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Illinois
AgriNews - February 2004
 
New Prices and Products for Crop Insurance
Gary Schnitkey
Department of Agricultural and Consumer Economics
University of Illinois at Urbana-Champaign
Premiums on many crop insurance products
will be higher in 2004 than in 2003.
In addition, Group Risk Income Plan – Harvest Revenue
option (GRIP-HR) is available
for the first time in 2004. An updated is provided below.
Higher Premium
The Risk Management Agency (RMA) is the Federal agency
that determines rates
for crop insurance. RMA periodically changes rates so
that premiums for crop insurance
products reflect the history of previous payouts from
those products. The 2004 changes
result in higher premium on many products.
Higher indemnity prices in 2004 also will cause premium
increases. For example,
the price for setting payments on Actual Production
History (APH) policies on soybeans
is $5.60 in 2004, a $.30 increase over the $5.30 price
used in 2003. Base prices on
revenue products also will be higher in 2004. The 2003
base prices were $2.42 for corn
and $5.26 for soybeans. Given current Chicago Board
of Trade futures prices, base
prices for 2004 will be in the $2.75 range for corn
and $6.40 range for soybeans.
For revenue products, the underlying price volatilities
also influences insurance
premium. In 2004, these volatility estimates will likely
be higher than the 2003 estimate,
leading to higher insurance premium.
Overall, these factors will cause increases on many
insurance products. Across
Illinois, University of Illinois estimates indicate
that APH premiums in 2004 will be
between 5 and 10 percent higher than in 2003. Premium
increases on revenue products,
such as Crop Revenue Coverage (CRC) and Revenue Assurance
(RA), will be higher. At
80 and 85 percent coverage levels, CRC increases are
between 12 and 20 percent on corn
products. For soybean products, the increases could
be over 50%.
In previous year, many farmers have shifted away from
CRC to RA with the
harvest price option (RA-HP). Both products are similar
and RA-HP had lower
premiums than CRC in 2002 and 2003. Rate changes may
cause CRC to have lower
premiums than RA-HP in 2004. Farmers should again compare
the costs of these two
products.
GRIP-HR
GRIP is an insurance product that makes payments when
county revenue is below
a county revenue guarantee. Farm yields do not influence
whether or not a farmer gets a
payment when this product is purchased. Moreover GRIP
does not have replant or
prevented planting provisions.
In 2004, GRIP introduced a harvest revenue option that
is conceptually similar to
farm-level revenue products with guarantee increases
(i.e., CRC and RA-HP). Prior to
2004, GRIP did not have a guarantee increase provision.
Farmers who have been purchasing
group products should consider purchasing
GRIP-HR. Over time, GRIP-HR returns significantly more
in payments than will be paid
in as premium. In addition, GRIP-HR reduces risks more
than the other group products.
Summary
More detailed information on crop insurance issues is
provided in the crop insurance section of farmdoc
(www.farmdoc.uiuc.edu).
An insurance evaluator compares the returns and risk
reductions associated with alternative insurance products.
A premium calculator shows costs of alternative products.
Extensive information exist describing GRIP-HR and other
group products.
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