August 2012 - National Crop Insurance Services

AUGUST 2012 • VOL. 45, NO. 3
Developing
Risk Management Plans
Data Mining
Steering Committee
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TODAYPRESIDENT’S MESSAGE
“What is, and What
Should Never Be....”
Laurie Langstraat, Editor
TODAY IS PROVIDED AS A SERVICE OF
NATIONAL CROP INSURANCE SERVICES ®
TO EDUCATE READERS ABOUT THE RISK
MANAGEMENT TOOLS PRODUCERS USE
TO PROTECT THEMSELVES FROM
THE RISKS ASSOCIATED WITH
PRODUCTION AGRICULTURE.
TODAY is published quarterly–February, May,
August, and November by
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NCIS ® EXECUTIVE COMMITTEE
Steve Rutledge, Chairman
Ted Etheredge, Vice Chairman
Tim Weber, Second Vice Chairman
NCIS ® MANAGEMENT
Thomas P. Zacharias, President
P. John Owen, General Counsel
James M. Crist, CFO/COO
Frank F. Schnapp, Senior Vice President
Mike Sieben, Senior Vice President
Creative Layout and Design
by Graphic Arts of Topeka, Inc., Kansas
Printed on recycled paper.
Recently, I did an interview with Chris
Clayton of DTN following Secretary-Vilsack’s
White House Press Briefing on the drought, and
Chris asked me if I had any song lyrics that
came to mind as we discussed the drought
situation and the critically essential role of crop
insurance for the summer of 2012.
In last year’s summer issue of TODAY
magazine, we pulled Fire and Rain from the
“deep tracks” to talk about the flooding along the
Mississippi and Missouri Rivers as well as the
prolonged drought occurring in the Southern
Plains, particularly in the states of Kansas,
Oklahoma, and Texas. This year, as our industry
Tom Zacharias, NCIS President responds to the drought of 2012, we deal not
only with the severity of the drought, but in
addition, the politics of the Farm Bill, the associated negative publicity campaign of our
critics, the uncertainty of a presidential election, and a struggling US and world economy.
So upon further reflection, I went to the “vinyl” and pulled some classic Led Zeppelin
from the shelf—What Is, and What Should Never Be.
What Is
The Drought of 2012
Unfortunately, we have not seen the end of the drought of 2012. We could be in for
a prolonged drought that began with the drought conditions in 2011 in the Southern
Plains. No one knows.
We do know that over one-half of U.S. counties have been declared natural disaster
areas. According to USDA’s July 31, 2012 Weekly Weather and Crop Bulletin, we do know
the condition of this year’s corn and soybean crops are both tracking with the 1988 crop
conditions. The 1988 drought was the worst in recent history, with a loss ratio (total
indemnities divided by total premium) of 2.45. We do know that crop insurance losses
on that scale would cost insurance companies, farmers and taxpayers billions of dollars.
Continued Pressure On the Agricultural Production Sector
We do know agricultural commodity prices have risen to historic levels, and could
continue to rise. According to the June 29, 2012 USDA Grain Stocks Report, U.S. stocks
of most major grain crops, with the exception of soybeans, have dropped significantly
compared to this same time last year. This is the short term outlook. Long term, we
expect to continue to observe increased population and income growth. World population
reached approximately seven billion people at the end of October 2011, and is
expected to exceed eight billion in population by 2025. We do know short-term crop
shortages relative to demand and long term population and income growth will
continue to put enormous pressure on the agricultural production sector.
Continued on page 27
CROP INSURANCE TODAY ® 1

VOL. 45, NO. 3
AUGUST 2012
Table of Contents
1 “What is, and What Should Never Be....”
4 Developing Risk Management Plans
16
10 Crop Insurance Rate of Return: Issues & Concerns
16 2011 Research Review
23 RMA/AIP Data Mining Steering Committee
30 NCIS Adjuster Training in Full Swing
32 Industry Support of FFA
35 Crop Insurance & Specialty Crops
30
Visit
www.cropinsuranceinamerica.com
32
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Possession of this material does not confer the right to print, reprint, publish, copy, input, transform, distribute or use same
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NCIS whose Membership Class (and service area, if membership is limited by service area) entitles them to receive copies
of the enclosed or attached material to reprint, copy or distribute such NCIS copyrighted material in its present form
solely for their own business use and solely to employees, adjusters or agents who are under contract with them, and
as a condition to receiving such copies, such employees, adjusters and agents agree that they will not reprint, copy or
distribute, or permit use of any such NCIS copyrighted material to or by any other person and/or company, or transform
into another work such NCIS copyrighted material, without prior written permission of NCIS.
© 2011 National Crop Insurance Services, Inc.

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The Past, Present and Future of Agricultural Risk Management. ®

TODAYcrop insurance
Developing
Risk Management Plans
By Dr. Laurence Crane, NCIS
This article summarizes the activities of
an RMA funded Competitive Cooperative
Partnership Agreement awarded to NCIS as
part of the Risk Management Education
and Outreach Partnerships Program. NCIS
presented educational workshops this
spring and summer in cooperation with
the University of Arkansas–Pine Bluff, and
Alcorn State University in Mississippi. The
objective of these workshops was to help
African-American farmers and ranchers in
Arkansas and Mississippi develop risk
management plans for their farms. This
training consisted of a series of three
sequential workshops in each state and
sixty hours of individualized instruction
and homework assignments.
4 AUGUST 2012
Project Overview
Risk management planning continues
to be a timely topic as farmers face historically
high input and energy costs, fewer
off-farm employment opportunities, and
increased financial and marketing risks.
The goal of this project was to assist limited
resource and African-American producers
of specialty crops and underserved
commodities in Arkansas and Mississippi in
responding to risk in the five special
emphasis areas of production (crop and
livestock insurance), marketing (strategies
and farmers markets), financial (farm management
strategies), legal (liabilities and
estate planning), and human resource
(labor) management. Individualized risk
management responses were formulated
using the business planning approach.
An applied education program consisting
of six workshops and individualized
counseling was developed and conducted
via a partnership of two trainers, two state
host coordinators (SHC) and twelve local
educators (Extension Associates). Specific
project objectives were to use business
planning to: 1) review risk management
principles, practices, and tools to familiarize
producers with how they can be effectively
applied in a holistic approach to their
farm situation; 2) assist producers in conducting
an effective risk assessment of their
own farm business; 3) inform producers of
Risk management planning
continues to be a timely
topic as farmers face
historically high input and
energy costs, fewer off-farm
employment opportunities,
and increased financial and
marketing risks.
alternative risk management strategies,
including crop and livestock insurance,
and delineate financial and marketing
opportunities for alternative case scenarios;
4) assist producers with formation
and adoption of their own individualized
risk response strategy; and, 5) review the
financial implications and legal considerations
of their chosen strategy.
The primary outcome of this educational
effort was for participants to develop the
skills and to understand their own operations
well enough to develop personal risk
management strategies for each of the five
risk emphasis areas specified above. The
extended duration and iterative nature of
the program, with sequential workshops
and personal follow-up, provided participants
with an opportunity to both develop
and revise plans with their own data and
have it professionally reviewed. This concentrated
and hands-on approach to education
typically leads to long-term behavioral
change and is consistent with the philosophy
that behavior changes are more
likely with sustained personal support.
Priority and Emphasis
This activity focused on producers of specialty
crops where there is no insurance coverage,
and producers of underserved commodities
that are covered by crop insurance
but have a participation rate lower than the
national average. Many of these producers
have limited historical knowledge and/or
personal experience with insurance programs.
It is imperative that they receive the
tools necessary to benefit from the use of
crop insurance where available and learn

Dr. Crane (far left) with the farmers and ranchers who attended the workshops at the University of Arkansas-Pine Bluff.
Extension Associate, Kandi Williams, (front row, second from right) UAPB & Silas H. Hunt Community Development Corporation Small Farm
Program, Texarkana, Arkansas noted: “From this risk management training, the producers worked on case studies that helped them understand
and better manage their farm enterprises. Some of the producers are still working on goals that they agreed to complete after the training. It has
been inspiring to see them take information from the workshops and actually achieve short-term goals discussed during the training.”
Dr. Crane with the farmers and ranchers who participated in the workshops in Jackson, MS, coordinated by Alcorn State University.
Ralph Arrington, (back row, 3rd from right) Agricultural Educator with Alcorn State Extension, was pleased with the workshops and felt
the participants were “provided a successful opportunity to set goals and decrease their risks.”
how it can be used in concert with the other
risk management and cost control strategies
they employ.
Partnering
Project partners were Dr. Laurence
Crane, NCIS Vice President-Education and
Communication; Dr. Albert Essel, Associate
Dean for Extension, Delaware State
University; Dr. Henry English, Small Farm
Project Director, University of Arkansas-
Pine Bluff; and Mr. Anthony Reed, Interim
Assistant Extension Administrator, Alcorn
State University in Mississippi. Dr. English
and Mr. Reed are the Small Farm Program
Coordinators in their respective states, and
were selected based on their membership
in and personal relationships with Small,
Limited Resource and African-American
farmers, and their history of delivering
exceptional educational programs to these
farmers and ranchers.
Dr. Essel assisted in managing the project
and teaching the workshops. Dr. Essel
has co-authored several extension publications
on all aspects of marketing and financial
risk management. He has extensive
CROP INSURANCE TODAY ® 5

educational experience in the South working
with African-American producers on a
wide array of farm and risk management
issues, including business planning, financial
and economic development and marketing
strategies common in the region. Dr.
Essel is a gifted teacher and relates well
with Limited Resource and African-
American producers and ranchers due to
his personal background and professional
experiences at Fort Valley State University,
Virginia State University, and Delaware
State University. Additionally, he has been
involved with outreach programs at almost
all of the 1890 Land-Grant Universities.
Each participant was expected
to develop a personalized
risk management action plan
for each special emphasis
topic (production, marketing,
financial, human, legal) over
a period of time following
the initial workshop.
Project Delivery
The delivery of this risk management
education program consisted of two
major components: workshops and individualized
study. Three day-long (6
hours, 18 hours total) sequential workshops
were conducted in each state
approximately 30 days apart. There were
52 producers (21 in Arkansas and 31 in
Mississippi) who attend all three workshops.
Workshop activities were designed
to build upon each other with specific
homework (individual study) assignments
to be conducted following each workshop.
The three homework assignments
were designed to take approximately 20
hours each to complete. The twelve local
Extension Associates were responsible to
follow-up individually with the producers
to ensure that homework assignments
were completed.
The workshops were instructional with
“hands-on,” participatory exercises.
Participants worked through several case
The workshops consisted of classroom instruction, group discussion, and personal assignments.
Here, participants are completing a hands-on assignment to conduct an inventory assessment of
their farm. Because writing focuses thinking, participants were required to document their
thoughts throughout the workshop.
Participants were grouped together by the types of commodities they produced (row crops, vegetables,
livestock, etc.) and worked together to identify the common risks they face and discussed
potential risk management strategies. Here, Dr. Laurence Crane is discussing the use of
enterprise budgeting in making decisions. Dr. Crane attributed the success of the program to its
focused and personal design: “This concentrated and hands-on approach to education typically
leads to long-term behavioral change and is consistent with the philosophy that behavior
changes are more likely with sustained personal support.”
A critical aspect to the success of this activity was the support and follow up by local Extension
Educators. Here, Dr. Henry English (right) is discussing this work assignment with Stephan
Walker, multi-county agent for Jefferson, Desha, Lincoln and Pulaski counties for the Small Farm
Program at the University of Arkansas at Pine Bluff.
6 AUGUST 2012

