By: Barry Ward, OSU Extension, Leader, Production Business Management, Department of Ag, Env., and Dev. Economics
Farmers throughout Ohio insuring corn and soybean yields or revenue with crop insurance should see lower premiums this year due to changes made by USDA’s Risk Management Agency (RMA). These changes were based on reviews of actuarial soundness of these crop insurance products. In recent years, premiums paid (farmer premiums plus USDA paid premium subsidies) have been higher than dollars in claims paid out. The Federal Crop Insurance Loss Ratio (Ratio of claims to premiums) is meant to equal 1.0 in the long term. With long-term loss ratios below this 1.0 benchmark for corn and soybean policies in most of the cornbelt, RMA chose to examine the soundness of these policies. This adjustment to premium rates recognizes the latest technology, weather, and program performance information. Updated data pertaining to prevented planting, replant payment, and quality adjustment loss experience, was also used in determining rates changes.
The following excerpt from an RMA article on “USDA Moving to Lower Insurance Premiums For Corn and Soybean Producers in 2012” explains in some detail the process taken to evaluate these crop insurance policies. “RMA contracted for a study by Sumaria Systems Inc., which examined premium rates, and the rating process, starting with the United States’ two major commodities: corn and soybeans. RMA then requested an independent expert peer review to provide feedback on the Sumaria study results. RMA will conduct further review and analysis of the study’s recommendations along with comments and issues raised by peer reviewers, making additional adjustments as warranted and appropriate. Accordingly, RMA is taking action to implement adjustments to premium rates in a “phased in” approach that allows for any further adjustment pending additional analysis of peer review comments.”
As a result of this process Ohio growers should expect to see premiums decrease by an average of eleven percent for corn acres insured and thirteen percent for soybean acres insured.
RMA Premium Adjustments not to be Confused With the New Trend-Adjusted Actual Production History (APH) Option!
With the new “Trend-Adjusted Actual Production History (APH) option) available to crop producers this year for most corn-belt states, producers choosing this option may see some of the potential premium savings from RMA adjustments reduced. Experts disagree on how this option may change your premiums and this should by no means discourage producers from considering this option. You should consult your crop insurance agent for details on this new option and premium changes as a result of adding the option to your policy.
See the previous article by Chris Bruynis on the Ohio Ag Manager Site on the “Trend-Adjusted Actual Production History (APH) Option at: http://ohioagmanager.osu.edu/farm-policy/trend-adjusted-actual-production-history-aph-option-available/
Web Links for further information: http://www.rma.usda.gov/news/2011/11/cornsoybeanpremium.html and http://www.rma.usda.gov/help/faq/rerating.html