For corn and soybean producers in the Midwest, RP policies are the most prevalent, due to the potential for enhanced revenue protection with higher harvest price levels, as well as having a minimum revenue guarantee established by the March 1 base price levels. Some farm operators may have chose the YP or RP-HPE policies for 2012, due to the lower premium levels. However at comparable coverage levels, most YP indemnity payments will likely be 20-25% lower than the indemnity payments from comparable RP policies. In many cases, there may be no indemnity payment or very reduced indemnity payments for comparable RP-HPE insurance policies.
Even though calculations for RP policies are revenue-based, the standard RP insurance policies function similarly to a YP policy when the harvest price is higher than the base price, such as is the case for corn and soybeans in 2012. This is because the increase in harvest price increases both the final revenue guarantee and the value of the harvested bushels. So with RP policies, for yield levels below the yield guarantee, the crop insurance payment rate is $7.50/bu. for corn and $15.39/bu. for soybeans, compared to $5.68 for corn and $12.55 for soybeans with YP policies. For example, a farm unit with a 190 Bu./Acre APH corn yield (proven yield), insured by an 80% RP policy, and a final harvested yield of 130 bu./acre, would receive an estimated RP crop insurance payment of $165/acre (22 bu./acre x $7.50/bu.), before premium reductions. By comparison, that same farm unit insured by an 80% YP policy, also with a final harvested yield of 130 bu./acre, would receive an estimated YP payment of $124.96/acre (22 bu. x $5.68/bu.), before premium reductions.
Crop insurance companies are required to perform an automatic audit for any crop insurance claims of $200,000 or higher in total indemnity payments in a crop year, for a given crop in a particular county. If the total indemnity payments will exceed $500,000, the insurance company must contact the RMA for possible involvement in the audit. These audits can delay crop insurance indemnity payments, especially if producers do not have the required documentation readily available. Documentation may include settlement sheets, yield records, etc., for the past three years, which must be verified to specific farm units.
A reputable crop insurance agent is the best source of information to make estimates for potential 2012 crop insurance indemnity payments, and to find out about documentation requirements for crop insurance losses and for potential audits. It is important for producers who are facing crop losses in 2012 to understand their crop insurance coverage, and the calculations used to determine crop insurance indemnity payments. They should also be aware of the documentation that may be required in the event of a crop insurance audit, which will be required on claims of over $200,000.
Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at firstname.lastname@example.org.