| Multi-Peril Products: Actual
Production History (APH) Insurance |
|
APH is yield insurance covering yield losses from a farm or unit. APH is the
longest running crop insurance, previously known as Multiple Peril Crop Insurance.
APH makes payments when actual yield is below a yield guarantee.
Yield guarantee under APH
The yield guarantee equals the APH yield times a farmer-chosen yield election.
Yield elections range from 50 to 85 percent of the APH yield.
Corn having a 150 bu. APH yield has a 105 bu. yield guarantee when a 70 percent
yield election is chosen (see Figure 1).
| Figure
1. Per Acre APH Yield Guarantee |
| Situation: |
| Crop |
Corn |
| APH yield |
150 bu. |
| Farmer Election:
|
| Yield election |
70% |
| Yield guarantee: |
105 bu. = 150 bu. APH yield x 70%
yield election |
Indemnity payments under APH
APH pays indemnities when actual yield falls below the yield guarantee. The
payment equals the yield shortfall times the indemnity price.
The farmer chooses the indemnity price. The highest indemnity price possible
is the Federal Crop Insurance Corporation (FCIC) price. The lowest price possible
is 60 percent of the FCIC price. In 2006, the FCIC price for corn is $2.00. The
range of indemnity prices is $1.20 (60% x $2.00) and the highest is $2.00 (100%
x $2.00).
Given a 105 bu. yield guarantee (see Figure 1), indemnity payments occur when
actual yield is below 105 bu. For a 90 bu. actual yield, the yield shortfall is
15 bu. (105 bu. - 90 bu.). The indemnity payment equals $30 when a $2.00 indemnity
price is chosen ($30 = 15 bu. yield shortfall x $2.00 indemnity price).
Choices under APH
For a unit, farmers have two choices under APH:
1. Yield election, and
2. Indemnity price.
Yield election: A higher yield election increases the yield
guarantee. For a 150 bu. APH yield, a 60 percent yield election has a guarantee
of 90 bushels (150 APH yield x 60% yield election). A 70 percent yield election's
guarantee is 105 bu.
For the same actual yield below the yield guarantee, a higher yield election
has larger indemnity payment than does a lower yield election. Given a 150 bu.
APH yield and $2.00 indemnity price, a $40 per acre indemnity is paid when actual
yield is 70 bu. under a 60 percent yield election. A $70 payment results under
a 70 percent election (see Figure 2).
Figure
2. Per Acre Indemnity Payments under APH Insurance
for Different Actual Yields and Yield Elections 1
|
| Actual Yield |
60% Yield Election |
70% Yield Election |
| 70 |
$40 |
$70 |
| 80 |
20 |
50 |
| 90 |
0 |
30 |
| 100 |
0 |
10 |
| 110 |
0 |
0 |
| 1Based
on information in Figure 1and a $2.10 indemnity price. |
Indemnity price: Higher indemnity prices result in higher
indemnity payments when actual yields are below the yield guarantee. Differences
in indemnity payments, given a 70 percent yield election, are shown in Figure
3. An indemnity price of $1.90 has a $67 indemnity when actual yield is 70 bu.
A $2.00 indemnity price has a $70 payment.
Figure
3. Per Acre Indemnity Payments under APH
Insurance for Different Actual Yields and Price Elections 1
|
| Actual Yield |
$1.89 Indemnity Price |
$2.10 Indemnity Price |
| 70 |
$66 |
$74 |
| 80 |
47 |
53 |
| 90 |
28 |
32 |
| 100 |
9 |
11 |
| 110 |
0 |
0 |
| 1Based
on information in Figure 1. The yield guarantee is 105 bu. |
APH premiums
Per acre premiums will depend on the county of the insured crop, units insured,
the crop's APH yield, and the yield and price elections. Higher yield elections
and higher indemnity prices result in higher premiums.
Insurable units under APH
APH is available for 1) basic and 2) optional units. For a complete discussion
of units, see Iowa State University Extension, Actual Production History and
Insured Units, March 2003, http://www.exnet.iastate.edu/Publications/FM1860.pdf.
Supplemental coverage
Private crop insurers offer supplement coverage to the basic APH policy. Supplemental
coverage policies can: 1) increase the price coverage above 100 percent of the
FCIC expected price, 2) increase the yield coverage election above 75 percent
of the APH yield, and 3) provide price elections that vary with market conditions.
Other information
Iowa State University Extension, Multiple Peril Crop Insurance, March 2003,
http://www.exnet.iastate.edu/Publications/FM1826.pdf.
Updated: January 2006
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