Archived Articles

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02-18-12
When is a man-made catastrophe a "natural" peril? Answer: When the government does it.

The Federal Crop Insurance Act (Act) and the Common Crop Insurance Policy Basic Provisions (11-
BR) (Basic Provisions), Section 12 Causes of Loss., states: “Insurance is provided only to protect
against unavoidable, naturally occurring events.”

On May 4, 2011, the Risk Management Agency issued Manager’s Bulletin MGR-11-004 regarding losses related to flooding in the Bird’s Point-New Madrid Floodway. It declared that such flood losses were "considered insurable causes of loss due to existing flooding of crop land, the overtopping of the frontline levee, and the impending failure of the levee system from flooding and saturation due to excess rainfall and thus an unavoidable, naturally occurring event."

The dynamiting and breaching of the levees by the Corps of Engineers was not mentioned as a direct cause of the flooding behind the levees. "Unavoidable" evidently means that if levees were potentially going to be breached somewhere on the river that breaches caused by large charges of dynamite are also "natural."

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Odds Favor Adding Crop-Hail Insurance

Storms have pounded a number of Midwest areas already this young season with large hail, damaging winds and fierce tornadoes. Now, with 2011 corn up and growing, farmers wonder: Is this the year to buy add-on crop hail coverage?

Compiled by WF staff 

Published: Jun 3, 2011

Fierce thunderstorms have crossed the nation's heartland with numerous tornadoes, large hail and damaging winds. Now with the 2011 corn crop emerging from the ground, farmers who may have not purchased crop-hail as an annual ritual, are thinking "Is this the year to add crop-hail insurance?"

 

The answer could be a resounding "Yes" for several reasons, explains Steve Griffin, a West Des Moines, Iowa, based crop insurance consultant.

 

Reasons to consider buying add-on crop hail coverage this year

 

* "First, we have never had as much crop value vulnerable to hail damage," he points out. "The 15% to 35% deductible on federal crop insurance has never represented more cash. Net returns to a harvested crop are at their highest. With net return, twice to three times average, it could be devastating to a farm's long term future to lose a crop this year more than usual."

 

* Second, many farmers may have upped their overall multi-peril crop insurance or MPCI coverage, but have also taken the "enterprise" unit discount that cuts MPCI farmer paid premiums approximately 50%. Rather than limiting the deductible to cropland in a single section or basic unit (determined by ownership split), the use of enterprise units potentially exposes such tracts to the full force of a hailstorm while the rest of the unit is untouched. "Protection from spotty loss events like hail is more important with this large pool of uninsured risk (the deductible) of enterprise units," advises Griffin.

 

* Third, crop insurance companies are providing hail insurance at historically low rates, he says. According to filings made to state insurance departments, crop-hail rates are significantly less than their expected losses based on 60 years of experience. Current crop-hail rates would have to be twice as high as current rates to cover claims and expenses in an "average" year.

 

Odds of coming out ahead with hail insurance favor farmers in 2011

 

Griffin, a quantitative economist himself, says "The 'odds' of coming out ahead with hail insurance this year favors the farmers instead of the insurance companies and that does not even count in the possible continuing effect of this year's beginning turbulent weather."

 

Griffin thinks crop insurers this year are using such teaser or fire-sale rates on crop-hail coverage in order to gain more multiple peril crop insurance business. Some insurers require farmers to transfer the MPCI policies to the insurer in order for the farmer to buy the insurer's crop-hail insurance coverage.

 

Sort various crop-hail insurance coverage choices before you decide

 

There are a number of choices in crop-hail insurance coverage, particularly for those farmers interested in dove-tailing coverage with their multiple peril crop insurance, he explains. Some companions call the products by different names, but traditional "companion" hail offers spot loss, top-down coverage of 25%, 35% and 50% of the expected crop with accelerated payouts. Note the expected crop may be greater than the APH yield so the coverage is not necessarily one minus the APH coverage level (50% to 85%).

 

"Production Plan" crop-hail offers coverage more precisely tied to the MPCI deductible, but with MPCI units (versus per acre coverage) and less payout if the unit production exceeds the estimated hail losses. Some companies allow coverage for crops expected to produce yields greater than the unit's actual production history by 10% to 20%. Deductibles and qualifying losses also vary by insurer.

