The Structure of a Crop Insurance Policy

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The Structure of a Crop Insurance Policy

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Federal crop insurance is often misunderstood and people find it somewhat frustrating. They think of it as bureaucracy on top of bureaucracy sprinkled on top with a little more bureaucracy. Now please understand it is insurance, which most people find daunting and it does start with the word “Federal”!

Where do all the rules regulations and bureaucracy come from in Federal crop insurance? Let us start with the policy structure of a Federal crop insurance policy. I like to call it the birthday cake of crop insurance. 

The first basic layer of our birthday cake is what is known as the common policy or sometimes referred to as the basic policy provisions.

It is a 40-page document. It contains terms, conditions, definitions, rules, and regulations as they pertain to all crops in all counties in all the states of the United States.

 The common policy speaks to reporting requirements, acreage or production reports; it defines terms such as prevented planting, replant, the late plant period, insurance guarantees, coverage levels, and claim requirements and responsibilities.

The common policy also gives rules to insuring your farm and crops in particular units. You can have a basic unit which is all of a similar crop planted in the same county. We can also have a crop insured by units by either irrigated versus non-irrigated practices or we can insure units for our crops by share or common ownership. In New York State this means we can have separate units by separate farm serial numbers.

The common policy also speaks to enterprise units and whole farm units. These are options where all the acreage of one or two crops is combined into one unit. These options can provide discounts to your premium and per acre cost but it will also affect how a possible claim on a certain crop would be handled due to the fact that all the acreage of that crop is in one unit.

You also have the option to insure your farm and crops by a sectional equivalent option. This option allows you to have multiple units, drawn out on a designated map, (for example, a county highway roadmap) following specific rules and guidelines. Using the designated features of that map, the roads, railroad tracks, or the county line, you can draw out a unit or what some people like to call a grid. This grid has to be a minimum of 1 mile x 1 mile square. Then, all your acreage planted in that section stands as a single unit without regards to farm serial number and will stand by itself in a possible claim.

The application process for the sectional equivalent option can be quite perplexing. First you have to fill out a request using an actuarial change form. The request type using this form is for a unit written agreement. On this form it will include the crops that will be insured by the sectional equivalents, all the farm serial numbers, tract and field numbers that are affected by this request. We must fill out a separate request form for each county. For larger farms this could be a very long list.

Next, you have to fill out a written unit agreement for annual crops with geographic dispersion form. Along with this form you will include an addendum where you will physically describe each unit or grid by listing the roads that outline each sectional equivalent unit. We then list all the common land units in that section. That is, all the farm serial numbers, tract and field numbers and the total acres in that unit. Depending on the overall size of the farm and how many individual units you are applying for, we could have a large number of addendum pages.

Then we fill out and attach to the application a data yield line for each sectional equivalent unit and each crop you are insuring as a sectional equivalent unit. On these data lines we will show the previous four years of planted acreage and production for each unit by each crop. We also have to include in this application the previous year’s 578 acreage report from your local county Farm Service Agency office.

Finally, we must provide an individual map for each farm serial number tract and field number. For large farms, farming 4,000 to 5,000 acres I have seen the application be a stack of paperwork 3 to 4 inches thick.

The second layer of my crop insurance birthday cake is what we call the crop provisions.

This is a document that spells out specific terms, definitions, rules and regulations that are specific to a specific crop. The individual crop provisions can be a document of three, four, up to nine or ten pages. For example, the apple crop provisions are a five-page document, the peach crop provisions are a three-page document, the grape crop provisions are a four-page document. Crop provisions can also address a group of crops, for example, the small grain crop provisions include wheat, oats, rye, buckwheat and barley and they are a nine-page document.

The course grain crop provisions include: grain corn, sorghum, soybeans and they are a five page document.

The last layer of our crop insurance policy at the very top of our birthday cake is called the special provisions.

Sometimes you may hear this document referred to as County actuaries. These rules and regulations are applied right down to a specific county within a specific state or applied to a region within a state. Here we find where the insurance value or the price of a commodity is declared. It could determine the price or value of the commodity for the upcoming year. The special provisions may also give us additional unit options that will allow us to strategize your crop insurance and protect your individual farm operation.

The apple crop insurance special provisions, allow you to insure your crop by separate units using varietal groups. There are three varietal groups available, Varietal group A, Varietal group B and Varietal group C. in contrast the grape crop provisions allow us to insure separate units by individual separate varieties. The peach crop provisions do not give us any additional unit options other than that found in the common policy provisions.

How do the layers of this birthday cake relate and respond to each other? What if a conflict exists among the different policy provisions within the different layers of our cake? The order of priority or the hierarchy of Federal crop insurance is as follows; the special provisions will override the specific crop provisions which override the basic policy provisions. The higher we go up in the layers of the cake the more specific rule or regulation overrides the rule or regulation in the underlying provisions.

