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In this volatile commodity market, what are growers doing to ensure they can continue farming another year? Many are turning to their crop insurance agents to enhance their risk management plan with private pricing products.
Private pricing products have entered the crop insurance industry in recent years and are growing in popularity. These are unsubsidized insurance products offered to enhance federally-subsidized crop insurance.
“Pricing products have added options to the crop insurance industry. Previously, it was just multi-peril and/or hail – now there is a whole new category of risk management options. This is important, especially as commodity prices are low,” said Ryan Benes, a district sales manager at Farmers Mutual Hail.
He continued to explain how growers may have many reasons for adding pricing products to their risk management plan, but it all comes down to needing more coverage today than they may have needed in the past. “Producers who feel they are not getting enough coverage from their federal insurance should consider private pricing products,” he said. “These producers may need a private product to show more coverage to their banker, or they might want to enhance their federal coverage when their federal guarantee is falling too short of their input costs.”
Each insurance company creates its own product or develops its own version of an existing product. Private pricing products usually fall into three product categories:
1. Expanded Price Period: This type of product offers farmers the option to use a price that is established outside the normal spring and fall pricing periods for crop insurance.
2. Yield Loss Boosters: This type of product increases the value of each bushel, but only pays when there is a yield loss.
3. Revenue Boosters: This type of product allows farmers to buy coverage that pays when there is a drop in yield and/or revenue.
With a variety of products available, growers should discuss the best option for them with their crop insurance agent. “Private pricing products can be very confusing,” added Benes. “It is important that [producers] totally understand the private products they are purchasing.”
What to Look for When Selecting a Private Pricing Product
When it comes to pricing products, growers need to consider their existing risk management plans, their yield and loss history, and their goals for the future – especially in a volatile market.
“It comes down to what kind of protection the producer is looking for. Ask your agent what scenarios would provide better risk protection,” said Benes. “Many producers are looking for coverage that can go beyond federal coverage and provide protection sooner. Be wary of products that seem to add coverage, but don’t trigger before your federal plan.”
To gain the most flexibility from a private pricing product, look for a product that meets multiple characteristics of a pricing products, such as the option to choose between yield and revenue loss triggers, multiple coverage options to trigger payments when it works for the grower, and how the product ties to federal coverage.
• Why Should the Product Have Both Yield and Revenue Coverage Options?
Each year, a grower may have different concerns they would like to address for their risk management plan. Instead of looking to new products when they want to switch from a revenue to yield coverage-type product, they should choose a private pricing product that can offer coverage options for both types of losses.
• Why is it important to know when the private pricing payments can begin?
Some products have the option to purchase coverage above federal coverage and payments will trigger even before federal insurance pays. Because this can be a more expensive option in certain areas, look for a product that can cover different ranges of exposure – sometimes, growers may only need coverage alongside their federal coverage – these types of plans will trigger payments at the same time or after federal insurance. “With low commodity prices, producers are rarely meeting the cost of production with 85 percent coverage from their federal insurance.” Noted Benes. “With certain pricing products, now producers can get that higher coverage. Products like RAMP from FMH trigger payments before federal insurance, and truly gives them that higher coverage they need - up to 95 percent in some areas.”
• Why is it Important to Understand How the Product Ties to Federal Insurance?
Some pricing products rely on the grower’s federal APH values to determine coverage qualifications. This may not work for all producers if they are needing to purchase more coverage to secure loans. Other pricing products may require the private plan to match the grower’s federal plan. If a grower has unique coverage goals in mind, they might not want to be restricted to matching their federal insurance.
“Because these are private products, the crop insurance company can be more flexible in coverage qualifications. Look for a product that provides the flexibility you might want so you don’t feel restricted to the same federal insurance guidelines as your existing coverage,” said Benes.
Finally, growers should consider looking at private pricing products that have a proven stability in the industry. Because these products are still fairly new, some companies have developed and offered private pricing products only to discontinue the product after a couple years. The products that have been around the longest have proven stability through years of market fluctuations and would be a stable choice for a grower new to private pricing products.
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Ryan’s Recommendation: RAMP
Farmers Mutual Hail’s pricing product, Revenue Accelerator Max Protection (RAMP), was one of the first pricing products in the industry. The product has been enhanced and expanded in availability since it launched in 2014 and remains one of the leading pricing products in flexibility for all producers.
“RAMP is a customizable product that can be set up to trigger payments with either a yield or revenue loss, it doesn’t rely on any federal restrictions for qualifications, and it has multiple coverage options to trigger payments before or at the same time as federal payments,” said Benes. “RAMP can function like a yield loss booster or revenue booster pricing product. It is one of just a few revenue loss products which truly allows producers to elect revenue coverage on top of their current MPCI policy.”
In fact, in select areas, growers can purchase full RAMP coverage to protect up to 95% of their revenue – one of the highest coverages available.
“If a grower is looking for a product that can be flexible enough to meet their needs while having the proven stability of a product that will be around for a while, they should talk to their agent about RAMP from FMH,” said Benes.
Learn more about RAMP from FMH at www.fmh.com/ramp
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