 

In all cases, if this is the year to add crop-hail insurance to your risk management plan, consult a knowledgeable insurance agent to determine the best option and risk management value for you. Remember most crop-hail policies require a 24-hour waiting period before coverage begins so you can not wait until the thunderhead appears on the horizon.

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02-17-12

GUEST OPINION: USDA Risk Management Agency fills a Key Position---Really?

by Anonymous*

Let's say you are USDA's Risk Management Agency (RMA) that manages a $12 billion dollar insurance operation with over $500 billion dollars in liability, covering 130 crops, using 15 different insurance plans, involving all sorts of natural perils plus commodity futures market price moves. You provide a major plank of US farm policy.

You need someone to head up your Actuarial and Product Design Division. You have just partially implemented a new rating methodology and trended APH calculation that is questionable, sure to be controversial and detrimental to the private crop insurance industry. You also do not have a single insurance actuary in an actuarial role in the whole organization. You can pay a very handsome, competitive salary with great benefits.

Job Criteria

Do you pick someone who is actually an actuary with experience in insurance pricing and product design? NO

Do you pick someone with agricultural experience or background? NO

Do you pick someone with any knowledge, skill or work experience with any of the insurable risks they would be responsible? NO

Do you pick someone with crop insurance experience in administration, underwriting, product design, pricing, claims, or compliance? NO

Do you pick someone who is well acquainted with the need for risk management by farmers, farm lenders, farm markets, or other stakeholders? NO

Do you pick someone with any knowledge, skill, or work experience in any kind of insurance or has insurance credentials? NO

Let's see what RMA did.....

RMA announces its new Director of the Actuarial and Product Design Division, Sydnee Chattin-Reynolds.

Rodger Matthews, Associate Deputy Administrator for Product Management, says "Sydnee has worked for the Census Bureau for 28 years. During this period, she has served as a Survey Statistician in the Denver and Atlanta Regional Offices. For 9 years, she worked at the Census Headquarters in the Washington DC area as an Assistant Branch Chief for survey programs and as Program Manager for the 2000 Census, American Indian and Alaska Native Program. In 2007 she moved to the Kansas City Regional Office as the Assistant Regional Director and worked on the 2010 Census as the Deputy Regional Director. Sydnee holds a Bachelor’s Degree in Computer Science and Information Systems from Metropolitan State College in Denver, CO and a Masters Certificate in Project Management from the George Washington University School of Business in Washington DC. She has also completed the Federal Executive Institute Leadership Program. Sydnee is a member of the Blackfeet Nation and currently resides with her two sons in Parkville, Mo. She will assume her new duties on March 12^th." (emphasis added)

Ohhhhhh ... I get it. 

I see her qualifications clearly now and the obvious needs of the agency.

Perfect pick for an agency where ignorance is bliss, naivete is a virtue, and accountability non-existent. 

Afterall, RMA is an agency where its senior managers get larger Presidential bonuses, not for doing things right, but for "clean-up" of catastrophic messes for which they are responsible and cost taxpayers millions.

Welcome aboard, Sydnee, I am sure you will be able to help your bosses get those Presidential bonuses.

* Author's name withheld due to possible retribution by RMA.

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Make those last 40 planted acres (actually two 20s) of corn or soybeans count!

by Steve Griffin

 

This has been a difficult planting season for many, particularly in the eastern Cornbelt and the Northern Plains.  The final planting date (for full coverage) has arrived in some areas or will arrive very soon in others.  “For those farmers who chose the enterprise unit (EU) discount, it is very important that at least 20 acres are planted in two different sections (i.e., in tracts eligible for optional units) in order to preserve the enterprise unit discount,” recommends Steve Griffin, a West Des Moines-based crop insurance consultant.  “If you do not have planted acres in two separate sections, your enterprise discount will be disqualified and your crop insurance premium will approximately double.” advises Griffin.

