yield Average Yield: ( ) / 5 = 422 bu Approved Yield: ( ) / 4 = 475 bu The producer s approved APH yield increases from 422 bu with no options to 475 bu with the use of the YE option.

31 RESOURCES

32 32 Availability Maps Visit to view maps for SCO and YE availability.

33 33 Additional Information To determine how these options will affect you, contact a crop insurance agent. See RMA s website for: Policy and handbook Crop Insurance Decision Tool (Only includes data for grain crops) Quick way to understand how SCO coverage, cost, and payments work Cost estimator Fact sheets To access specific details on availability, rates and coverages for your crop and county, use the web link below.