Crop Insurance Today May 2015 - (Page 20)

coverage with APH Exclusion rather than using STAX or SCO. NCIS provided RMA with a review of its concerns about the rating and program impacts of APH Exclusion in early 2015. RMA was conducting an ongoing peer review of the rating method in early 2015. Another rating issue that emerged in 2014 was the use of the volatility factor to establish the rate for the price risk covered by revenue plans of insurance. RMA released a contracted actuarial review by Sumaria Systems, dated August 8, 2014, of the use of the volatility factor. The factor is an estimate of the variability of futures prices for the upcoming growing season and is estimated using options premiums of put and call options and the Black-Scholes Model (BSM). The review recommended continuation of the current procedure with a minor change that had earlier been recommended by NCIS. NCIS submitted a comment on the review, concluding that the current method to estimate the volatility factor produces a factor that has done a poor job of predicting actual changes in prices over time and appears to understate the risk of large price changes. As described earlier, the volatility factor declined for all major crops for 2014 which, combined with price declines, sharply reduced premium. RMA continues to assess the role of volatility in premium rating. A continuing issue has been the procedures for acreage that is prevented from being planted. A USDA Office of Inspector General report in 2013 called for changes in the procedures. Consequently, RMA contracted for an independent evaluation during 2014 of the prevented planting policy procedures and payment factors. The contractor's report reviewed production costs for crops eligible for prevented planting coverage and compared costs with coverage levels. The report recommended certain changes to the prevented planting coverage levels. RMA decided that no changes would be implemented for the 2015 crop year and sought public comments on the report's results by the end of the first quarter of 2015. The effort to improve crop insurance coverage for specialty crops continued in 2014. The availability of the Whole-Farm Revenue Protection plan of insurance (WFRP) was announced in November 2014. WFRP combines the Adjusted Gross Revenue (AGR) and Adjusted Gross Revenue-Lite (AGR-Lite) pi20 MAY2015 Table 7. U.S. Crop-Hail Results, All Perils CROP YEAR PREMIUM LOSSES Mil. $ 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 LIABILITY Mil. $ Mil. $ 15,017 15,545 19,392 27,540 25,493 27,170 36,691 39,407 39,773 39,652 424.8 405.2 489.6 669.4 621.3 682.2 843.2 955.8 953.2 991.9 186.8 203.2 235.2 555.1 656.9 460.4 974.5 701.3 646.2 1,182.9 LOSS RATIO 0.44 0.50 0.48 0.83 0.91 0.67 1.16 0.74 0.68 1.19 Data for 2014 are as of March 18, 2015 Source: Adjusted Verified Totals for NCIS member companies combined with the data from non-members. lot programs and provides additional features including a range of coverage levels, coverage for replanting, coverage for expanding operations, a higher maximum amount of coverage than earlier whole farm plans, and coverage for market readiness costs. The plan will cover up to $8.5 million in insured revenue, including farms with specialty or organic commodities (both crops and livestock), or those marketing to local, regional, farm-identity preserved, specialty, or direct markets. Also, beginning with the 2014 crop year, a new contract price option was made available for producers who grow 11 organic crops under guaranteed contracts, allowing them to use prices established in those contracts as their "price elections" in place of the RMA-issued prices. RMA is evaluating making this option available for conventional and transitional crops that are grown under contract in future crop years, as appropriate. In addition to the introduction of the new whole farm plan, which although mandated by the Farm Bill had already been under development by RMA, other crop insurance product changes during 2014 included the introduction of the Peanut Revenue plan through the Federal Crop Insurance Corporation's (FCIC) 508(h) process (a product also mandated by the Farm Bill). The FCIC Board also terminated the Group Revenue Plan for sugarcane and cultivated clam coverage in Florida (although the coverage was made permanent in other states). In addition, the Livestock Risk Protection plan of lamb was amended to use a new pricing model. RMA also implemented a new process in 2014 for estimating the improper payment rate in the crop insurance program, as re- quired by the Improper Payments Elimination and Recovery Act. The Office of Management and Budget determined the estimation process that had been used was not producing statistically valid estimates, and working with the industry, RMA developed a new estimation procedure that was being put into effect in early 2015. [The information source for this section was the RMA Summary of Business, various RMA press releases, Managers Bulletins, Informational Memorandums, minutes of FCIC Board meetings, CBO 2014 Farm Bill cost estimates and NCIS analyses.] U.S. Crop-Hail Experience For the United States, crop-hail insurance generally refers to private policies in which direct damage from hail is the primary cause of loss. In addition to hail damage, many policy forms carry endorsements for additional perils. For the most part, the added perils include wind and fire, although there are exceptions. For the purpose of this article, results will be reported for all losses on hail policies, including the experience of NCIS non-member companies not included in NCIS' Annual Statistical Summary reports. Premium for 2014 as currently reported to NCIS was $991.9 million, up from $953.2 million in 2013, the largest in the history of the program. The premium amount in crophail has been steadily increasing since 2009. Crop hail provided $39.7 billion in privately insured crop-hail insurance protection to U.S. farmers in 2014. This coverage proved valuable in 2014 as it paid out $1.2 billion in losses (Table 7). The program had the largest hail losses in

Crop Insurance Today May 2015

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