 

In order to qualify for the enterprise unit, two or more “optional” units of at lease 20 acres for each crop must be pooled together.  Prevented planting acres do not meet this “planted” requirement.  "Some farmers might be wise to late-plant enough acres of corn in qualifying locations in order to keep the keep the discount, which may be worth thousands of dollars to them in the fall," Griffin concludes.

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An you thought having a car wreck is bad for your auto insurance!

 

From the USDA-Risk Management Agency website:

Q: Will there be significant rate increases for the 2012 crop year because of the flooding in 2011?
A: In general, premium rates reflect historical experience over an extended period of time and any losses from the 2011 crop year will not likely be reflected in any premium rate adjustments until the 2013 crop year or later. The amount of any loss within the county will be considered in the context of historical losses over the long term, often 20 to 30 years or longer, which generally reduces the premium rate impacts of any one year. However, land that was flooded in 2011 due to the breaching or breaking of a levee will likely be considered high-risk land with potential premium rate increases for the 2012 crop year until the levee is repaired and the land is brought back to its former level of productivity.

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Is Social Security a Ponzi Scheme?

There is a lot of political rhetoric of whether social security is or is not a Ponzi scheme. It is as if the emperor has no clothes, but no one is willing to say so for fear of imperial execution. If it is a Ponzi scheme, why should we not acknowledge it unless we, those of us who are closer to retirement, are too vested to give up our “entitlement”?

What is a Ponzi scheme?

According to the Securities and Exchange Commission (SEC) who is charged with prosecuting such things, “a Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.”

The social security “fraudsters” assure an increasing flow of money by legally requiring most U.S. workers and the self-employed people (there are a few political exemptions, like Congress, federal employees, railroad workers, Amish, etc.)  to pay the FICA contribution. To be accurate, the federal government has at times called the FICA payment a tax and sometimes an insurance premium depending upon the case. Like a Ponzi scheme, social security is very popular among the earlier investors (current retirees) who receive benefits much in excess of what they contributed or a similar private investment could have made on average.

Why do Ponzi schemes collapse?

With little or no legitimate earnings, private Ponzi schemes require a increasing flow of money from new participants to continue distribute to earlier participants to perpetuate the allusion of the scam. Private Ponzi schemes tend to collapse when it becomes too difficult to recruit an expanding pyramid of new investors (participants) and when a number of participants (retirees) begin cashing out or begin to suspect the scam.

Proponents say that Social Security is different because it has enough money (including current and future contributors who are forced to participate) to payout for another 15 years or so.  Even then, they say, all that needs to be done is raising the contribution (by making more income subject to the tax) and raising the cash out age. Yep, social security is a Ponzi scheme clearly.  In essence, a Ponzi scheme is not a scam unless it collapses.

The social security Ponzi scheme is just currently legal. It is just a compassionate, giant transfer of wealth from the productive generation to an older unproductive, but voting, older one. Unfortunately, declining birth rates and the aging Baby Boom generation means the forced burden falls on fewer and fewer productive workers.  

How did Ponzi schemes get their name?

The schemes are named after Charles Ponzi, who duped thousands of New England residents into investing in a postage stamp speculation scheme back in the 1920s. At a time when the annual interest rate for bank accounts was five percent, Ponzi promised investors that he could provide a 50% return in just 90 days. Ponzi initially bought a small number of international mail coupons in support of his scheme, but quickly switched to using incoming funds to pay off earlier investors. Charles Ponzi was convicted of fraud and sent to prison.

It is unlikely that current or past administrators and trustees of Social Security will face the same sentence as Charles Ponzi. After all, we who are worried most will soon age and reap our grand reward. We got ours, let future generations bite the bullet.

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IN MY OPINION:

Lucky is Better than Smart, but you can't count on always being Lucky

If you could choose to be lucky or smart, lucky is always the best choice. Being smart does not guarantee success. But, being smart does improve the odds that may seem to be against you.

 

People who are lucky can fall into the trap of thinking they are smart. One of my least rewarded jobs was telling senior managers of a crop insurance company that they had been lucky, not smart, in their previous successes. They wanted to stay the course with even bigger bets. The luck soon ran its course and no one was left to reward the "I told you so." including me.

