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GRP provides protection on a county basis rather than an individual basis. These policies use a county index as the basis for determining a loss. When the county yield for the insured crop, as determined by the National Agricultural Statistics Service (NASS), falls below the trigger level chosen by the farmer, an indemnity is paid. Payments are not based on the individual farmer's loss records. Yield levels are available for up to 90 percent of the expected county yield. GRP protection involves less paperwork and costs less than the farm-level coverage described above. However, individual crop losses may not be covered if the county yield does not suffer a similar level of loss. This type of insurance is most often selected by farmers whose crop losses typically follow the county pattern.
Expected County Yield: NASS (National Agricultural Statistics Service) establishes an expected county yield per acre for each crop. Planted, harvested and unharvested acres, in addition to 40 year yield trends, are used in establishing these yields.
Maximum Protection Per Acre: A set dollar amount of coverage. Federal Crop Insurance Corporation (FCIC) sets a specific dollar amount of coverage per acre. The insured selects from 60% to 100% of the maximum protection per acre. The 100% protection per acre can be a little confusing. It is equal to the Expected County Yield times the price established for GRP (usually slightly higher than the established price for multi peril) times 1.5. The 60% level is just 60% of the maximum price. For example, in Champaign County the 2005 implied GRP price was approximately $2.355. The county established yield was 153. The Maximum Protection Per Acre was approximately calculated as follows = 153 X $2.355 X 1.5 = $540 per acre. The minimum protection was 60% of this number or $324/acre.
Level of Coverage: Also known as Trigger Yield. This is a range from 70% to 90% of the Expected County Yield in 5% increments.
Insurable Acres: The number of acres of the insured crop in the county reported to the Company by the Acreage Reporting Date.
Example:
300 acres of soybeans at 100% interest
100 acres of soybeans at 50% interest with Jones
100 acres of soybeans at 50% interest with Smith
400 net acres at 100% interest in this county
Unit Structure: Enterprise unit. While other plans of crop insurance offer Basic and Optional units, GRP allows one unit consisting of the total net acres of the insured crop in each county. Using the above example, this insured would have 400 net acres of soybeans insured in that county.
How is Coverage Established? Insured must do two things.
1. Select a dollar per acre amount of coverage. This is 60% to 100% of the Maximum Protection per Acre. Once this dollar amount is selected, it will be used for two different functions:
Establish liability per acre for premium calculation
Calculate payment in the event the Actual County Yield is below the Trigger Yield.
2. Select a Coverage Level. This is 70% to 90% of the Expected County Yield. This will establish a Trigger Yield and subsidy level for this crop.
Example of establishing Protection Per Acre and Trigger Yield:
County: Carroll, Illinois
Crop: Soybeans
Expected County Yield: 54.2 bushels
Maximum Protection Per Acre $443.09
400 net acres planted
The insured must select:
Coverage Level – 70% to 90% of the Expected County Yield of 54.2 bushels per acre. Assume the insured selected the 90% level of coverage. This would establish a trigger yield of 48.8 bushels per acre. When NASS determines the Actual Yield per Acre for Carroll County in the spring, a claim is triggered if the actual yield per acre is below 48.8.
Select a Dollar Amount of Protection – This dollar amount may be any amount from 60% to 100% of the Maximum Protection Per Acre set for each county and crop. In this example, the Maximum Protection Per Acre is $443.09. The insured may select a dollar amount from $265.85 per acre to $443.09 per acre. Only one amount is allowed per crop and county.
Loss Award Example
Using the above information, a loss would be paid under the following situation. NASS will gather the yield information after harvest is complete. No payments can be calculated until the final yield information is released in March of the following year. Assume the Actual County Yield for Carroll County soybeans is 40 bushels per acre. This is below the Trigger Yield of 48.8 bushel per acre, therefore, a loss would be paid. This insured selected 100% of the Protection Per Acre, which is $443.09. In 2005, the approximate cost for this product was $4.99 per acre.
The formula for the claim payment is:
| (Trigger Yield – Actual Yield) / Trigger Yield |
= Loss Award
Percentage |
| (48.8 – 40.0) / 48.8 |
= 18.0% |
| Protection Per Acre x Loss Award Percentage x Acres |
= Loss Award |
| $443.09 x 18.0%= $79.76 claim per acre x 400 net acres |
= $31,902 Loss
Award |
ADVANTAGES OF GRP COVERAGE:
Cost is generally less than other individual types of coverage such as MPCI, CRC, RA and IP.
With GRP and GRIP (Group Risk Income Protection) you can insure up to 90% compared to a maximum of 85% with other products. Also with GRP & GRIP, at the 90% level, 55% of the GRP premium is subsidized by the government. At the highest levels of CRC, RA or Multi Peril which is 85%, only 38% of the premium is paid by the government.
Cost per acre is the same for high-risk acres as regular rated acres.
No APH yield reports necessary. However, it is recommended that the insured update yield history in the event that plans of coverage are changed in the following years.
Provides a tremendous amount of coverage for the dollar spent. In the above example from 2005, you would have spent about $5.00/acre to protect a 48.8 bu/acre yield in the county. It would have cost approximately $4.80 per acre to get optional unit CRC to protect 37.8 bu/acre on your farm. Which do you think is better? Your Strategic Farm Marketing agent is trained to help you sort out the advantages and disadvantages.
This is a great product for farmers who rarely have production losses and generally have better than average land in the county. With this product you may receive a claim on every one of your acres even though your farm did not experience a yield loss.
GRP and GRIP typically have much higher loss ratios for the insurance companies (producer dollar spent on crop insurance vs dollars received from claims) vs CRC, RA, MPCI, and IP. Studies from the University of Illinois show farmers typically get more return for the dollar spent using county based insurance products. In some counties, they show county based crop insurance actually being a net gain to the farming operation over time.
DISADVANTAGES OF GRP COVERAGE:
No loss payment to individual units. GRP is a county based coverage. Even though the protection levels are probably higher than you can insure on your farm, you are risking having an individual loss when the county does not experience a loss.
No federal replant provisions or prevented planting coverage. However, Strategic Farm Marketing is one of the few agencies that offers a supplemental product that includes both replant and prevent plant coverage for GRP & GRIP policies at a reasonable cost. This supplemental product does require the purchase of at least a minimal amount of hail insurance.
No loss payment until approximately April 1 of the following year.
Because your farm is not individually protected, you may want to consider hail insurance.
How do you know if GRP or GRIP is suitable for your farm?
Because the Expected County Yield is based on a 40 year trend average, there are some counties that appear to be treated more favorably than others depending on the crop. One needs to study your own individual yield and claim history to the county statistics. The correlation of your yield history to the county is a very important factor that needs to be considered.
This is where the expertise of Strategic Farm Marketing agents is really helpful. We do all the research that is necessary for the producer to make a very informed, well thought out decision. We don’t push any farmer to one particular crop insurance product. We let the facts and research do the talking. That is the job of a good agent. Unfortunately, many producers (or their agents) never take the time to thoroughly understand what it is they are buying (or selling). All too often producers simply take the same product they had the year before.
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