examples and began applying the principles
learned to their own operations.
Participant progress and learning was
monitored with the Personal Response
System (PRS) and other written assessment
techniques. PRS technology was
particularly well-suited for this workshop
as risk assessment and response strategies
can be quite personal. Individuals
who may be hesitant to speak orally can
simply respond to questions anonymously
by pressing numbers on a devise
resembling a TV remote control. A computer
and receiver process the responses
instantly and graph the results for all to
see. The PRS was used periodically
throughout the workshops to engage participants
and monitor the progress of
their understanding.
Each participant was expected to
develop a personalized risk management
action plan for each special emphasis
topic (production, marketing, financial,
human, legal) over a period of time following
the initial workshop. This required
participants to evaluate the risk situation
of their operations, set goals for managing
risk, interact with professionals (e.g. loan
officer, crop insurance agent, estate planning
advisor, etc.), and develop specific
strategies to measure and manage risk. All
workshop materials and supporting documents
were provided in hard copy and
electronically for review and downloading.
The State Coordinators, working with
the local educators, made contact with the
participants at regular intervals to offer
assistance and encourage them in their
efforts. Involving local educators and
other local resource people (crop insurance
agents, lenders, etc.) strengthened
the network of advisers that participants
could tap into and obtain additional information.
These resources provided a support
network that enabled adoption of
program materials and increased the
probability of long-term success.
Results
The primary outcome of this educational
effort was for participants to possess
the skills and to understand their
own operations well enough to develop
personalized risk management strategies
for each of the five emphasis areas (production,
financial, marketing, legal,
human). Participants were expected to
spend at least 20 hours completing homework
assignments after each workshop
for a total of 60 hours expected. On the
written evaluation form they reported
spending an average of 22.4 hours per
session for a total of 67.4 hours of personal
homework. Moreover, each of the 52
participants established a goal in each of
the five risk emphasis areas and delineated
three specific actions they would take
during the next year to reach each goal.
A secondary outcome of this project
was to develop and foster a long-term
working relationship between the farmer
participants and local educators.
Moreover, this educational approach also
improves the skills of these educators.
The personal interaction of these farmers
with the local Extension Associates as
designed in this project has the potential
of creating long-lasting relationships that
will be mutually beneficial.
The most important indicator of success
was the strong participation by the
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CROP INSURANCE TODAY ® 7

participants who returned each time and
actively participated in each of the three
workshops. At the conclusion of the last
workshop several farmers commented
orally and on the written evaluation that
they were grateful for the opportunity to
participate, had learned more than
expected, and wished the series could
continue on a regular basis.
See testimonials from program participants
on page 14.
Developing the skills to prepare financial statements was one of the workshop activities. Here, Dr.
Albert Essel is helping a group of row crop farmers prepare a balance sheet and income statement
for their farms. Dr. Essel commented about the program success, stating, “Over the years, I have
been involved with many educational interventions in agricultural risk management for socially disadvantaged
producers and educators who conduct programs for underserved audiences. The
response that we received from these producers in Mississippi and Arkansas during this series
gives me hope that for once we have hit the target. The energy, enthusiasm and desire to learn
tools for managing farm risk among the participating producers was exhilarating and infectious.”
This program integrated the use of existing
educational materials at the local level. Here,
Mr. Anthony Reed, Alcorn State University
discusses the publication, “Legal Risks Facing
Family Farms: What Every Small Farmer
Should Know.” Mr. Reed, who was the State
Host Coordinator in Mississippi commented,
“I believe the participants in the RMA/NCIS
class received a holistic approach to risk management
that I feel will help to sustain,
enhance and minimize their risks on their
farming enterprise.”
Each Participant who completed the program was presented with a certificate in recognition of
successfully completing the “Developing Personal Risk Management Plans” short course of
instruction, including eighteen hours of classroom instruction and sixty hours of supervised individual
study. Here, Roddric Bell, RMA Senior Risk Management Specialist/Outreach Coordinator,
Jackson Regional Office (left), and Dr. Laurence Crane, NCIS (right), present Audrey German,
Edwards, Mississippi, with her Certificate of Completion.
Participants were expected to set a goal in each
of five risk management areas (production, marketing,
financial, human resource, legal), and
identify three specific actions they will take to
accomplish each goal. Here, Dr. Henry English is
helping vegetable growers establish their goals.
Dr. English, who was the State Host Coordinator
for Arkansas commented, “I was quite pleased
by the interest that the participants showed in
the material that was presented. Several famers
indicated that this was their first time being
exposed to this quality of education on these
topics, and they really appreciated the effort to
help them learn the material.”
8 AUGUST 2012

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TODAYcrop insurance
Crop Insurance Rate of Return
Issues & Concerns
By Frank Schnapp, NCIS
In recent months, a variety of claims
have been aired in the press regarding
the cost of delivery of the Federal crop
insurance program and the profitability of
the private sector companies that deliver
the program to farmers. These claims
place the crop insurance industry in an
unfavorable light, arguing that the industry
is too profitable, that profits are guaranteed,
and that Administrative and
Operating (A&O) expense payments are
excessive. Naturally, the companies participating
in the program disagree. They
argue that if profits were generous or
excessive, new insurance companies
would be entering the program on a regular
basis. This is simply not taking
place. At one time, 49 companies participated
in the Federal program, but in
recent years the number of insurers has
not exceeded 16.
One explanation for the negative
press received by the program is simply
misinformation. Discussions of the
industry’s profitability often disregard
recent funding reductions to the program,
confuse basic financial concepts used to
calculate industry returns, and fail to take
into account that industry returns vary
over time and differ across geographic
regions. There are also serious questions
about the data used to estimate the industry’s
rate of return.
Unfortunately, public statements
regarding the rate of return have confused
the issue even further. Industry
leaders have met with the government to
clarify the issues and look forward to
continued dialogue. Among the concerns
voiced about the rate of return estimates
being discussed publicly are that
they:
• Confuse gross revenues with net
income;
• Assume that government A&O payments
to companies on behalf of producers
cover all program delivery
costs, which they do not;
• Fail to account for certain other operational
costs such as reinsurance;
• Ignore recent changes in the program;
and
• Fail to provide insurance companies
with the reasonable rate of return indicated
by government’s own study.
Up till now, the crop insurance industry
has not attempted to respond to the
misinformation appearing in the press.
However, in view of the ongoing attacks
against the program, the moment seems
right to present an overview of the industry’s
finances as a counterweight to the
distortions being presented to the public.
Unfortunately, statements
by government officials
regarding the rate of return
have confused the issue
even further. Industry
leaders have met with
the government to clarify
the issues and look forward
to continued dialogue.
How Crop Insurance
Works
In virtually every other Property and
Casualty (P&C) line of insurance, insurance
companies determine the rates they
charge based on their own loss experience,
expenses, and profit objectives.
The Federal crop insurance program
operates on an entirely differently basis.
The Risk Management Agency (RMA) of
the US Department of Agriculture establishes
the rates that every farmer will pay.
These represent expected indemnities
only, without taking into account
expenses or profit for the insurance company.
Since no insurance company can
operate without the ability to recoup its
expenses or earn a profit, the government
created a separate contractual
arrangement by which it can enlist the
services of the private sector in delivering
the program to all eligible farmers while
simultaneously providing participating
insurers the ability to recoup their program
delivery costs and the opportunity
to earn a reasonable return.
The Standard Reinsurance Agreement
(SRA) is a cooperative financial assistance
agreement that outlines the responsibilities
of insurance companies in delivering
the program and specifies the financial
arrangements under which the companies
operate. One section within the SRA
establishes the amount of A&O the government
pays to compensate insurers for
their cost of delivering the program.
Delivery costs would be included as part
of the premium in any other line of insurance,
but the government has chosen to
10 AUGUST 2012

eimburse these costs by making A&O
payments on behalf of insured farmers.
As mentioned above, rates for the
Federal crop insurance program exclude
any loading for the insurer’s profit.
Instead, the SRA allows an insurance company
to retain a portion of the total underwriting
gains (defined as the difference
between premiums and indemnity payments)
produced on its book of business.
At the same time it also requires the insurer
to retain a portion of any underwriting
losses. In the five Corn Belt states, an
insurer’s maximum underwriting gain is
currently 34.75 percent of premium, while
its underwriting loss can be as much as 94
percent of premium. In other states,
underwriting gains are capped at 42.6 percent
while underwriting losses can be up
to 51.5 percent of premium. What should
be kept in mind is that the underwriting
gain or loss a company earns in a year
depends primarily on the weather. When
weather conditions are good and farmers
have high yields, fewer claims are reported
and companies are able to earn underwriting
gains. However, in a year with poor
weather conditions and low yields, farmers
report more claims and insurers absorb
underwriting losses. If poor weather
affects a large number of states, the underwriting
losses in those states could swamp
the gains earned throughout the rest of the
country. Due to the potential for widespread
losses, crop insurance is much riskier
than most other P&C lines of insurance.
This point can be illustrated by considering
how often an industry loses money.
Industry sources report that the P&C industry
as a whole has lost money only once, in
2001, due to the unprecedented attack on
the World Trade Center in New York City.
In comparison, the crop insurance industry
has lost money in two years over just the
past two decades, in 1993 and 2002. If the
current SRA had been in effect during 1983
and 1988, two years with widespread crop
failures, the industry would have lost
money in those years as well.
Recent Program Changes
The finances of the crop insurance program
regularly come up for Congressional
review as part of the Farm Bill debate.
Reforms introduced in the 2008 Farm Bill
were estimated to have reduced industry
revenues in excess of $6 billion over the
ten year budgeting period. In addition,
RMA renegotiates the terms of the SRA
every five years. Based on information
released by RMA, the recently completed
negotiations for the 2011 SRA reduced
industry underwriting gains and A&O payments
by an additional $6 billion over the
next 10 years. Under the terms of that
agreement, government estimates of private
sector underwriting gains (not Net Income)
were 14.5 percent of retained premium.
Shortly after the conclusion of the SRA
negotiations, RMA reduced its 2012 premium
rates for corn and soybeans. These
changes are estimated to reduce prospective
underwriting gains by an additional 2
percent of retained premium.
The President’s 2013 Budget proposal
now seeks to reduce the overall return to
the companies even further. This is a matter
of serious concern for the industry.
Even prior to the recent reductions, there
were a number of states where companies
have little or no opportunity to earn a fair
return. The significant uncertainties
regarding the adequacy of returns for the
entire program and by region raise the
issue of whether adequate incentives exist
for private sector delivery of the program
on a nationwide basis.
CROP INSURANCE TODAY ® 11