 

But good odds aren't the only criteria. You have to be able to stay in the game long enough for the odds to work in your favor. That means you can only make bets you can survive the worst possible outcome (not the average).  Russian roulette can be a very profitable game, if you survive that one bad outcome. Had I been a better teacher of that principle, a great company with wonderful people would not have crashed and burned.

  

Aggiexpert consultants provide expertise in negotiating the ways and means of managing the risks of production agriculture--either on the farm or beyond the farm gate. We can also diagnose what went wrong when the outcome of these strategies fail or project what can happen both good and bad.

 

Years of experience, education, and hands-on application make us a valuable partner in evaluating whatever problem you may have or whatever challenge you have to master.

 Initial consultations are free.  Call us.

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Published on www.agriculture.com 06/10/11

More hail insurance?

 

by Dan Looker

 

Hail has already hit areas of the Corn Belt and, if you don't yet have coverage that supplements your federal crop insurance, an industry consultant, Steve Griffin, says now might be a good time to buy. Companies seem to be using low rates as a loss leader to get your business. Here's more info that Griffin has passed along to us:

 

Crop insurance companies are providing crop-hail insurance at statistical bargains this season.  “It couldn’t come at a better time for farmers,” says Steve Griffin, a West Des Moines-based crop insurance consultant.  Not only is the value of the crop at record highs, but many farmers opted for enterprise unit discounts on their multiple peril crop insurance (MPCI).  Even with higher coverage levels, the selection of enterprise units pools the deductible (retained uninsured risk) that was spread over several basic or optional units into one amount such that a single tract can be totally destroyed without an MPCI indemnity.

“We have already experienced a series of violent thunderstorms across the nation’s heartland.  It remains to be seen if this trend continues as this year’s crop emerges and becomes vulnerable,” says Griffin. “The good news is that, according to Department of Insurance filings, crop insurance companies are providing crop-hail coverage at less than one-half the rate to recovery losses and expenses in an average year.”  Griffin thinks these rates are being provided as insurers compete for farmer’s entire crop insurance needs, particularly MPCI.  Some insurers will only provide crop-hail insurance to customers who have their MPCI policy with them or sign a transfer for the next crop year.

Crop insurers are offering a number of crop-hail options to cover the exposure above the MPCI production and revenue guarantees.  These include “companion plans” that provide top-down, spot hail coverage, with an accelerated payout per percentage of loss to cover the value of the crop above the MPCI coverage.  Another variant is the so-called “production plan” that uses the MPCI units of insurance and APH yield to determine payouts.  Production plan crop-hail may pay-out less than companion plans if the unit production exceeds the estimated crop loss (due to, for example, favorable recovery weather) and the risk pooling effect of MPCI units.  “Farmers should consult with a knowledgeable crop insurance agent to get the best risk management option and value for their farming operation,” advised Griffin.  He also cautions, “Most crop-hail insurance has a 24-hour waiting period for coverage to be effective, so farmers should not wait until they see the thunderhead appear on the horizon or on weather radar to seek coverage.”

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Published on www.agriculture.com

 

Agony of prevented planting

 

by Dan Looker

 

As the final planting date for federal crop insurance on corn approaches many areas of a waterlogged Corn Belt, farmers are wrestling with a decision that gives even ag economists a headache.

 

In some areas, such as Nebraska, the final planting date (May 25) has passed, but for Iowa and most of Illinois it’s next week, May 31. And in Indiana and soggy Ohio, it’s June 5.

 

There’s a bit of wiggle room. You have up to 72 hours after the planting date to notify your crop insurance agent.  Or you can decide to not collect prevented planting and for 25 days after the planting date you can still plant and get some coverage of the crop. But you lose 1% of your guarantee for each day past the planting date. If you opt for the prevented planting payment, you would normally be paid 60% of the production guarantee.

In some areas of the country, especially the eastern Corn Belt and North Dakota, farmers will have little choice but to try to collect prevented planting insurance.

“In North Dakota, this whole state, not just the Red River Valley, is experiencing major wetness, from western North Dakota, that’s usually praying for rain, to the valley,” says Aaron Krauter, the state’s Farm Service Agency executive director.

