Multi-Peril Products: Group Risk Plan (GRP) Insurance

GRP is yield insurance insuring county yields. GRP pays indemnities when county yield falls below a yield guarantee.

Yield guarantee under GRP

Under GRP, the yield guarantee equals the expected county yield times a farmer-chosen yield election. Yield elections ranges from 70 to 90 percent of expected county yield.

In 2002, corn in Champaign County, Illinois has a 146.4 bu. expected yield. A yield guarantee of 131.8 bu. occurs when a 90 percent yield election is chosen (see Figure 1).

Indemnity payments under GRP

GRP pays an indemnity when actual county yield is below a yield guarantee. County yields are determined by the National Agricultural Statistical Service (NASS), a branch of the U.S. Department of Agriculture. NASS releases county yields in March of the year following harvest. For example, the 2002 actual yield for Champaign county will be released in March 2003.

The indemnity payment equals the percent yield shortfall times a protection level. Protection levels range from 60 to 100 percent of a maximum protection level. The maximum protection level is a value set for each insured crop in a county. In 2002, corn in Champaign County has a maximum protection level of $494 per acre. Protection levels range from $296 (60 percent time $494) to $494 (100 percent x $494).

Given a 131.8 bu. yield guarantee in Champaign County (see Figure 1), an indemnity payment occurs when actual county yield is below 131.8 bu. For a 120 bu. yield, the percent yield shortfall is 8.95 percent ((131.8 bu. yield guarantee - 120 bu. yield) / 131.8 bu yield guarantee). For a $494 protection level the indemnity payment is $44 ($494 protection level x 8.95 percent yield shortfall).

Choices under GRP

Farmers have two choices under GRP:

1. Yield election, and
2. Protection level.

Yield election: A higher yield election increases the yield guarantee. In the Champaign County example (see Figure 1), an 85 percent yield election has a 124.4 bu. guarantee (146.4 expected county yield x 85 percent yield election). A 90 percent election has a 131.8 bu. guarantee.

When actual yield is below the yield guarantee, higher yield elections also have higher indemnity payments. In the example, a $97 per acre indemnity is paid when actual yield is 100 bu. under an 85 percent yield election. For a 90 percent election, the indemnity payment is $119, an increase of $22 per acre from the 85 percent election (see Figure 2).

Protection level: When actual yield is below the yield guarantee, a higher protection level has higher indemnity payments than does a lower protection level election. Differences in indemnity payments given a 90 percent yield election are shown in Figure 3. At a 120 bu. actual yield, a $40 indemnity payment results from a $450 protection level. A $494 protection level gives a $44 indemnity payment, a $4 increase over the $450 protection level.

GRP premiums

Per acre premiums depend on the county of the insured crop, and the yield and protection level elections chosen by the farmer. Higher yield elections 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