Table 1.
Crop Insurance Industry Income Statement
In Millions of Dollars
Premium and Equity
Gross Premium (a) 10,417
Retained Premium after reinsurance and Quota Share (a) 8,265
Equity (b) 10,871
Revenue
Underwriting Gain/Loss (c) 1,033
Investment Income on Equity (d) 353
A&O Payments (e) 1,332
Expense
Loss Adjustment and Company Overhead (f) (629)
Commissions and processing fees (g) (1,132)
Cost of borrowed funds due to delay in payment of
A&O and Underwriting Gain (h)
(42)
Income = Revenue – Expense
Pretax Income 915
Federal Income Tax (i) (287)
After-tax Net Income 628
Rate of Return
Return on Equity (ROE) 5.8%
Cost of Capital (Required Return on Equity) (j) 12.7%
(a) Estimated 2012 premium is based on 2011 actual premiums adjusted for corn and soybean rate changes
and commodity price changes. Retained Premium is based on 2011 premium retention percentages and
is net of Quota Share.
(b) For the purpose of this exhibit, industry equity has been developed under the assumption that the industry
holds sufficient capital to make commercial reinsurance unnecessary. Federal Regulations require companies
to hold capital of no less than twice the company’s maximum possible underwriting loss. This
assumption obviates the need to include the cost of reinsurance as an expense.
(c) Estimated underwriting gain is based on RMA’s long-term estimated underwriting gain (14.5% of
Retained Premium) as of June 28, 2010, reduced by the estimated impact of the new RMA ratemaking
methodology (2.0% of Retained Premium) for the 2012 year. Additional reductions in underwriting gains
are anticipated for 2013 but are as yet unknown.
(d) Equity is invested in short-term instruments to ensure that the money will be readily available when needed.
Investment income is based on the Wall Street Journal prime rate of 3.25% as of July 9, 2012. No
investment income is earned on insurance policy cash flows due to the brief period between collection of
premium and payment of indemnities.
(e) 2012 A&O payments have been estimated based on the provisions of the 2011 SRA.
(f) Loss adjustment and overhead expenses are the average of 2009 and 2010 actual expenses reported in
the most recent Grant Thornton report adjusted for annual inflation of 2 percent.
(g) Commissions are based on provisions in the 2011 SRA that provide up to 85% of A&O for agent commissions
and processing fees. The SRA also allows additional agent compensation, which is not included in
the figures presented here.
(h) Delays in receiving A&O and underwriting gains impose a financial cost on the industry estimated to be
-0.5% of Retained Premium.
(i) Applies a Federal corporate tax rate of 35% on operating income and 25.4% on investment income
(obtained from the 2009 Milliman study).
(j) The average cost of capital as shown in the 2009 Milliman study prepared under contract with RMA.
Net Income, Return on
Equity, and Cost of
Capital
In order to respond to the public
debate regarding the profitability of the
program, we first need to clarify the distinction
between gross revenue and net
income. The net income, or profit, of a
business is the difference between its revenue
and expense. For a crop insurer, revenues
consist of underwriting gains and
A&O payments, as well as any income
earned from the investment of the insurer’s
capital. Program delivery expenses include
loss adjustment expense, agent compensation,
and company overhead. Net income
is also net of Federal, state, and local taxes.
While net income is important in itself,
companies also need to know how well
they are performing in comparison to their
peers and other industries. The accepted
standard for measuring the profitability of a
company or an industry is its Return on
Equity (ROE), defined as the ratio of net
income to the equity (i.e., capital) invested
in the business. According to financial theory,
unless ROE is competitive with other
uses for capital, capital will be withdrawn
from an industry and be reinvested in
industries with better rates of return. In
general, the riskier a business, the greater
its rate of return needs to be. Financial theory
refers to the required rate of return of
a business as its cost of capital. In effect, a
company needs to achieve an ROE equal
to its cost of capital in order to remain
viable over the long term.
Cost Effectiveness
Another issue raised during public discussions
has been the A&O payments
made to the companies. A&O has often
been described as extra profit that companies
make in addition to their underwriting
gains. The reality is that A&O is used to
compensate insurers for their cost of delivery.
A&O is paid on behalf of farmers
rather than included as part of the premium
in order to reduce farmers’ out-ofpocket
cost for risk protection.
One question critics raise with regard
to A&O is whether the government is
overpaying for private sector delivery of
the program. This question can be
addressed by comparing the cost of delivery
of the Federal crop insurance program
to other P&C lines of insurance.
That comparison has been published in a
report prepared by Grant Thornton LLP 1 .
The report demonstrates that the crop
insurance industry is vastly more cost
effective than other sectors of the insurance
industry. Total delivery expense in
2010 for the crop insurance industry was
roughly 25 percent of expected indemnities.
For the P&C industry in total, the
comparable cost was in excess of 65 percent.
Over the most recent five year period,
loss adjustment expense for the crop
12 AUGUST 2012

insurance industry averaged just 2.5 percent
of expected indemnities versus 14.6
percent for Homeowners and Private
Passenger Auto Physical Damage insurance.
Agent compensation was 16.3 percent
in comparison to 18.1 percent for
the P&C industry in total. Company overhead
expense for the crop insurance
industry was only 4.9 percent versus 22.6
percent for the P&C industry as a whole.
Clearly, the industry has very little fat left
to trim.
Crop insurers also raise a question with
regard to A&O payments, but their question
is whether the amount of A&O they
receive is adequate to cover their delivery
cost. A&O has been cut drastically over
time, from 35 percent of premium in the
early years of the program, to an estimated
11 percent in 2011. Prior reductions had
been feasible due to the rapid growth of
the program, which enabled companies to
spread their costs over a larger base. It
needs to be recognized, however, that the
current A&O reimbursement is a fraction of
the amount that other insurers receive for
delivering the Federal Flood insurance program,
a program in which insurers share
none of the risk, and a fraction of the premium
expense loading in other sectors of
the P&C industry. Out of this reduced
A&O allotment, critics of the industry argue
that companies should be able to pay loss
adjusters to investigate and settle claims on
one out of every four policies, cover company
overhead costs such as employee
salaries, benefits, rent, and utilities, and
compensate agents for delivery of the program
to farmers. This is simply not feasible.
The reality is that A&O does not now
and has not been adequate to cover program
delivery cost for the past 15 years.
Companies have been compelled to dig
into their own pockets instead to pay the
portion of expenses not covered by A&O.
Measuring the Crop
Insurance Industry Rate
of Return
Because companies within the crop
insurance industry differ with respect to
their scale of operation, regional spread of
business, and organizational structure,
there is no single rate of return that can be
Another issue raised
during public discussions
has been the A&O
payments made to the
companies. A&O has
often been described as
extra profit that companies
make in addition to their
underwriting gains.
ascribed to every company in the industry.
The following analysis instead attempts to
estimate the average rate of return expected
for the industry as a whole. Results
have been developed based on an estimate
of 2012 premium. These results do
not reflect actual experience for 2011 or
what may happen in 2012 due to effect of
the drought. Instead, they represent what
would have been expected for 2012 at the
start of the year, before effects of the
drought became apparent.
• As noted above, the level of underwriting
gains negotiated under the 2011
SRA were estimated to be 14.5 percent
of retained premium. However, underwriting
gains are now expected to be 2
points less than this due to the effect of
the 2012 rate reductions.
• A&O has been estimated based on the
provisions of the 2011 SRA.
• Estimated loss adjustment and industry
overhead expenses for 2012 are the
average of 2009 and 2010 actual
expenses from the most recent Grant
Thornton report adjusted for annual
inflation of 2 percent;
• Commissions are based on provisions
in the 2011 SRA that provide up to 85
percent of A&O for commissions and
processing fees. Total agent compensation
is limited to 100 percent of A&O
plus an additional 5 percent for processing.
• The delay in receiving A&O and underwriting
gains imposes a financial cost
on the industry of 0.5 percent of
retained premium;
• Equity retained in support of the program
has been developed under the
assumption that industry capital fully
satisfies the requirements of the Code
of Federal Regulations. This eliminates
the need for commercial reinsurance
and allows the cost of reinsurance to
be excluded from the analysis.
• Investment income is earned through
the investment of the insurer’s equity
in the bond markets. Equity is
assumed to be invested in short-term
instruments at 3.25% to ensure that the
money will be available when needed.
No investment income is earned on
premium cash flows since premiums
are collected close to the time when
indemnities are paid.
The attached exhibit estimates the
crop insurance industry expected rate of
return. Once all of the relevant factors
have been taken into account, the industrywide
expected return on equity of 5.8
percent is well below the estimates
quoted in the press. It is also significantly
less than the industry’s cost of
capital as reported in the 2009 Milliman
study commissioned by RMA 2 . The
industry’s rate of return is roughly half
of the level needed to retain capital in
the program. While critics might argue
that an adequate rate of return could be
achieved if industry were to reduce its
expenses even further, this is not the
case. Even if A&O covered all program
delivery costs, industry ROE would be
just 8.3 percent, still well below the
industry’s cost of capital.
Additional Observations
on the Rate of Return
The one certainty in the crop insurance
industry is that change is continual.
Ongoing program changes may bring
about further changes. How these may
affect the industry is yet to be determined.
Additional points to keep in mind with
regard to the results shown here are that
returns earned by the industry are not
guaranteed. Companies are exposed to
considerable risk that may cause their
results to vary widely from year to year
and from region to region. The high
degree of risk has not been adequately
considered in any analysis provided by the
government. Furthermore, an adequate
CROP INSURANCE TODAY ® 13

ate of return at the national level may not
ensure an adequate return for individual
states. Certain states, particularly in the
Southern Plains, have extremely low or
even negative expected rates of return,
which has serious implications for the
long-term viability of the private delivery
system in those regions.
As the 2012 Farm Bill
debate continues, it is
hoped that everyone
recognizes that the crop
insurance system is working
exactly as Congress
intended by reducing
taxpayer risk and speeding
relief to growers when
they need it the most.
Summary
As the 2012 Farm Bill debate continues,
it is hoped that everyone recognizes that the
crop insurance system is working exactly as
Congress intended by reducing taxpayer risk
and speeding relief to growers when they
need it the most. This is why farmers and
their bankers are strong proponents of the
existing crop insurance structure and have
asked that it not be weakened further. The
crop insurance companies are doing more
with less and fear that the misinformation
reported in the press may undermine the
successful public-private partnership that has
taken more than three decades to build.
The crop insurance industry welcomes
the opportunity for an open and honest dialogue
regarding the profitability of the program.
We believe that an impartial analysis
of the industry’s profitability will demonstrate
that the industry is earning a rate of
return less than industries of similar risk, and
well below the industry’s cost of capital.
1 h t t p : / / w w w. a g - r i s k . o rg / N C I S P U B S /
SpecRPTS/GrantThornton/Grant_Thornton_R
eport-2011.pdf
2 Table 1 from Historical Rate of Return Analysis,
prepared by Milliman, Inc., August 18, 2009
14 AUGUST 2012
Risk Management Education &
Outreach Partnerships Program
Farmer and Rancher Testimonials
“The first exercise was one of the best I
had, because it helped me realize I really
didn’t know what I had for assets. The lesson
for that week was to go home and look
at everything and do an inventory and see
what assets you have. What I learned really
surprised me. This was a really great class
to do. I learned about risk management,
and about asset and liability management.
I would tell everybody-if you are into
farming, you need to take this class.”
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Jefferson County, Mississippi
“This workshop has been most helpful
to me because I have learned the different
aspects of risk management on a farm.
There are great aspects of record keeping,
and financial record keeping is one of the
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Madison County, Mississippi
“I enjoyed participating in the workshops.
I learned a lot about business planning as
well as risk and goal setting and asset
management; basically what is being looked
at by bankers and other people these days
in agriculture. I’m glad I participated in the
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–Louis Sanders, Mound Bayou
Bolivar County, Mississippi
See the complete, Developing Risk Management Plans article
starting on page 4.
Personalized Risk Management Strategies

