MPCI policies must be purchased prior to planting and cover loss of crop yields from all types of natural causes including drought, excessive moisture, freeze and disease. Newer coverage options combine yield protection and price protection to guard farmers against potential loss in revenue, whether due to low yields or changes in market price.
Participation in multi-peril crop insurance has grown rapidly since the private sector began delivering it in 1981. Back then, only 45 million acres and $6 billion worth of crops were insured. By 2016, 1.2 million policies were sold protecting more than 130 different crops covering 290 million acres, with an insured value of $100 billion.
The Federal program came to prominence following years of costly, inefficient ad hoc disaster bills as a way to speed assistance to farmers when they need it most, while reducing taxpayer risk exposure. Today, crop insurance is the cornerstone of U.S. farm policy.
Insurance Plans provide different types of insurance coverage to specific commodities:
- Actual Production History (APH) policies insure producers against yield losses due to natural causes such as drought, excessive moisture, hail, wind, frost, insects, and disease. The producer selects the amount of average yield to insure; from 50-75 percent (in some areas to 85 percent). The producer also selects the percent of the predicted price to insure; between 55 and 100 percent of the crop price established annually by RMA. If the harvested plus any appraised production is less than the yield insured, the producer is paid an indemnity based on the difference. Indemnities are calculated by multiplying this difference by the insured percentage of the price selected when crop insurance was purchased and by the insured share.
- Actual Revenue History (ARH) plan of insurance has many parallels to the APH plan of insurance, with the primary difference being that instead of insuring historical yields, the plan insures historical revenues. The policy is structured as an endorsement to the Common Crop Insurance Policy Basic Provisions. It restates many of the APH yield procedures to reflect a revenue product. Each crop insured under ARH has unique crop provisions. Like current revenue coverage plans, the ARH pilot program protects growers against losses from low yields, low prices, low quality, or any combination of these events.
- Whole-Farm Revenue Protection (WFRP) provides a risk management safety net for all commodities on the farm under one insurance policy. This insurance plan is tailored for any farm with up to $8.5 million in insured revenue, including farms with specialty or organic commodities (both crops and livestock), or those marketing to local, regional, farm-identity preserved, specialty, or direct markets