It’s not a new problem there. In 2009 the state had 1.9 million acres of crops that didn’t get planted. In 2010 it was 1.7 million acres. This year Krauter expects as much as 4 million acres of all crops to remain unplanted. Corn, 49% planted last week, was the favored crop, but still behind the five year average of 77%. Only 6% of the state’s durum wheat is in the ground, compared to a normal 71%.  

“It’s never been this way in North Dakota,” he says. “The joke right now is, ‘Do you have an uncle named Noah?’”

 

In other wet spots in the Corn Belt, where planting might be a late choice if weather cooperates, it’s not an easy one.  Some experts say the numbers already favor just taking a prevented planting payment. Others aren’t so certain, given the way crop insurance decisions can affect other government programs like SURE (Supplemental Revenue Assistance Payments Program).

At the University of Illinois, economist Gary Schnitkey has crunched the numbers and found a slight advantage to prevented planting. In an analysis published this week, Schnitkey projects a prevented planting net return for corn with 150 bu.A APH at $382 an acre if it’s insured at the 75% level. He assumes you’ll spend $15 an acre to control weeds and pay $9 an acre, still meeting the requirements for an enterprise unit.  If you plant, he assumes a yield at this late date of 120 bushels an acre and a price of $6.40 a bushel, which gives you a net of only $373 an acre after expenses for a late-planted crop.  If you have a higher level of coverage, the advantage to taking prevented planting is even greater.

 

Another advantage to a prevented planting claim is that is doesn’t affect your APH (actual production history),  says Kansas State University, economist Art Barnaby. A late planted crop with a lower yield will be tossed into the average for your APH and could lower it.

Still, Barnaby confesses to a bias in favor of trying to get a crop in.

“I think a lot of those guys are going to plant if they can, up to ten days late,” says Barnaby.

That’s partly because prevented planting affects other forms of disaster assistance. The SURE program is tied to the level of crop insurance coverage you buy. The higher the level, the larger potential SURE payment. Let’s say you bought 75% coverage for crop insurance. But if you take prevented planting, you’re paid 60% of your guarantee per acre and SURE treats your disaster coverage as if you had a correspondingly lower guarantee.

"It really is complicated beyond belief,” Barnaby says. There are other pitfalls to watch out for.  Here are a few:

• Group policies, GRP and GRIP, have no prevented planting coverage.
• Depending on the size of your prevented planting claim, you may lose the Enterprise Unit premium for your insurance and have to pay a higher basic coverage premium.
• You must be able to document the prevented planting claim to the satisfaction of the insurance company.
• The insurer ultimately decides whether or not you used good farming practices and qualify for prevented planting. If everyone else around you gets planted and you don’t (and your farm is similar, not the only one in a flood plain), then you’re probably not going to get a payment.
• In the past, prevented planting with revenue insurance products would also pay more if the fall prices were higher. No more. The new COMBO insurance pays prevented planting only on the prices set last February.

“Probably the biggest issue with prevented planting this year might be eligible acres,” says Steve Griffin, a crop insurance consultant with CVision Corporation in West Des Moines, Iowa. In Iowa, the ratio of corn to soybeans on farms has been shifting from the traditional 50/50 to something closer to 65% corn and 35% beans, Griffin says. With more favorable potential returns to corn, some growers might have planned to grow 75% corn and 25% beans, he says. “You may not get the prevented planting on those extra acres,” Griffin says. That’s because prevented planting rules say you can collect only on the highest corn acreage you planted in the past three years. If this was your first year of expanding corn, you’re not going to get prevented planting on all of the crop.  There are some exceptions to that rule. If you bought or rented land with a corn planting history, you can add that to the prevented planting claim, too.

 

If you disagree with your insurer who denied a prevented planting claim by saying you didn’t follow good farming practices, you can go to arbitration over it, Griffin says.  But you’ll have to pay your share of the arbitrator’s fee, hire an agronomist or other qualified expert witness to support your case, and probably an attorney as well, he says. “It could easily run $5,000 to $10,000 when you’re all done, at a minimum,” says Griffin. A cheaper route might be to ask USDA’s Risk Management Agency to decide, but it’s harder to appeal that decision, too. If anything, RMA is tightening up the standards for getting prevented planting payments.