TODAYcrop insurance
2011
Research Review
By Dr. Mark Zarnstorff, NCIS
Each year NCIS sponsors research
projects on a variety of crops. The purpose
of the research varies, but it could
be to study new crops or changes in crop
varieties/practices, to verify accuracy of
loss charts and procedures, or develop
improved loss instructions. All research
projects are conducted for a period of at
least three years. If, for some reason,
results are not obtained for one or more
years, the research project can be extended.
University experiment stations and
agricultural colleges conduct the research,
often at more than one location across the
United States. The results of the 2011
research program are summarized below.
It is important that these results are not
used exclusively, but combined with the
results from previous years’ research and
any subsequent research.
Canola–Saskatchewan
This research was done to reexamine
the influence of defoliation during the
early stages of hybrid canola growth and
development. The original research was
done in the early 1980s on open pollinated
varieties that have very different
Soybeans V2 stage.
growth rates and plant vigor compared
with the hybrid varieties grown currently.
This trial was done at two locations just
out of Saskatoon, Saskatchewan during
the 2011 growing season. The treatments
were based on different leaf stages of
2, 4, 6, 8, and 10 full leaves with defoliation
levels of 0, 50, and 100 percent.
The response to the defoliation treatments
are below:
Loss
Defoliation 50% 100%
2 Leaf 0% 5%
4 Leaf 12% 24%
6 Leaf 6% 28%
8 Leaf 4 28%
10 Leaf 3 28%
Corn–Kansas
This is the last year of the corn research
project that is focused on the effect of stand
reduction and the accuracy of the use of the
one-for-one factor in stand reductions
occurring after the 11-leaf stage. The treatments
are stand reductions of 0, 25, 50, and
75 percent being applied at the 7, 10, 13,
and 17-leaf stages. The experiment was
done under irrigation at an elevation of 2800
ft at Garden City, Kansas. The response to
the stand reduction treatments are below:
Loss
Leaf Stage 7 leaf 10 leaf 13 leaf 17 leaf
25% Stand Loss 19% 9% 6% 23%
50% Stand Loss 3% 23% 17% 28%
75% Stand Loss 46% 53% 52% 68%
16 AUGUST 2012

Collecting wheat samples in Washington.
Corn–Illinois, Minnesota,
Ohio
This research is being conducted to
determine the accuracy of the maturity
line appraisal method for corn. Previous
research suggested that the current maturity
line appraisal method may be underestimating
the final yields when done at
the early milk lines. The research was
done in three states to try and determine
the actual corn fill rates and if the current
factors are adequate or if different factors
may be more appropriate. The research
shows that the current appraisal method
underestimates yield by approximately
44 percent at the 1/4 kernel stage to
about 28 percent at the doughy
stage. The appraisal method estimated
yield within five percent of the actual
yield when the appraisal was done in the
extended kernel stage.
Cotton–Arizona
This study was initiated to determine
the effects of plant cut-offs in cotton, that
is specific to the growing conditions of
Arizona. This research looks at the cutoffs
during vegetative and reproductive
stages of growth. The treatments were
cutoffs at node 2, 4, 8, 12, 16, and 24 with
the cutoff occurring at the top node, and
then at 2 nodes and 4 nodes below the
top node. An example would be at node
16, the cut-offs would occur at C16, C14,
and C12.
The growth stage at which the plant
cut-offs were removed had a significant
effect on cotton yield. The loss percentages
were consistently lower than what
the current charts would suggest.
Node Cut 2 4 8 12 16 24
Terminal 9% 6% 2% 9% 9% 3%
Cut 2 Nodes 11% 5% 7% 9% 4%
Cut 4 Nodes 12% 8% 9% -1%
Cotton–South Carolina
This study was initiated to determine
the effects of plant cut-offs in cotton that is
specific to the growing conditions of South
Carolina. This research was conducted
under dryland and irrigated conditions.
This study looks at the cut-offs during vegetative
and reproductive stages of growth.
The treatments were cutoffs at node 2, 4, 8,
12, 16, and 24 with the cutoff occurring at
the top node, and then at 2 nodes and 4
nodes below the top node. An example
CROP INSURANCE TODAY ® 17

and first open boll (approximately 16 fruiting
branches) and was done under subsurface
drip irrigation. Losses are outlined
below:
Defoliation was another aspect of this
trial. Defoliation at levels of 0, 50, and 100
percent were done at the same stages as
the limb removals. Results are as follow:
Loss
Defoliation 50% 100%
R8 11% 35%
R12 20% 65%
R16 13% 20%
Counting tillers.
would be at node 16, the cut-offs would
occur at C16, C14, and C12.
The growth stage at which the plant
cut-offs were removed had a significant
effect on cotton yield. The loss percentages
were consistently lower than what the current
charts would suggest. The later stages
of development actually saw increased
yields under irrigation from the removal of
the upper most nodes.
Irrigated Loss
Node Cut 2 4 8 12 16 24
Terminal 10% -5% -7% -13% -21% -14%
Cut 2 Nodes 6% -10% 13% -28% -27%
Cut 4 Nodes 14% 20% -3% -26%
Dryland Loss
Node Cut 2 4 8 12 16 24
Terminal 4% 12% 10% 10% 3% -5%
Cut 2 Nodes 12% 7% 10% 2% -6%
Cut 4 Nodes 18% 19% 34% -9%
Cotton–Texas
This trial was initiated to look at the differences
in the impact of limb removal and
defoliation on the production of “stripper”
and “picker” cotton in the High Plains of
Texas. The development of newer varieties,
with a combination of genetic characteristics
between the traditional “stripper”
and “picker” types, has resulted in some
questions in how these newer varieties will
respond to defoliation and vegetative limb
removal. This study looks at removal of the
reproductive limbs at levels of 0, 25, 50, 75,
and 100 percent at first flower (approximately
eight fruiting branches); one-inch
boll (approximately 12 fruiting branches);
Loss
Limb Removal 35% 50% 75% 100%
R8 3% 1% -2% 1%
R12 -2% -1% 10% 29%
R16 16% 32% 44% 94%
Cotton–Texas
This study was initiated to determine the
effects of plant cut-offs in cotton that is specific
to the growing conditions of Texas.
The trial was conducted under dryland and
irrigated conditions and looks at the cut-offs
during vegetative and reproductive stages
of growth. The treatments were cutoffs at
node 2, 4, 8, 12, 16, and 24 with the cutoff
occurring at the top node, and then at 2
nodes and 4 nodes below the top node. An
example would be at node 16, the cut-offs
would occur at C16, C14, and C12.
The weather conditions were extremely
difficult for growing cotton, especially under
the dryland conditions due to extreme
drought. The response to the various treatments
varied greatly and will be examined
to determine their fit before any changes are
incorporated into the loss procedures.
Irrigated Loss
Node Cut 2 4 8 12 16 24
Terminal 6% 23% 5% 22% -13% -8%
Cut 2 Nodes 18% 10% 17% 13% 3%
Cut 4 Nodes 21% 9% 6% 15%
Dryland Loss
Node Cut 2 4 8 12 16 24
Terminal 2% -4% 8% -5% 11% 8%
Cut 2 Nodes 29% 8% 26% -11% -17%
Cut 4 Nodes 19% -37% -16% 8%
Dry Beans–Nebraska
This is the third year of a three-year
study of the influence of defoliation on two
new plant architecture classifications of dry
beans. Historically, dry beans have been
18 AUGUST 2012

classified as either bush (Type I), vining
(Type III) or as pole (Type IV). Plant
breeders have started developing new varieties
that are not true bush types (not
determinant like a true bush) but are more
upright in architecture than the true vining
types that were very prostrate. These new
varieties are classified as Type IIa (Upright
short vines–USV) and Type IIb (Upright
vines–UV).
This trial looked at two varieties, one a
UV (Matterhorn) and one a Type III (Beryl)
with plant defoliation at three different stages
of growth, V4, R1, and R3 and imposed four
different levels of defoliation: 0, 33, 66, and
100 percent. There was no difference in the
response of the two varieties at the different
stages of growth and levels of defoliation
over the three years of the trials.
Dry Field Peas–
Saskatchewan, Canada
2011 was the third year for this trial
looking at node removal or cut-offs in
field peas. The current varieties used for
dry pea production are almost exclusively
semi-leafless varieties that have little to no
leaf area but rather an enlarged stipule at
the base of each node or branch. This
leaves no “defoliation” as a means of
determining losses, so we are left with cutoffs
or node removal as the way to determine
the losses due to hail damage.
Treatments consisted of the plant having
0, 25, 50, 75, or 100 percent of the above
ground nodes removed at the four, eight,
12, 16 node stages and at the second
flower bloom (approximately 20 nodes).
The 2011 growing season was different
than 2009 or 2010 because it was more
“normal”—drier than 2010 but warmer
than 2009. The three years of the study
had data from the range of weather that is
often experienced in Saskatchewan so
should provide a good average for what
can be expected.
Loss
Nodes Removed 25% 50% 75% 100%
Losses at Stage V4 –% 5% –% 11%
Losses at Stage V8 17% 28% 31% 45%
Losses at Stage V12 35% 55% 74% 85%
Losses at Stage V16/R1 45% 62% 73% 87%
Losses at Stage R2 49% 74% 89% 95%
Rice.
Dry Field Peas–
Washington
The state of Washington is a traditional
growing area for dry field peas. The
climate is much different than
Saskatchewan or North Dakota in that the
summer is much warmer and drier than
those found in the upper Great Plains.
Field peas may not have as much potential
for recovery if cut-off by hail as the
plant develops because of this. A trial
was initiated in 2010 to study the affect of
hail on cut-offs of dry field peas. The current
varieties used for dry pea production
are almost exclusively semi-leafless varieties
which have little to no leaf area but
rather an enlarged stipule at the base of
each node or branch. This leaves no
“defoliation” as a means of determining
losses, so we are left with cut-offs or
node removal as the way to determine
the losses to hail damage. Treatments
consisted of the plant having 0, 25, 50,
75, or 100 percent of the above ground
nodes removed at the 4, 8, 12 node
stages and at the second flower bloom
(approximately 14 nodes in 2011 due to
dry weather). Removal of nodes at the 4-
node stage had little effect on the production
of the peas. Losses for the 8-node
treatment were not very severe until it
reached 100 percent of the nodes
removed. The losses increased as the age
of the plant advanced especially with
damage of 75 or 100 percent of the nodes
removed.
Loss
Nodes Removed 25% 50% 75% 100%
Losses at Stage V4 –% 31% –% 53%
Losses at Stage V8 47% 45% 84% 63%
Losses at Stage V12 70% 48% 100% 100%
Losses at Stage R2 69% 90% 100% 100%
Rice–Arkansas
This study was developed to compare
some of the new hybrid rice varieties to a
conventional rice variety with respect for
the tendency to shatter. Various observations
have been made over the past two
years that the new hybrid rice varieties
have a greater yield potential than the
conventional varieties, but that under
field conditions they may also have a
greater tendency to shatter the seed
before harvest. This experiment looked at
the conventional variety “Wells” and
compared these to the hybrid varieties
“Arize 1003”, “CLXL729,”“CLXL745,” and
“XL723.” These varieties were planted
within the rice variety tests that were
planted at seven different locations with
the rice growing of Arkansas. Just prior to
harvest, ten representative heads of each
variety tested were clipped and placed in
CROP INSURANCE TODAY 19

