Crop Insurance Premium Changes

January 8, 2013 08:33 PM

Crop insurance premiums might decline for many

Does the 2012 drought mean sky-high crop insurance premiums for 2013? Absolutely not, says William Murphy, administrator of USDA’s Risk Management Agency (RMA).

Crop insurance premiums for producers in many states will decline for 2013, assuming coverage levels similar to 2012, Murphy says.

"Soybean premiums will
decline in almost all states
with the exception of North
Dakota and South Dakota."

For corn, grain sorghum and cotton crops, there will be  relatively little net premium change at the national level because areas with premium rate increases will generally be offset by decreases in other areas. For rice and soybeans, however, there will be an overall decrease of about 8% and 6%, respectively.

In calculating premiums (see maps below and on next page), 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 their coverage levels or make other crop insurance program changes.

Average Adjustments. In the heart of corn country, premiums will decline for 2013—again, all things being equal. Looking at selected states, RMA’s estimated premium will decline by 6% in Iowa and Nebraska; 5% in Wisconsin; 4% in Illinois and Michigan; and 3% in Minnesota and Indiana. Premiums will tumble by double digits in states such as Idaho, Montana, California, New Mexico and Arizona.

Corn rates will increase in other states, however: a 15% spike in South Dakota; 11% in North Dakota; 4% in Kansas; and 1% in Missouri and Ohio.

Murphy points out 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 and in others 10% to 12% higher, 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 during the last five to seven years," Murphy says. Nationally, 70% of prevented planting payments have been made in those two states.

Soybean premiums will decline in almost all states with the exception of North Dakota and South Dakota. In those two states, premiums will increase 2%.

Five states will have double-digit decreases, including Texas, down 14%, and Nebraska, down 13%.

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 will have more modest decreases, based on loss histories. 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.

"It will probably be January
before actual 2012 crop
losses are fully known, but
yields have come in higher
than earlier feared."

Cotton premiums will decrease in almost all Southeast states, but they will increase by 10% in California; 8% in Oklahoma; 5% in Texas; and 1% in Kansas.

Rice growing rates will decrease in California, Texas, Louisiana, Arkansas and Mississippi, but increase in Tennessee and Missouri.

Changes to Rates. 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 from drought loss.

"We gave ourselves a cushion," Murphy says, so rates would not go up in 2013 or 2014 due to this year’s substantial nationwide drought.

RMA says it will release more localized data soon to alert growers to changes prior to planting season.

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 slowly. As of Dec. 17, more than $8.7 billion in indemnity payments has been sent to farmers for losses due mostly to the past summer’s record drought.

Crop insurance can be purchased to protect 128 different crops, and farmers are expected to invest more than $4.1 billion to purchase more than 1.2 million crop insurance policies in 2013.

For more information on RMA’s new rates and premiums, including maps for each crop, go to:

Insurance Graph 1


Insurance Graph 2


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