Let us look at an example. The basic policy provision defines “prevented planting” as a failure to plant an insured crop by the final plant date designated for that crop and your county due to an insured cause of loss that is general to the surrounding area and prevents producers from planting crops with similar characteristics. So, we experience a wetter and colder than normal planting season which causes growers in a certain area not to fully plant all their acreage. These growers would be eligible to apply for a prevented planting claim. This payment would be based on their own actual production history or what we call APH and their chosen level of coverage (50, 55, 60, 65, 70, 75, 80, 85%) and whether they have chosen an additional prevented planting coverage option of 5 %.

The prevented planting provision does apply to the course grain policy as well as to the small grain policy. However, when we look at the apple crop provisions or the cabbage crop provisions, these crop provisions both state specifically that the prevented planting provisions of the basic policy provisions are not applicable.

Here the specific crop provisions for apples and cabbage override the basic or common policy provisions that are applicable to all crops.

When we look at the peach crop provisions we see an example of where the special crop provisions having the highest order of priority and override the crop policy provisions. We already know that a grower could insure a crop on his farm using units by irrigated and non-irrigated practices or by separate farm serial numbers. These rules are spelled out in the lowest level of our birthday cake, the basic crop provisions.

When we look at the three-page peach crop provision document, there are no additional rules or regulations allowing for any additional unit options as we saw in the apple crop provisions or grape crop provisions using varieties. However, when we go to the highest level of our birthday cake, the special provisions, and we look at the special provisions for the peach policy, they do allow us to insure units separated by fresh peaches versus processing peaches. Here we do end up with additional unit strategies for insuring our peaches which is given to us by the special provisions, the highest priority of our birthday cake.

Are the three layers of the birthday cake, the basic provisions, the crop provisions, and the special provisions, the only rules and regulations where as a grower or an insurance agent you can trip up or stub your toe? The answer is no, of course not, with Federal crop insurance it could not be that simple. There are two additional documents we must be aware of. The first is the crop insurance handbook, known as the C. I. H. and the second, the Loss Adjustment Manual, known as the L.A.M.

The crop insurance handbook provides further information and details to the rules, regulations, terms, definitions and procedures all governing the crop insurance program. The loss adjustment manual provides rules, regulations, and procedures for crop insurance adjusters to follow when handling claims for specific crops in specific loss situations. It is not uncommon for a grower to be in a claim situation for a certain crop and for that crop insurance adjuster to give advice on a particular action or procedure that the grower needs to follow. The question then comes up where did that procedure come from? We look at the three layers of our crop insurance policy, the basic provisions, the crop provisions, and the special provisions and we see no such procedure outlined. Well, it came out of the loss adjustment manual and that specific rule or regulation is as important as any other rule or regulation we find in any of the other crop insurance documents.

My last printed copy of the crop insurance handbook was the 2004 printed manual and it was almost 500 pages long. Currently this document is provided on CD or on the Internet. In 2016 the crop insurance handbook and the loss control manual were combined into one single document. This document is now titled the “General Standards Handbook” and is over 800 pages. This document is also available on the Internet.

Now do we have the whole story on where to find all the rules and regulations governing the Federal crop insurance program? The answer is still no. Due to the bureaucracy and complexity of Federal crop insurance, there can be situations that lead to contradicting interpretation of the rules, the regulations and the general policy language.

These contradicting interpretations often arise during the handling of a claim, where two individuals have completely opposite views of a specific rule or a specific regulation or what a specific policy language means. In these instances, it is common to ask for official interpretation. The individual facts of any given dispute are presented along with each individual’s interpretation of that rule or regulation as they see it apply to the given facts.

The government then issues a final agency determination (F. A.D.). Each individual F.A.D. is given a number. The F.A.D. will outline all the background information and restate the exact facts of that situation. Each side’s case and interpretation is restated and the government’s final ruling. The government could agree with one or the other’s individual interpretation or it could agree in part to a given interpretation or the government could issue a completely different interpretation.

Once a F.A.D. is issued it is the overriding authority on any rule, regulation, or policy language no matter where we find that rule, regulation or policy language in the basic policy, crop provisions, special provisions or the General Standards Handbook.

If in the future that same question arises about a particular rule or regulation or policy provision, the government will respond by addressing the previously determined and published final agency determination.

Understanding the basic policy structure and purpose of each Federal crop insurance document can help us build an effective risk management strategy when making choices regarding your federal crop insurance program for your individual farm operation.

Building an effective crop insurance program takes expertise.  Mike Southcott has literally written the book on crop insurance.  At The Southcott Agency Inc. crop insurance is our specialty.  We will take the mystery out of Federal Crop Insurance and give you peace of mind.  Call the office today (585) 589-6236 to get started.

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