a bag. The ten heads were then “slapped”
against the collector’s leg for ten times
resulting in seeds that either remained
attached to the panicle or were loose.
These seeds were then weighed and
counted to determine the percent of shatter
for each variety. The ease of shatter
was greater in 2011 than 2010 for all varieties,
including the conventional “Wells.”
Percent of Shatter
Variety 2011 Two Year Average
Arize 1003 52% 52%
CLXL729 75% 62%
CLXL745 60% 50%
XL723 76% 66%
Wells 51% 37%
Soybeans–Missouri
A trial that began in 2009 continued to
look at the removal of nodes at various
times during the vegetative and reproductive
stages. The stages that were studied
were the V3, R1, and R3 stages with
node removal rates of 25, 50, 75, and 100
percent. The differences in response to
the level of node removal at the different
stages are similar to those shown in previous
studies in Indiana and Iowa.
Loss
Nodes Removed 25% 50% 75% 100%
Stage V4 3% 4% 13% 78%
Stage R1 4% 7% 33% 100%
Stage R3 5% 33% 47% 100%
Wheat–Washington
This trial was done to research the
different factors that can influence the
yield of soft white winter wheat in the
Pacific Northwest. This research looked
at four different seeding rates for two
different varieties in two different climatic
areas of wheat production in
Washington State. The seeding rates
were 50, 75, 100, and 125 percent of
“normal” for the different growing areas.
Some of the factors that were measured
were number of plants established in the
spring, the number of heads per plant,
the kernels per head, the 1000 kernel
weights, and yields. The planting areas
were considered to be a ‘high rainfall”
around Pullman and a medium rainfall
area around Davenport.
The number of plants per foot of row
increased only at the highest seeding
rate at Davenport and there was no difference
between seeding rates at
Pullman except for the lowest rate. The
number of heads per plant was highest
for the lower seeding rates for “Madsen”
at Davenport and at Pullman. There was
no difference for “Eltan” at either location.
The numbers of kernels per head
were not significantly different for
“Eltan” at either location, while the
lower seeding rates had greater seed
numbers for “Madsen” at both locations.
Yield at Davenport for “Eltan” was
greater for the 75,100, and 125 percent
seeding rates compared to the 50 percent
seeding rate while there was no
difference between the higher three
seeding rates. There was no difference
in Yield for “Madsen” between the 100
and 125 percent seeding rates which
were both greater than the lower
seeding rates.
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20 AUGUST 2012

a bag. The ten heads were then “slapped”
against the collector’s leg for ten times
resulting in seeds that either remained
attached to the panicle or were loose.
These seeds were then weighed and
counted to determine the percent of shatter
for each variety. The ease of shatter
was greater in 2011 than 2010 for all varieties,
including the conventional “Wells.”
Percent of Shatter
Variety 2011 Two Year Average
Arize 1003 52% 52%
CLXL729 75% 62%
CLXL745 60% 50%
XL723 76% 66%
Wells 51% 37%
Soybeans–Missouri
A trial that began in 2009 continued to
look at the removal of nodes at various
times during the vegetative and reproductive
stages. The stages that were studied
were the V3, R1, and R3 stages with
node removal rates of 25, 50, 75, and 100
percent. The differences in response to
the level of node removal at the different
stages are similar to those shown in previous
studies in Indiana and Iowa.
Loss
Nodes Removed 25% 50% 75% 100%
Stage V4 3% 4% 13% 78%
Stage R1 4% 7% 33% 100%
Stage R3 5% 33% 47% 100%
Wheat–Washington
This trial was done to research the
different factors that can influence the
yield of soft white winter wheat in the
Pacific Northwest. This research looked
at four different seeding rates for two
different varieties in two different climatic
areas of wheat production in
Washington State. The seeding rates
were 50, 75, 100, and 125 percent of
“normal” for the different growing areas.
Some of the factors that were measured
were number of plants established in the
spring, the number of heads per plant,
the kernels per head, the 1000 kernel
weights, and yields. The planting areas
were considered to be a ‘high rainfall”
around Pullman and a medium rainfall
area around Davenport.
The number of plants per foot of row
increased only at the highest seeding
rate at Davenport and there was no difference
between seeding rates at
Pullman except for the lowest rate. The
number of heads per plant was highest
for the lower seeding rates for “Madsen”
at Davenport and at Pullman. There was
no difference for “Eltan” at either location.
The numbers of kernels per head
were not significantly different for
“Eltan” at either location, while the
lower seeding rates had greater seed
numbers for “Madsen” at both locations.
Yield at Davenport for “Eltan” was
greater for the 75,100, and 125 percent
seeding rates compared to the 50 percent
seeding rate while there was no
difference between the higher three
seeding rates. There was no difference
in Yield for “Madsen” between the 100
and 125 percent seeding rates which
were both greater than the lower
seeding rates.
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20 AUGUST 2012

TODAYcrop insurance
RMA/AIP
Data Mining
Steering Committee
By Troy Brady and David Hall, NCIS
The Agricultural Risk Protection Act of
2000 (ARPA) required the Secretary of
Agriculture to use data technologies to
administer and enforce crop insurance program
compliance and integrity initiatives.
The Risk Management Agency’s (RMA)
Office of Strategic Data Acquisition and
Analysis (SDAA) was established to manage
the Agency’s data warehousing and
data mining program. SDAA partnered with
the Center for Agribusiness Excellence
(CAE) at Tarleton State University in
Stephenville, Texas to carry out its responsibilities.
Since 2001, CAE has developed
and managed RMA’s data warehouse and
data mining initiatives. As RMA’s data mining
function has grown over the years,
Approved Insurance Providers (AIPs) have
begun to take a more active role in the data
mining program.
Background on Current
Data Mining Structure
and Activities
Data mining assists RMA in identification
and elimination of program fraud,
waste and abuse by targeting program
weaknesses and identifying agents, loss
adjusters and producers that may need to
be monitored or investigated. CAE is also
responsible for delivering an annual spot
check list of producers to the Farm
Service Agency (FSA) as part of their
monitoring program required by ARPA.
These are producers whose data are
indicative of anomalous behavior.
Similarly, CAE provides AIPs with a spot
check list of anomalous producers, agents
and loss adjusters each year.
CAE has developed a relational database
that contains records from multiple
RMA and FSA data tables (Figure 1). It
includes all Federal Crop Insurance
Corporation (FCIC) reinsurance year policyholder
data from 1991 through the present.
The data warehouse and data mining
techniques are used to identify agents, loss
Figure 1. The Data Mining Process
Agency
data
Other
federal data
Data from
public
sources
Data from
the private
sector
Input
Collected, linked,
validated,and
formatted
Data
warehouse
Source: GAO, adapted from Vipin Kumar and Mohammed J. Zaki.
adjusters and producers that exhibit
“anomalous” claim outcomes. Anomalous
outcomes are defined as outcomes that are
equal to or greater than 150 percent of the
mean claim outcome in a designated area.
Although anomalous behavior is not considered
evidence of fraud, waste and
abuse, it is an indicator of situations that
may warrant further examination.
Extensive Data
Warehouse
RMA and FSA program data are only a
portion of the information within RMA’s
Analysis
Iterative query
Pattern-based query
Subject-based query
Iterative query
Analysis can be iterative with the
results of one query being used to
define criteria for a subsequent query
Output
Results
Results
Results
Results
Results can be in
printed or electronic
format
CROP INSURANCE TODAY 23

data warehouse (Figure 2). CAE regularly
collects, stores and analyzes weather, soils
and flood data from numerous public and
government sources. Data sources include:
NEXRAD radar reflectivity data, used to verify
hail, tornado and hurricane damage
claims; long term historical and current temperature,
precipitation, hail and other meteorological
data from weather stations
around the country, which is used to validate
hail, excess moisture heat, flooding,
drought and freeze claims; gridded
Quantitatively controlled Precipitation
Estimate (QPE) data that uses multiple
sources (radar, weather stations, and
satellite data) to estimate precipitation,
which is used for excess moisture, flood,
and drought claims; and satellite data
from the Moderate-Resolution Imaging
Spectroradiometer (MODIS) sensor aboard
two satellites, which is used to validate prevented
planting, flood and drought claims.
Additional weather data is obtained from
the Parameter-elevation Regressions on
Independent Slopes Model (PRISM)
Climate Group at Oregon State University
(OSU). Soils data is obtained from the
National Resources Conservation Service
(NRCS). Many of these data are collected in
real-time and stored for future analysis
within the data warehouse and spatial data
marts. Collectively these data represent
over twenty-five terabytes of storage space
within RMA’s data warehouse and spatial
data marts.
Impetus for and
Expectations of the Data
Mining Steering
Committee
Prior to 2011, SDAA had hosted an
annual meeting with AIPs to update them
on data mining activities. Three AIPs had
participated in SDAA’s Users Group, which
met quarterly to discuss data mining initiatives.
In addition, over the past few years
several AIPs have submitted work orders
to SDAA for data mining assistance on controversial
claims and similar issues.
Under the 2011 Standard Reinsurance
Agreement (SRA), RMA and the AIPs
agreed to expand the use of data mining
for program integrity and compliance.
Figure 2. An Overview of the RMA System
Government data from systems of record
- Crop insurance program records
- Insurance agents records
- Insurance adjuster records
Public data
- Public available information including
information found on public Web sites
Government data NOT from systems of record
- Public land survey data
- National Resources Conservation Service soils data
- National Oceanic Atmospheric Administration weather data
Risk Management
Agency (RMA)
Scenario
concept
Scenario concept for
developing checklists
for fraud and abuse
Structured
scheme to
defraud
CAC data
warehouse
cleans data
Specifically, Section III (b) (1) of the SRA
Appendix IV (A-IV) specifies the scope of
the data mining reviews to be conducted
by AIPs and establishes a formal consultative
framework between RMA and AIPs for
data mining activities.
In response to this new SRA provision,
RMA and the AIPs have established a standing
RMA/AIP Data Mining Steering
Committee (Committee). The Committee
first met in October 2010, and continues to
meet on a periodic basis throughout the
year. The Committee focuses on increasing
the use of data mining to:
• Enhance program integrity—reduce
program fraud, waste, abuse;
• Obtain greater administrative efficiencies—make
more effective use of limited
RMA and AIP resources for assuring
program compliance and integrity; and
From its inception, the
Committee has strived
to achieve a proactive
quality control (QC)
program premised on
an active partnership
between AIPs and RMA.
Center for Agribusiness Excellence (CAE)
Data needed to test scenario are
extracted from CAE data warehouse
Scenario tested
Scenario refined
Oracle
data mart
Presented to
Product Review
Meeting team
Scenario rejected
Data containing personal identifiers
Data NOT containing personal identifiers
Location of data mining
Source: GAO analysis of agency data.
Access includes
a data query
function
Spot check list
or other product
developed
Scenario accepted
Scenario abandoned
Accessed by
- RMA regional compliance offices
- RMA underwriters
- RMA data quality office
- Other authorized users
Access to
- Name
- Address
- Phone number
- Social Security number
CAE sends spot check
list to RMA Regional
Compliance Offices
Letter sent
to insurance
company
Sent to USDAʼs
Farm Service
Agency (FSA)
Letter
and/or visit
to individual
farmer
• Achieve program improvements—critically
assess identified or suspected program/policy
deficiencies and evaluate
potential solutions.
The membership of the Committee consists
of representatives from RMA’s Office
of the Administrator, the Deputy
Administrator for Compliance, and the
SDAA Director, as well as AIP and NCIS
representatives. The Committee is chaired
by an AIP representative selected by the
AIP Committee members. NCIS provides
coordination and communication of the
Committee’s activities with all AIPs.
Data Mining Steering
Committee Activities
From its inception, the Committee has
strived to achieve a proactive quality control
(QC) program premised on an active
partnership between AIPs and RMA. In that
spirit, the Committee has been active in
addressing many aspects of implementing
the new QC initiatives outlined in the 2011
A-IV. Several of the QC initiatives tackled
by the Committee include: reviewing and
fine-tuning scenarios for development of
the annual spot check lists; obtaining RMA’s
concurrence to clarify the QC requirements
outlined in A-IV, which resulted in a revised
A-IV starting with the 2012 reinsurance
year; development of QC review procedures
for AIPs use in standardizing their
24 AUGUST 2012

