Does the 2012 drought mean sky-high crop insurance premiums for 2013? Absolutely not, says William Murphy, Administrator of USDA’s Risk Management Agency. Crop insurance premiums for producers in many states will actually decline for 2013, assuming similar levels of coverage to 2012, Murphy says.
For corn, grain sorghum and cotton, there is little net premium change at the national level because areas with premium rate increases will be generally offset by decreases in other areas. For rice and soybeans, however, there is an overall decrease of about 8% and 6%, respectively.
In calculating premiums for the attached charts, RMA calculated how its new rates would have affected 2012 actual premiums paid. So the premiums shown will be what farmers pay next year if they don’t change coverage levels or make other crop insurance program changes.
In the heart of corn country, premiums decline for 2013, again, all things being equal (see map). Looking at selected states, RMA’s estimated premium will decline by 6% in Iowa and Nebraska each; 5% in Wisconsin; 4% in Illinois and Michigan; and 3% in Minnesota and Indiana. Premiums tumble by double digits in Idaho, Montana, California, New Mexico and Arizona.
Corn 2013 Crop Insurance Changes
Source: USDA/Risk Management Agency
Corn rates will increase in some other states, however: a 15% spike in South Dakota; 11 percent in North Dakota; 4% in Kansas; and 1% higher premiums in Missouri and Ohio.
Murphy points out, however, that these are just state averages, and rates and premiums play out differently at the county level. Texas, for instance, will see no change in corn crop insurance premiums overall, but in some counties, premiums will be 10% to 12% lower, but 10% to 12% higher in others, based on loss history. That’s true of other states, too.
Why are rates and premiums going up so much in North Dakota and South Dakota? "Prevented planting payments over the last five to seven years," Murphy says. Nationally, 70% of prevented planting payments have been made in those two states.
Soybean premiums (see map) will decline in almost all states with the exception of North Dakota and South Dakota. In those two states, premiums go up 2%. Five states have double-digit decreases: Texas, down 14%; Nebraska, down 13%; Colorado and Pennsylvania, down 11%; and Arkansas, 10% lower for 2013. A number of other states will see premium decreases of 8% to 9%: Iowa, Kansas, Illinois, Georgia and North Carolina, all down 9%; Indiana, Ohio, South Carolina, Virginia and Wisconsin, down 8%. Other states have more modest decreases, based on loss histories.
Soybean 2013 Crop Insurance Changes
Source: USDA/Risk Management Agency
Spring wheat premiums will decline by 14% in Montana and 10% in Minnesota, but increase by 12% in Colorado, 10% in South Dakota and 8% in North Dakota.
Cotton premiums will decrease in almost all Southeast states, although increase 10% in California; 8% in Oklahoma; 5% in Texas; and up 1% in Kansas. Rice growing rates will decrease in California, Texas, Louisiana, Arkansas, and Mississippi, but increase in Tennessee and Missouri.
RMA says that consistent with the approach announced last year, it will continue to phase in the new rates limiting year-to-year premium changes to reduce potential increases due to drought losses. "We gave ourselves a cushion," Murphy says, so rates would not have to go up in 2013 or 2014 due to this year’s drought.
Murphy says it will probably be January before actual 2012 crop losses are fully known, but yields have come in higher than earlier feared. "The $20 billion estimate of losses is too high," he says. Murphy is not sure exactly why, but claims have been coming in slower than expected.
Click here for more information on RMA’s new rates and premiums, including maps for each crop.
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