Crop Insurance
Crop insurance has the potential to be a valuable tool for Illinois farmers, and Illinois Corn is seeking to make improvements that will accomplish just that.
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Our members told us that crop insurance doesn’t work for them and when we looked into it further, the data is pretty straight forward. The federal crop insurance program is supposed to yield a level of coverage with payments over time equaling what the farmer pays in. An ideal situation would give the farmer a 1:1 ratio … or a final loss ratio of 1. Illinois farmers have a loss ratio of .39 (indicating that they pay in more than they receive) while Alabama farmers are have a 1.37 loss ratio (indicating that they receive much more than they pay in.)
This is just one example, but the wide disparity is not actuarially sound.
By setting out to fix one important aspect in the program, that the calculations don’t factor in growing yields, we are hoping to fix a portion of the problem with federal crop insurance.
Right now, crop insurance is set up to assume that your yields in any given field are about the same as they were last year and the year before. In fact, the program determines your probable yield for next year by averaging the past ten years of yields for that field, which could extend back twenty years or more if you are using a crop rotation.
Our current idea is to have an endorsement that factors in increasing yields. This means that when the farmer tries to purchase insurance covering 80 percent of his expected crop, he will actually come close to insuring 80 percent of his actual crop instead of insuring 80 percent of his expected crop which is only an average of twenty years of yields.
This gets complicated, but the following graphics might provide you with a better idea of the problem and the solution.
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