Friday, March 04, 2011
GRP and GRIP Can Provide Lesser Cost Crop Insurance Alternatives
The deadline is nearing to finalize your decision about crop insurance for 2011. No one will make the decision for you, which might be a reward; and no one will take the blame for you, which might be a risk. Nevertheless, if you are still trying to make an educated decision, the final contribution to the Farmgateblog library is a look at the group insurance policies, GRP and GRIP. Both are based on county yields, not your farm yields, but have similarities to the Yield protection and Revenue protection policies and will likely be cheaper in premium costs.
Group Risk Plan (GRP) and Group Risk Income Protection (GRIP) will both feature yield protection, but GRIP will have the added feature of price protection to insure your revenue is protected. But because of the group nature of the insurance, and the fact that any indemnity payment is triggered by county average yields and not your farm yields, there are some risks in it. Iowa State University economist William Edwards takes a look at the GRP ad GRIP policies. Since the mechanics of the group plans are similar to the regular farm-based policies, many farmers may make the decision on using GRP and GRIP base on their advantages and disadvantages.
Advantages:
• No individual yield history is needed
• Damaged crops do not have to be appraised to determine the amount of payment
• There is only one policy per farm for each crop, unless county borders are crossed
• Past farm level loss experience does not affect premiums
• Higher dollar amounts of coverage are available
• Protection against price risk is the same as for individual policies.
• Payments are not made until January of the following year.
Disadvantages:
• GRP and GRIP programs protect farmers only when yields are low all over the county, not when isolated problems hit an individual’s crops.
• GRP and GRIP do not provide coverage for prevented and delayed planting or for reduced grain quality such as aflatoxin damage.
Strategy for use:
• Crop producers who can afford a large loss in one year, or whose yields track closely with county yields will benefit the most from GRP and GRIP.
• This could be the case if the insured acres are scattered throughout the county, or located near the center of the county.
Producers who cannot prove a satisfactory APH yield may also find the group policies attractive.
If the advantages, disadvantages, and strategies for use are acceptable, review the details:
For GRP, select a trigger level at which an indemnity check would be issued, if the county average yield is under that level. Of course, the higher the trigger level the higher the premium. The check is issued, regardless of how your own farm performed.
For GRIP the county revenue is the trigger for an indemnity payment, not just the county yield. A policy holder would select a percentage level, and if the county revenue was under that level an indemnity check would be issued. Those percentages range from 70% to 90%. The trigger revenue is the county yield, multiplied by the performance of the December corn contract or November soybean contract during the month of February.
Edwards says USDA sets a maximum protection level annually and for 2011 for GRIP, the maximum protection level is 150% of the February multiplied by the expected county yield. Once a dollar coverage level is established by the operator, he would receive a payment equal to the shortfall of the county average yield.
Generally, the guarantee is equivalent to the spring-established price level, but for a higher premium, the harvest price option can be the trigger point. However it cannot be more than twice the level of the spring guarantee, and can be strategic to farmers who forward contract a significant portion of their crop.
Summary:
At a lesser cost than farm-based crop insurance are the county-based crop insurance policies that have all of the features of their higher priced policies. However the policies provide an indemnity payment only if the county average yield or county average revenue falls below established levels.
Posted by Stu Ellis on 03/04 at 12:00 AM | Permalink
Comments
Posted by: insurance quotes at March 10, 2011 6:06AM
GRP and GRIP are definitely options to consider if the main risk to your farm is ‘predictable’ climate changes like the la nina and el nino phenomenons. If your main risks are more localized then solely relying on this type of policy is a major gamble.