Multi-Peril Products: Group Risk Income Plan (GRIP) Insurance

GRIP became available to Illinois farmers in 1999. GRIP is revenue insurance paying indemnities when county revenue is below a revenue guarantee.

Revenue guarantee under GRIP

GRIP's revenue guarantee equals 1) the expected county yield times 2) an expected price times 3) a farmer-chosen coverage level. Each factor determining the revenue guarantee is described below:

1. Expected county yield. The expected county yield is determined for each crop insured in a county. The expected county yield is based on a history of county yields.

2. Expected price. The expected price is based on a Chicago Board of Trade (CBOT) futures contract. The December CBOT contract is used for corn and the November contract is used for soybeans. The settlement prices of these contracts are averaged for the last five business days during February. In 1999, the expected price is $2.44 for corn and $4.95 for soybeans.

   Figure 1. Expected Prices for GRIP
   Corn	The average of December's futures contract price during the last five business days of February.
   Soybeans	The average of November's futures contract price during the last five business days of February.

3. Coverage level. The farmer chooses the coverage level in a range of between 70 and 90 of expected revenue.

In 1999, corn in Champaign County, Illinois has a 141 bu. expected yield and an expected price of $2.44. A $310 revenue guarantee occurs when a 90 percent coverage level is chosen (see Figure 2).

County revenue under GRIP

County revenue is used to calculate indemnity payments. County revenue equals actual county yield times a harvest price. The county yield is calculated be the U.S. Department of Agriculture, National Agricultural Statistics Service (NASS). NASS releases county yields by March in the year after the crop is harvested.

The harvest price is based on Chicago Board of Trade (CBOT) futures contracts. For corn, the harvest price equals the average of settlement prices of the December corn contract during the month of November. For soybeans, the harvest price equals the average of settlement prices of the CBOT November soybean contract during the month of October.

For a county yield of 100 bu. and a harvest price of $2.00, county revenue is $200 per acre (100 bu. x $2.00).

Indemnity payments under GRIP

GRIP makes payments when county revenue is below the revenue guarantee. The indemnity payment equals the percent revenue shortfall times a protection level. The farmer must chose the protection level from a range.

For the Champaign county example having a $310 revenue guarantee (see Figure 18), a 120 bu. county yield and a $1.80 price gives county revenue of $216 per acre, resulting in a revenue shortfall of 30.3 percent (($310 revenue guarantee - $216 county revenue)/$310 revenue guarantee). If a $310 protection level is chosen, the indemnity payment equals $94 per acre ($310 protection level x 30.3 percent revenue shortfall).

Choices under GRIP

Farmers have two choices under GRIP:

1. Coverage level, and
2. Protection level.

Coverage level:  Higher coverage levels increase the revenue guarantee. In the Champaign County example (see Figure 2), an 85 percent coverage level has a $292 per acre revenue guarantee (141 expected county yield x $2.44 projected price x 85 percent coverage level). A 90 percent election has a $310 per acre guarantee.

Higher yield elections also have higher indemnity payments when county revenue is below the revenue guarantee. In the Champaign county example, a $58 per acre indemnity is paid when county revenue is $250 under an 85 percent yield election. For a 90 percent election, the indemnity payment is $77, an increase of $19 per acre from the 85 percent election (see Figure 4).

Protection level:  A higher protection level has a higher indemnity payment. Differences in indemnity payments, given a 90 percent coverage level, are shown in Figure 5. At a $250 county revenue, a $73 indemnity payment results from a $380 protection level. A $400 protection level has a $77 indemnity payment, a $4 increase over the $380 protection level.

GRIP premiums

Per acre premiums depend on the county of the insured crop, and the coverage and protection levels chosen by the farmer. Higher coverage and protection levels result in higher premiums.

Other information

Iowa State University Extension, Group Risk Plan and Group Risk Income Plan, January 1999, http://www.exnet.iastate.edu/Publications/FM1850.pdf

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Updated: February 2002