eview efforts; and streamlining the FSA
spot check review process while augmenting
that process with a parallel AIP spot
check review process that focuses on a second
layer of anomalous policies.
RMA and CAE have developed several
scenarios to generate their annual spot
check lists. Scenarios employed in the
development of the annual spot check lists
includes: use of new entities being created,
switching entities, and utilizing different
tax IDs to lose prior adverse yield history;
late modification of acreage reports or
claims to increase the indemnity payment;
adding or dropping yields, incorrect copying
of yields to new APH databases, yield
switching, excessive yields and changing
yields when the unit has a loss; as well as
repetitive and severe losses. The
Committee identified excessive yields,
yield switching, and repetitive and severe
losses scenarios as being most beneficial in
AIPs’ QC efforts. Concentrating mandatory
data mining reviews based on these scenarios
would yield more effective results
than employing simple random samples as
required in prior reinsurance years.
Committee discussions that focused on
ways to address minor discrepancies and a
more precise definition of what constituted
an “inspection” resulted in a clarification to
A-IV beginning with the 2012 reinsurance
year. For instance, the Committee focused
on ways to minimize the need for additional
review of an insured’s certified second
and third prior year production records
when relatively minor discrepancies were
found in the initial prior year’s record
review. Similarly, the Committee also
focused on the application of the SRA’s
definition of an inspection. The Committee
sought better clarification of when only
limited, specific items would be required
for review versus when a full “inspection”
would be required. Since specifically
defined requirements accompanying a
review notification would take precedence
over the general A-IV procedures, RMA
will provide AIPs better clarity and consistency
in their accompanying instructions
on future reviews.
Discussions of this nature demonstrated
the need for development of procedures
that would facilitate uniform QC reviews
by all AIPs. The Committee took the lead in
defining a set of spot check list procedures
that would facilitate consistent application
of those procedures by all AIPs. RMA
released the final Spot Check List
Procedures on July 12, 2012. Also at the
Committee’s recommendation, SDAA is
implementing a release notification process
so that all AIP QC managers are aware of
the ongoing enhancements to the QC
review process.
The FSA Spot Check list developed by
CAE encompasses a broad range of scenarios
and generally yields a large number of
anomalous observations. To limit the number
of false positives, in which a producer
ends up on the spot check list when there
are legitimate reasons for the producer to
differ from other producers in the area,
CAE uses criteria that limit the probability
of this occurring to less than 1 in 10,000. In
addition, to avoid overburdening FSA
county offices, the list is further pared
down such that there are no more than 10
producers on the spot check list for any
FSA County Office to review. Per the agreement
between FSA and RMA, FSA County
Offices should: 1) notify each policyholder
on the spot check list of their placement on
the list; and 2) conduct a field inspection of
each policyholder placed on the spot
check list. The Committee advocated that
the process used for generating the FSA
spot check list should also be used for initial
year data mining review identification.
PRISM and HyDRA
A desire to become more proactive
rather than reactive has been a central
focus of the Committee. RMA had already
begun work with climatologists at OSU to
tailor their PRISM climate mapping system
for AIP use. As a compliment to the SDAA
data mining activities, it was thought that
individual AIPs would be able to better
conduct some of their own monitoring
activities if they had access to certain sets
of data that has been assembled by CAE.
So in addition to providing feedback to
RMA and OSU on the deployment of the
PRISM system, the Committee pressed for
access to various individual or layered sets
of climate data, such as rainfall and temperature,
satellite imagery, soil types and
Figure 3. Sample PRISM Screens
yield trends that could be made available
to AIPs via RMA’s CAE developed dashboard
system.
So what is PRISM? Principal causes of
crop insurance claims include an inability
to plant due to excessively wet conditions,
crop failure due to insufficient moisture,
delay in harvesting, and reduction in crop
quality due to cold and wet weather or
unusually hot weather. So how do claims
Principal causes of crop
insurance claims include an
inability to plant due to
excessively wet conditions,
crop failure due to insufficient
moisture, delay in harvesting,
and reduction in crop quality
due to cold and wet weather
or unusually hot weather.
managers evaluate whether it was too
wet, too dry, too cold or too hot in determining
if an indemnity should be paid?
That is the central theme of OSU’s new
PRISM web portal (Figure 3) developed
under contract with RMA to provide AIPs
access to more than 30 years of climate
data that is tailored to making crop insurance
loss determinations.
Why are the spatial aspects of weather
and climate important? The location of
CROP INSURANCE TODAY ® 25

a field with a potential crop loss is not
always represented by a specific weather
station, or variations in geographic factors
can create large differences in climate
or weather over small distances,
and having continuous spatial data in the
form of maps allows many locations to
be analyzed and compared at one time.
In short, we need accurate weather and
climate maps so that we can see what’s
happening on any given field at any
given time.
PRISM’s digital climate maps utilize
the world’s most advanced climate mapping
science. PRISM accounts for variations
in climate due to elevation, rain
shadows, coastal effects, temperature
inversions, and more. As PRISM is rolled
NCIS staff provides a critical
communication link between
the Committee and other
AIPs. One method of
ensuring the Committee’s
efforts are communicated to
all AIPs is through utilization
of current NCIS standing
committees and Board
of Directors.
out, RMA and OSU will be providing
more information on its availability
and use.
CAE’s web based dashboard system
for accessing data mining products is
called the Hyper Dynamic Reporting
Application, or HyDRA (Figure 4).
HyDRA was initially only available for
RMA use. The Committee early on
identified that access to HyDRA could
facilitate AIP analysis of potential claim
situations. The AIP HyDRA system will
be one of RMA’s primary tools for providing
critical information directly to
claims and QC managers for their use in
loss determinations.
Integral to HyDRA are crop reports,
Figure 4. Sample HyDRA Screens
access to weather data assembled by
CAE, location information and numerous
other features, all while ensuring that personally
identifiable information is safeguarded.
HyDRA features more than 20
years of data and AIP users can analyze
multiple sources of data in one report
that is customizable for each user’s selections.
Also facilitated in HyDRA is access
to weather data, spatial reference data,
and multiple years of NAIP aerial photography
for any location in the continental
United States and the ability to download
and print reports, while ensuring the
most current data is always available for
AIP use. HyDRA for AIP use is nearing its
implementation phase, and RMA and CAE
will be providing more information on its
availability and use, including requirements
to use USDA’s eAuthentication
security system, in the very near future.
AIP Input and
Communication
A process that assures input into the
Committee from all AIPs, as well as providing
AIP feedback from the
Committee’s efforts was an early consideration
for the Committee. NCIS staff
provides a critical communication link
between the Committee and other AIPs.
One method of ensuring the Committee’s
efforts are communicated to all AIPs is
through utilization of current NCIS standing
committees and Board of Directors.
NCIS staff regularly briefs the MPCI
Policy, Procedure and Loss Adjustment
Committee, the Technology and
Information Processing Committee, the
Program Development Committee and
ultimately the NCIS Board of Directors
on activities of the Committee. Meeting
summaries of each Committee meeting
are also provided to all AIP QC Managers
and other AIP contacts. Regular updates
for all AIPs are scheduled in conjunction
with the NCIS National Claims Managers
or Update Conferences. Effective input
and communication with all AIPs is key
to the continued successful efforts of the
Committee.
Future Data Mining
Initiatives
In addition to continued efforts in
each of the areas outlined within this
article, the Committee will continue to
monitor and provide feedback on new
data mining analyses developed by RMA
and CAE. For example, at a meeting of
the Committee held in Stephenville,
Texas in May 2012, CAE outlined additional
analysis underway to determine if
program procedures are being correctly
applied, as well as CAE’s continuing
efforts to improve their data sources and
availability within the data warehouse.
Future CAE data mining efforts will
involve verifying added land determinations
and application of crop rotation
requirements through the use of satellite
imagery and spatial data analysis.
Another area of focus will be furthering
research on changes to unit structure
after a claim has been filed. CAE is also
actively working on methods to verify
drought, hurricane, flood, and prevented
planting claims through improved
weather, radar and satellite sources.
The Committee will continue to monitor
each new data mining effort
throughout its development, while continuing
to find ways to enhance AIP
quality control efforts by capitalizing on
RMA’s significant investment in data
mining capabilities. The Committee’s
efforts will benefit not only AIPs, but
will also provide long-term benefit to
producers who are not penalized in the
form of higher rates due to fraudulent
claims, which results in significant savings
for the American taxpayer.
26 AUGUST 2012

