Crop Insurance Explained

Crop Insurance

Crop Insurance

One form of insurance that is an excellent idea for primary producers is crop insurance. Crop insurance allows agricultural producers to insure their plantation against all kinds of natural disasters including floods, hail, drought as well as a sudden decline in agricultural commodities prices on the market. So if the price of wheat suddenly plummets due to a bumper crop in other parts of the world, the farmer is insured for the losses they may have.

Crop insurance is divided into a couple of broad categories: Crop Yield Insurance and Crop Revenue Insurance.

Crop Yield Insurance

There are two main categories of crop yield insurance, Crop hail insurance and Multi-peril crop insurance.

Crop Hail Insurance is available from private insurers and is considered a very specialised insurance because hail damage only occurs in certain areas. The payouts from insurance companies for this kind of insurance are somewhat limited due to the event usually being limited in scope. This kind of insurance was first established in the early 19th century with farmers in France and Germany buying it for their crops. Hail tends to damage certain crops more so than others, and many vineyards found this kind of insurance a necessity because hail damage is particularly bad on grape vines.

Multi-peril crop insurance (MPCI) covers a wider variety of risks to crops including hail, drought and excessive rain that can destroy crops. In some of these insurance packages, specific kinds of diseases and insect infestations can also be included, so if your crop was attacked by locusts you would be covered. Because this kind of damage can affect a much larger number of crops (a drought can affect an entire country) it is difficult for private insurers to carry the risk, so governments step in to provide this insurance. The government can also help cover the cost for this kind of insurance as well.

In the United States, the Department of Agriculture implemented a Multi Peril Crop Insurance program in 1938 and The Risk Management Agency is currently responsible for assessing the probability of crops failing due to one of the covered perils.

Crop Revenue Insurance

Crop revenue is calculated by the simple equation, Crop yield multiplied by Crop price. So if either the crop yield or crop price plummets, the crop revenue will suffer. Crop revenue insurance looks at the farmer’s crop revenue and if it deviates significantly from the mean, it will cover the losses.

The insurer looks at the futures market to determine the price that the crop should sell for and can offer farmers insurance at that rate. If the commodity market collapses for whatever reason and the price of the commodity falls, the farmer can recoup losses. The insurer uses the farmers average production level to determine the approximate expected crop yield.

The insurance only covers losses while the farmers crop is going, from unexpected declines in crop revenue. However it does not cover losses between seasons, because the price of produce fluctuates due to a number of reasons and the futures market can be unreliable.

Federal Crop Insurance

The United States has a federally subsidized insurance program which is organized by the Risk Management Agency (RMA). The program covers more than 100 kinds of crops, however some crops are not eligible for various reasons. Private insurance companies can sell this kind of insurance and receive a part of the premium for their role in the service provision.

Attempt to Block Flood Insurance Premium Rise

Flood Insurance Program Changes Blocked

Flood Insurance Program Changes Blocked

In Washington DC, Republican Bill Cassidy is attempting to block the upcoming increases in flood insurance premiums by blocking money which was going to the Federal Emergency Management Administration to implement the changes.

Cassidy is trying to block funds which which include FEMA financing. If the funds do not come through for FEMA they will be unable to make their change to the flood insurance law that allows for significant increases for insurance premiums for some properties. The properties affected are mostly ones out of compliance with flood resistance requirements.

Politicians in Louisiana are suggesting that properties that were previously marked as being compliant with previous flood prevention requirements are no longer being considered compliant by FEMA. So through no fault of the homeowners, they have been re-zoned and are now considered non-compliant and required to pay larger flood insurance premiums.

The 2012 changes to the flood insurance program were aimed at making the program more sustainable, particularly in the wake of recent large hurricanes and flood events. The changes were also aimed at making the program more accessible for property owners.

Cassidy’s attemot at blocking FEMA funding measures will considered on Wednesday on the house floor during a homeland security spending bill debate.

He is not the only one attempting to block the changes to the flood insurance program with Senator Mary Landrieu also attempting to delay the bill. Landrieu also has other legislation aimed at blocking any increases to flood insurance premiums and is backed by other politicians from the south.

Homeowners Insurance Costs Exploding

Hurricanes and Homeowners Insurance

Hurricanes and Homeowners Insurance

The cost of homeowners insurance in the United States has exploded, up by 36% between 2003 and 2010 alone, outstripping inflation according to insurance analysts. Homeowners in some parts of the country have seen even greater rises due to the catastrophic weather events in their area. Citizens in Florida have seen their insurance premiums rise by over 90% in the same period, Rhode Island have seen a 62% increase and Louisiana a 58% increase.

The Tampa Tribune reports that one home owner saw their premiums rise from $1000 in 1996, to over $5000 in 2013. A substantial expense for retirees, who now face the prospect of not having insurance on their house and risking everything if an extreme weather event occurs and destroys their house.

Many consumers are being forced to accept higher deductibles just to afford the insurance. Meanwhile the Insurance companies are recording record profits, leading to some angry homeowners asking for more regulation of the industry. Some insurance companies also report greater profits in the areas with extreme weather events – so they make more money from Florida than they do from Ohio. The coastal states pay about $4 billion more than inland residents because of that extreme weather event risk.

The insurance companies suggest that the increases have been necessary because of increased risks associated with climate change weather events. With even more expensive hurricanes wreaking destruction this year, many householders fear that another round of dramatic increases in premiums may be on the way.

On top of that many households are seeing increases in the cost of premiums in the National Flood Insurance Program which many coastal property owners must buy. Their homeowners policy usually covers wind damage from hurricanes only, while the flood insurance is handled separately.

For real estate agents in coastal areas, the increasing insurance costs for coastal properties are a worrying sign, particularly when the market is still recovery mode. Hurricane Sandy caused a massive $19 billion in insurance costs, and we have to see what effect that will have on insurance premiums. If there is another large hurricane this season the 2014 premiums will be even worse.

Insurance agencies actually suggest that in previous years, properties in hurricane affected areas actually had premiums that were too low. This increase is just bringing premiums up to sustainable levels for the insurance companies. However the record breaking profits of many insurance companies tells a different story according to home owners.