Minding Ag's Business

The popularity of county-based insurance plans like Group Risk Income Protection (GRIP) has ebbed in recent years, despite occasional astronomical payouts. When 2012 Illinois county yields collapsed and prices soared due to drought, many corn growers with GRIP policies collected more than $1,000/acre (see farmdoc map).

County-based insurance plans have offered Midwest growers better price protection than individual Revenue Protection policies, not only in drought years, but also low-price years like 1991 and 1998, University of Illinois studies show. That's because GRIP policyholders can insure losses with only 10% deductibles and payouts have been adjusted by a factor of 1.5. In theory, the multiplier compensates for the fact that you may have actual yield losses stiffer than the country average. (Producers might have a 5 bu. yield on one farm, but chances of a 5 bu. corn yield countywide are pretty slim).

Say goodbye to GRIP's glory days, however. New Risk Management Agency rules in effect for 2014 policies could make those 2013 indemnities a high water mark. What's more, shifts will continue to make the new policies more expensive compared to RP.

Starting next crop year, RMA will combine GRIP and GRP into an Area Risk Protection Insurance (ARPI) policy. You'll still be able to chose yield only coverage or revenue with or without harvest price exclusion. The maximum price adjustment factor will drop to 1.2 instead of 1.5; growers will be required to submit actual yield records for their farms for the first time (removing the paperwork incentive big farmers liked with GRIP); and overall premiums rates will be increased.

Until now, "It wasn't that GRIP got worse, it was that Revenue Protection policies got better," notes Chris McCray, an agent with Silveus Insurance Group in Warsaw, Ind., and one of GRIP's biggest supporters. Two years ago, stepped-up subsidies for enterprise units and improvements in trend-adjusted yields made RP policies much less expensive buys. In 2013, RP's best coverage ran about $22/acre in Macon County, Ill., versus $55 premiums for top GRIP coverage.

Like GRIP, the new ARPI doesn't cover individual losses, so growers who need replant or prevented planting coverage or other noninsured hazards would need to add riders on top of that cost. Another caveat is that individual losses may not correlate to county averages, so in areas of widely variable weather like the unirrigated Great Plains, ARPI isn't recommended.

McCray calls the latest ARPI shifts "hiccups." The days of $1,300/acre corn payouts on area policies may be over, he says, but large growers with above-average yields and who are spread out over wide geographies may still find the new ARPI revenue coverage worth considering for revenue protection--even if premiums are pricey.

Follow Marcia Taylor on Twitter@MarciaZTaylor.

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