Continued from President’s Message
We Know There Are No
Guarantees
Some folks disdain the line it is what
it is. Well, agriculture is inherently risky.
From planting to harvest, from marketing
to financing, there are risks every step of
the way—no guarantees. The purpose of
insurance is to minimize the disruptions
along the way. Farmers pay crop insurance
premiums, a relatively fixed amount
of money every year, knowing they will
recover a significant portion of their economic
crop losses in years like this one.
Even so, not all risks or losses will be
covered, even for farmers who purchase
higher levels of coverage—no guarantees.
The Midwest corn and soybean sector
is expected to rebound after 2012 in
large part due to an effective crop insurance
program. The final outcome for the
Midwest will vary by state and individual
farmer. There will be winners and losers.
Similarly, the financial outcome for the
crop insurance industry is not guaranteed,
contrary to critics of the program.
Both the USDA and the crop insurance
companies share in the financial gains
and losses of the program, depending
upon the severity of losses by state.
Industry earnings are neither certain or
guaranteed.
What Should Never Be
The drought of 2012 and the uncertainty
of the Farm Bill process should
never be an opportunity for critics of the
program to take advantage of the hardships
farmers are currently experiencing.
Starting in about March of this year, the
crop insurance industry came under siege
from a series of premeditated attacks as
the Farm Bill moved through the Senate
and along to the House. Since that time,
the crop insurance industry and its supporters
in Congress continue to come
under a barrage of unwarranted criticisms
on a weekly, if not daily basis. Critics
state the program is flawed and recommend
crop insurance reform. These criticisms
are in the face of an infrastructure
of 16 companies located nationwide, a
workforce of approximately 20,000 crop
insurance professionals, including
licensed agents and-adjusters, as well as
company staff and personnel. Moreover,
program participation rates are in excess
of 80 percent of total acres, much of this
acreage covered at the 70 percent level.
The current drought and political climate
puts an enormous spotlight on the
agricultural safety net, and crop insurance
in particular. The crop insurance
industry will be tested on all levels; operationally,
financially, and politically. Our
critics should reflect, however, the industry
has always responded positively and
adapted well. Over time, the industry has
taken on increasing levels of risk.
Currently, 80 percent of the premium and
85 percent of the liability in the business
is privately insured. Over time, the industry
delivery system has become more
efficient. In the early years of the program,
delivery expense as a percent of
premiums written was in excess of 30
percent. Today, delivery expense is less
than 15 percent of premiums. In 1988,
approximately 56 million acres were
insured. In 2011, approximately 266 million
acres were insured.
Critics of the program insist crop
insurance is disaster aid. But, no. Crop
insurance is risk management at the farm
level and with respect to agricultural policy.
At the farm level, farmers make
deliberate risk management decisions
with their licensed crop insurance agent
as to the level of coverage and the type
of insurance product. Not so with disaster
aid, where assistance is after the fact
and out of farmers’ control. Farmers
share in the premium cost of their decisions.
Not so with disaster aid, which is
all borne by the taxpayer.
With respect to agricultural policy, the
USDA, working together with private
insurance companies, manage the
nation’s agricultural risk through a reinsurance
agreement, in which both the
private and public sectors share in the
risk of the agricultural sector. By utilizing
the private sector crop insurance agency
force, sales of crop insurance are incentivized
encouraging higher levels of participation
and improving actuarial performance
over the long haul. By utilizing
professionally trained loss adjusters, we
are assured that crop losses are paid uniformly,
accurately and in a timely manner.
Given what I have just described, I
simply fail to see how crop insurance can
be considered a disaster program. Rather,
the disaster is that critics of crop insurance
choose to ignore the essential
strengths of the program, and the overall
public sector benefit in providing financial
stability to agriculture, rural areas and
consumers.
We Should Never Fail to
Learn From Our Past
George Santayana is quoted as saying,
“Those that fail to learn from history are
doomed to repeat it.”
Taken as a whole, we can
view these as positive
developments for farmers
and taxpayers. Having said
that, it is important to keep
learning from our past,
learning from our mistakes
and keep moving in a
positive direction.
Agricultural policy and crop insurance
continue to follow a series of natural progressions.
In general, we can observe that
overall federal outlays for agricultural
support have been declining in real terms
over time. Moreover, we find a progression
in policy, moving from more to less
direct income support, greater market orientation,
and more reliance on agricultural
risk management in the form of crop
insurance versus direct income support
programs. Taken as a whole, we can view
these as positive developments for farmers
and taxpayers. Having said that, it is
CROP INSURANCE TODAY ® 27

important to keep learning from our past,
learning from our mistakes and keep
moving in a positive direction. According
to a Congressional Research Service
study, there have been 42 individual
pieces of supplemental disaster legislation
with $70 billion in taxpayer outlays
since 1989. Due to Congressional action
in 1994 and 2000, we have seen the
development of the modern crop insurance
program. Years such as 1988, 1993,
and 2012 are teachable moments. We
have an opportunity to learn from our
past in order to improve our policies for
the future.
Our mettle will be sorely tested in the
coming months as we face what is, the
challenge of the drought conditions of
2012, the uncertainty regarding Farm Bill
deliberations, and the continued and
increasing demands on our agricultural
productive capacity. As we confront what
is, we must also confront what should
never be. Opportunism by some in the
face of hardship of others and the possible
inclination to revert to policies of the
past did not succeed then, and will not
succeed now.
The Final What Is
What is true is that within the publicprivate
partnership there will always be a
political dimension; it is the reality of any
system that enlists taxpayers’ dollars and
political support. What should never be is
politics trumping or subverting the safety
net for the American farmer, or a stable
and safe food supply for the American
people, and those that depend on our ability
to export. What should never be is a
return to the vagaries of disaster relief policies
that leaves the American farmer, businesses,
and the American taxpayer always
at the mercy of the politics of the moment.
Because we have built a crop insurance
program that is characterized by
wide-scale farmer participation, and
builds on the strengths of both the private
and public sectors, farmers can know
their insurance claims will be covered.
Taxpayers can know they will not be
expected to bear the entire burden of
weather and market disasters in agriculture.
Lastly, we can all know agriculture
will be ready and in a position to meet
the demands placed upon it for the years
ahead. That is As It Should Be.
In this issue you will find articles relating
to the industry’s rate of return; NCIS’
work with RMA to help educate limited
resource and socially disadvantaged farmers
about crop insurance and risk management
tools available for them; and an
in-depth look at the specialty crops insurance
coverage through the federal crop
insurance program.
28 AUGUST 2012

Providing the claim service your policyholders deserve.
e.
A hail storm devastated southern Minnesota on June 19, 2012.
On the morning of June 20, FMH adjusters were on the scene to
service policyholder claims.
“My fields were badly damaged in the storm, but FMH adjusters
were here right away. My father always carried FMH insurance
because they are consistent and professional. Now I do too.”
Brian Pettis, Policyholder
Securing Success for America’s Farmer Since 1893®
www.fmh.com
Aftermath of the June 19, 2012 hail storm that hit southern Minnesota.
Farmers Mutual Hail Insurance Company of Iowa is an equal opportunity provider and prohibits discrimination in all its programs
and activities. © 2012 Farmers Mutual Hail Insurance Company of Iowa. All rights reserved.

TODAYcrop insurance
NCIS
Adjuster Training
in Full Swing
The gentleman standing in the back of the
pickup is the apricot grower who allowed
adjusters to utilize his orchards for hands-on
training. Here he is describing his management
practices and growth characteristics of
the apricots. Also discussed were perils that
could cause a loss, such as hail, early frost, etc.
NCIS Schools
Each year during the growing season,
and all across the U.S., NCIS conducts
classroom and hands-on field training for
loss adjusters. The schools, which cover a
wide variety of crops, are important
because they ensure that all adjusters are
trained on industry approved loss procedures.
This provides consistency among all
companies and assures farmers that their
losses are adjusted accurately and fairly.
The schools are run through the NCIS
Regional/State Committees, and we can’t
thank them enough for their commitment
to the educational process and in providing
their time and energy to ensure each
school is successful.
NCIS 2012 School/Field Day Schedule
Date School Location
June 12-13 Crop-Hail Wheat and Corn Columbia, Missouri
June 19-20
Crop-Hail & MPCI Dry Peas,
Lentils & Small Grains
Moccasin, Montana
June27-28 Blueberry & Stonefruit Kennewick, Washington
July 12
Crop-Hail Corn, Soybeans &
Oats/MPCI Forage
Bereford, South Dakota
MPCI Florida Citrus Fruit,
July 17-18 Fresh Market Sweet Corn & Kissimmee, Flordia
Fresh Market Tomato
July 23 New Adjuster Fargo, North Dakota
July 24 Crop-Hail Fargo, North Dakota
July 25 MPCI Fargo, North Dakota
July 25-26
Crop-Hail Corn & Soyben
Field Day/Wheat Classroom
Champaign, Illinois
August TBA Kansas
August 1-2 Crop-Hail Soybean & Corn Ames, Iowa
August 1 New Adjuster Lamberton, Minnesota
August 2 Experienced Adjusters Lamberton, Minnesota
August 7
August 14-15
August 28-29
MPCI & Crop-Hail Corn
Advanced Cropping
MPCI & Crop-Hail Sunflower
Advanced Cropping
Crop-Hail & MPCI Cotton &
Grain Sorghum
Huntley, Montana
Scottsbluff, Nebraska
Lubbock, Texas
30 AUGUST 2012

Adjusters at the Blueberry and Stonefruit
School/Field Day pick blueberries from
four consecutive plants for hand-harvested
appraisals (also cover photo).
Participants at the Columbia, Missouri, Crop-Hail
Wheat and Corn School count missing kernels in
wheat for the shatter method appraisal.
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CROP INSURANCE TODAY 31

TODAYcrop insurance
Industry Support of FFA
For almost 20 years, NCIS, on behalf of
its member companies, has given financial
support to the National FFA Organization.
Along with additional support directly
from private insurance companies in the
form of scholarships and proficiency
award support, the crop insurance industry
has given hundreds of thousands of dollars
to support agriculture education throughout
the United States. In addition, NCIS
staff and others from the crop insurance
companies serve as judges for the National
Proficiency Awards at the annual FFA
Convention. The award co-sponsored by
NCIS is the Diversified Crop Production-
Placement Award.
Judging requires reviewing the four
finalist’s documentation of their respective
Supervised Agriculture Experiences (SAE)
prior to the convention, and once there,
interviewing each candidate to determine
the scope of their knowledge and skills
they have learned while completing their
four year project. SAEs include activities
such as starting a business or working for
an established company. Classroom learning
and SAEs are further reinforced
through curriculum-enhancing programs
within the community.
“It’s a great opportunity to see agriculture
first-hand in the lives of high school
students from all across the country,” said
Laurie Langstraat, NCIS. “I’m always
impressed with their skill level and passion
for working in agriculture.”
Each year NCIS receives dozens of thank you notes from students who receive the
Diversified Crop Production - Placement Awards at the state and regional levels. Here
are a few of them . . .
“I just wanted to take a moment to express my sincere gratitude for your generous
recognition of my excellence in the area of diversified crop production. Over the
past four years, working in itself has been a blessing helping me to develop a great
work ethic, people skills, initiative, and develop myself as an individual in general.
However, being recognized for what is considered my job or an everyday thing is
quite a bonus and something my family is very proud of and for that I thank you. I
appreciate the positive influence you are having on agriculture. On behalf of any
other student you have and will award, I thank you.”
—R. Martin, New Milford, Connecticut
“Thanks for your sponsorship of the Diversified Crop Production Proficiency
Award. As a state winner, I am very grateful for your support and sponsorship of FFA.
Your financial support will assist me with my future educational endeavors. Your support
of FFA is greatly appreciated and I hope you will continue supporting the FFA
through students like me.”
—B. Hollier, Arnaudville, Louisiana
“I am A. Ariail and I won 1st place in the Diversified Crop Production. I just want
to thank you for helping out in this act of kindness. This will help me in so many ways.
Again, thank you.”
—A. Ariail, Carnesville, Georgia
32 AUGUST 2012

What is the National FFA Organization?
FFA is a positive example of what works in education. The
National FFA Organization is a dynamic youth organization that
changes lives and prepares students for premier leadership, personal
growth, and career success. More than a half-million student
members are engaged in a wide range of agricultural education
activities, leading to more than 300 professional career opportunities.
Student success remains the primary mission of FFA.
How Does FFA Make an Impact?
FFA uses agricultural education to create real-world success.
Agriculture teachers become advisors to local FFA chapters, which
students join. There are currently more than 7,000 FFA chapters in
existence; their programs are managed on a local, state and national
level. Each chapter’s Program of Activities is designed with the
needs of the students in mind. Activities vary greatly from school to
school, but are based on a well-integrated curriculum. Chapter
activities and FFA programs concentrate on three areas of the FFA
mission: premier leadership, personal growth, and career success.
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Keith Schmidt (left)
TWI 2011 and 2012 Insured
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TWI lets your clients lock in profits
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© 2012 The Climate Corporation All Rights Reserved. Policies underwritten by State
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CROP INSURANCE TODAY 33