 

The issue is especially tough in North Dakota, where the climate in recent years has become wetter and some areas of the state were once farmed are permanently under water. That’s especially true in Devil’s Lake, which drains a closed basin and has had rising water levels for years. Entire towns and farms are now under water.

 

In the past, insurance companies have made payments on land that was flooded for several years, says Scott Stofferahn, state director for eastern North Dakota for Senator Kent Conrad. In one case, the RMA even lost in arbitration over land that had been flooded for 15 years, he tells Agriculture.com.

 

Although some of the experts interviewed for this story contend that farmers can still get three years of successive prevented planting payments, Stofferahn says the RMA handbook on prevented planting loss adjustment for 2012 will make it clear that you can get only two prevented planting payments in a row. “If you’re not planting or harvesting in one of the last three years, you’re out,” he says.

The RMA has issued a final agency determination that land has to be available to plant within 15 months of the planting date, Stofferahn said. The RMA clarification came after the North Dakota House passed a resolution asking that crop insurance be used to reimburse producers on cropland inundated in the Devils Lake Basin.

 

This is a big issue not just in North Dakota, but in all of the Prairie Pothole region that includes parts of Minnesota, South Dakota and Iowa as well. In the past, if farmers were able to work up soil around the edge of a pothole in July or August, that might have been considered “available to plant,” but no longer if the crop would normally be planted in the spring.

 

“Companies are being much more cautious about what’s being considered available to plant,” Stofferahn says.

RMA’s Billings, Montana Office Regional Director, Doug Hagel, explains how the 15-month rule works. If a farm was available to plant in 2010 on the closing date to buy crop insurance (March 15 in much of the Corn Belt) and then the grower wasn’t able to plant a crop that year, he or she would be eligible for a prevented planting payment. Then for 2011, if he wasn’t able to plant by the final plant date, roughly 15 months later, another prevented planting payment would be made. But the following year, a crop would have to be planted and harvested and would be eligible for normal coverage but not prevented planting. After that, the prevented planting cycle starts again.

 

“People forget that the purpose of the program was to insure crops,” Hagel says. “It was never to insure land.”

In some cases, putting that land into conservation programs might be an option, he says.

Hagel says the problem stems from changing rainfall patterns in the northern Plains. Areas of eastern North Dakota that once got 17 to 24 inches of rainfall a year are now getting from 35 to 50 inches, he says.

“It is unfortunate,” he says. “It’s very tough. A lot of these guys being hit with this problem now, their fathers farmed that land and their grandfathers farmed that land.

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Published on www.aggiexpert.com 

 

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From Wallace's Farmer

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"It's April, so many farmers put crop insurance out of their minds as they prepare for planting," notes Steve Griffin, a crop insurance consultant based in West Des Moines. "However, they should not forget the qualifications for enterprise unit (EU) discounts that made the higher levels of coverage that farmers signed up for in March much more affordable."

 

An enterprise unit combines all of the insurable acreage of the same insured crop in the county in which you have a share of the crop, own, or cash lease. Griffin advises "the part that you need to remember is that to qualify for the EU discount, the EU must contain acreage in two or more sections (i.e., optional units or OU) and the acreage in each of these sections must be at least the lesser of 20 acres or 20% of the insured acreage in the EU."

 

Decisions you make at planting time can affect your premium

Planting more corn may not affect your EU discount for corn, "but if you happen to plant one of your only two optional units for soybeans to corn or plant soybeans below the 20 acre/20 percent rule in your second optional unit, you may lose your EU discount on the soybeans," he cautions. The enterprise subsidy at the 70% coverage level is 80% compared to 59% for basic units.  Losing the EU discount effectively doubles the premium the farmer pays on the affected acres (from 20% to 41% of the gross unsubsidized premium).

 

"Crop insurance should not determine entirely what and where you plant, but if you aren't careful about this at planting time, then you should not be surprised in July when your acreage report is processed and it comes back with basic units instead of enterprise units and you owe substantially more premium," adds Griffin. "If farmers have any questions about how changes in their planting intentions will affect their crop insurance premium, they should consult with their crop insurance agent before they put the planter in the ground." 

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Avoid This Crop Insurance Mistake!