TODAYcrop insurance
Crop Insurance &
Specialty Crops
By Keith Collins, NCIS
This article provides a brief examination
of how well crop insurance is providing
coverage for specialty crops. The role
of specialty crops in the farm economy is
identified, trends in crop insurance coverage
for specialty crops are presented using
a series of tables and graphs and challenges
facing the crop insurance industry
in product development and sales for specialty
crops are discussed. While a number
of small-acreage specialty crops remain
uninsurable, and continuing efforts are
needed to improve availability and coverage
levels, crop insurance is available for a
wide variety of specialty crops and participation
is generally high.
Growing Focus on
Specialty Crops
Specialty crops have garnered enormous
attention in agriculture policy development
in recent years, with the current
Farm Bill (the Food, Conservation, and
Energy Act of 2008, or 2008 Farm Bill) containing
the first-ever title for specialty crops
(Title X. Horticulture and Organic
Agriculture). The interest stems from many
interrelated factors, starting with diet and
health concerns and including such varied
elements as the increase in obesity, rapid
growth in organic production, interest in
local food production and the rise of farmers’
markets. The policy focus has been on
addressing producer needs, such as technical
trade assistance, providing block grants
to improve competitiveness, expanding
Table 1.
research, and on increasing demand
through various food programs.
The effectiveness of crop insurance for
specialty crops has also been under review.
For example, the 2002 Farm Bill (Section
10006 of the Farm Security and Rural
Investment Act of 2002) directed USDA to
conduct a study of crop insurance and specialty
crops, which was completed in May
2004 (Report on Specialty Crop Insurance).
USDA has also been required to report to
Congress on the progress in covering new
and specialty crops (Section 508(a)(6)(B) of
the Federal Crop Insurance Act). In
response to this requirement the Federal
Crop Insurance Corporation published in
November 2010, Report to Congress:
Specialty Crop Report.
The Senate-passed version of the 2012
Farm Bill (the Agriculture Reform, Food,
and Jobs Act of 2012) continues the interest
in specialty crop coverage. For example,
Section 11015 of the bill would make
new product proposals offered under
Section 508(h) of the Federal Crop
Insurance Act eligible for additional
advance funding if the products are for
“under-served agricultural commodities,
including...specialty crops.” The bill also
calls for development of a Whole Farm
Diversified Risk Management Insurance
Plan for selected specified products,
including specialty crops (Section 11016),
makes both research and financial benchmarking
for specialty crop products a priority
(Sections 11019 and 11022, respectively)
and includes some other initiatives
identified in the last section of this article.
What is a Specialty
Crop?
When USDA released its 2004 specialty
crop report, it defined specialty crops using
a definition in the Agricultural Economic
Specialty Crops in U.S. Farm Cash Receipts for Crops
Cash Receipts, % of Cash Receipts, % of
2000 Total 2010 Total
(bil $) (bil $)
Fruits & Nuts 12.3 13.3 21.5 12.3
Vegetables & Melons 15.8 17.1 19.9 11.4
Greenhouse & Nursery 13.7 14.8 15.6 8.9
Grains & Feed Crops 27.1 29.3 66.4 37.9
Oil Crops 13.5 14.6 35.1 20.1
Cotton, Tobacco, Other 10.1 10.9 16.5 9.4
Total Crops 92.5 100.0 175.0 100.0
Source: Economic Research Service, USDA, farm income database.
CROP INSURANCE TODAY 35

Assistance Act of 2001, which was “any
agricultural crop, except wheat, feed grains,
oilseeds, cotton, rice, peanuts, and tobacco”
(Report on Specialty Crop Insurance, p.
viii). The Specialty Crops Competitiveness
Act of 2004 narrowed the definition for various
Federal programs, and its definition
remains current today for some programs.
However, for the Specialty Crop Block
Grant Program, the 2008 Farm Bill added
the word “horticulture” to the definition,
making its definition of specialty crops
“fruits and vegetables, tree nuts, dried fruits,
horticulture, and nursery crops (including
floriculture)” (Section 10109 of the 2008
Farm Bill). In this article, specialty crops are
considered fruits, vegetables, tree nuts, melons
and nursery. Even with this definition,
there are difficulties in assigning specific
crops to each category and different analysts
may make different decisions.
Role of Specialty Crops
in the Farm Economy
The value of U.S. farm cash receipts
from the sale of fruits, nuts, vegetables,
melons, greenhouse and nursery in 2010
was $57 billion, up from $42 billion in 2000
(Table 1). These crops now account for
one-third of the cash receipts of all U.S.
crops, thus presenting a significant opportunity
for the sale of crop insurance. Their
share of cash receipts has declined since
2000, primarily because of the significant
increase in the price of field crops due to
strong foreign food demand and demand
for crops to be used in energy production.
The geographic distribution of fruit and
vegetable acreage is illustrated in Figures 1
and 2. Orchards, such as citrus, are heavily
concentrated in the west coast states and
across the south and southeast. There is
also varied production in the northeast,
especially apples. Vegetable acreage is similarly
concentrated in the west coast states,
the southeast and northeast. However,
there is also considerable acreage in the
northern corn belt states. The value of
nursery production, not illustrated, is similarly
distributed to vegetable acreage, however,
it is much more widespread nationally,
showing significant acreage through the
midwest and southwest, such as in
Colorado and New Mexico.
Figure 1. Total Acres in Orchards, 2007
0 100
Miles
0 100
Miles
Role of Specialty Crops
in Crop Insurance
Table 2 shows the share of specialty
crops in total U.S. farm cash receipts for
crops in 2011, compared with the share of
specialty crops in total crop insurance premiums
for the 2011 crops. The data indicate
that major field crops, such as corn,
0 100
Miles
1 Dot = 1,000 Acres
United States Total - 5,039,476
07-M233, U.S. Department of Agriculture. National Agricultural Statistics Service
Figure 2. Total Acres in Vegetables, 2007
0 100
Miles
0 100
Miles
0 100
Miles
1 Dot = 1,000 Acres
United States Total - 4,682,588
07-M233, U.S. Department of Agriculture. National Agricultural Statistics Service
soybeans, wheat and cotton, have a higher
share in total premiums than in U.S.
cash receipts, while specialty crops
account for a smaller portion of crop insurance
premiums than of U.S. farm cash
receipts. In 2011—excluding nursery—
fruits, nuts, vegetables and melons
accounted for nearly 22 percent of cash
36 AUGUST 2012

Table 2.
Specialty Crops in U.S. Farm Cash Receipts and
Crop Insurance, 2011
Cash Receipts, % of Crop Insurance % of
Crop 2011 Est. Total Premiums, 2011 Total
(bil $) (bil $)
Fruits & Nuts 22.2 11.3 0.35 2.9
Vegetables & Melons 20.9 10.6 0.24 2.0
Corn 58.8 29.9 4.76 39.8
Soybeans 33.9 17.2 2.62 21.9
Wheat 13.9 7.1 1.80 15.1
Up. Cotton 8.0 4.1 1.21 10.1
Other Crops 39.2 19.9 0.99 8.3
Total Crops 196.9 100.0 11.97 100.0
Source: Economic Research Service, USDA, farm income database; greenhouse & nursery cash
receipts not reported separately for 2011 and are included in “Other Crops.” Premium data
from RMA’s Summary of Business.
receipts but only about five percent of crop
insurance premiums. While this disproportionate
share of premiums mainly reflects
lower participation and coverage levels as
discussed next, there are some additional
comparisons that favor specialty crops.
One comparison of interest is acreage
enrolled in crop insurance and the liability
insured under the program (Figure
3). In aggregating enrolled acres in specialty
crops, no acreage is available for
crops enrolled in AGR and AGR-Lite
plans of insurance, and no acreage is
reported for the nursery plan of insurance.
For simplicity, this article assumes
crops covered under AGR and AGR-Lite
Figure 3. Specialty Crops in Crop Insurance, 2011
Mil. Ac. or Bil. $
300
250
200
150
100
50
0
Insured Acres
3% share
˜ ˜
are all specialty crops. Specialty crops
accounted for about 6.8 million insured
acres in 2011, about 2.6 percent of total
insured acres. But specialty crops
accounted for about $11.8 billion in
insured liability, about 10.3 percent of
2011’s total insured liability of $114.2 billion.
This much higher share of liability
is due to the high value per acre of specialty
crops. The average liability per
acre of all insured crops in the United
States in 2011 was $430, but the average
liability of specialty crops was over
$1,730 per acre (including $2,155 per
acre for fruits and nuts and $675 per acre
for vegetables and melons).
Liability
Source: Aggregated from RMA’s Summary of Business.
10% share
All Crops
Specialty Crops
The insured liability of specialty crops
has trended up over the past decade,
reflecting the growth in production and
consumption (Figure 4). Liability has
increased from less than $8 billion in 2000
to nearly $12.7 billion in 2009. However
coverage declined the past two years,
falling to about $11.8 billion by 2011.
Coverage of fruits and nuts has shown the
strongest growth, rising in both 2010 and
2011. Coverage of vegetables and melons
and AGR and AGR-Lite have also shown
steady increases until 2011, when both categories
declined slightly. Nursery accounts
for most of the overall decline in liability in
2010 and 2011. Nursery coverage is primarily
for wholesale nurseries and was affected
by the sharp financial downturn in 2009
and the decline in housing construction
and sales. In addition, nursery insurance
involves substantial inventory record keeping,
and complexity has been cited by
some producers as a contributing factor in
lower participation.
A concern sometimes expressed about
specialty crop insurance is that coverage
levels are low relative to major field crops.
One way to assess that issue is to examine
the premium and enrolled acres for specialty
crops insured under CAT (Catastrophic
Coverage, the lowest level of coverage
which protects 50 percent of yield at 55 percent
of price) as a share of total premium
and enrolled acres. The specialty crop
shares can then be compared with CAT participation
of all crops. Figure 5 presents
those comparisons for 2011. For all U.S.
insured crops, only 2.4 percent of total premium
and a little over seven percent of total
insured acreage was enrolled in CAT.
Breaking down specialty crops into its
components, 12 percent of the total vegetables
and melons premium and 21 percent
of acreage was in CAT. These levels are
higher than the levels of all crops, but are
not excessive and suggest generally high
coverage levels for vegetables and melons.
However, for fruits and nuts, nearly 20 percent
of total fruits and nuts premium and
46 percent of acreage was in CAT. These
data indicate much lower purchases of
buy-up coverage for fruits and nuts producers
than for producers of vegetables or
the major field crops. For nursery, an even
CROP INSURANCE TODAY ® 37

Figure 4. Insured Liability of Specialty Crops
Bil. $ in Liability
AGR Vegetables & Melons Nursery Fruits & Nuts
14
12
10
8
6
4
2
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: 2001-2008 from RMA’s Report to Congress: Specialty Crop Report, Nov. 2010; 2009-
2011 aggregated from RMA’s Summary of Business.
higher 50 percent of premium is at the CAT
level of coverage, far above the U.S. average
for all crops. Since acreage data is not
relevant for nurseries, no acreage comparison
is available.
A point to be made about the relatively
higher use of CAT and lower use of buyup
by specialty crop producers is that
lower coverage levels, and lower participation
for that matter, do not necessarily indicate
a problem with crop insurance or that
crop insurance is not working well. For
Figure 5. Coverage Levels: CAT versus Buy-up, 2011
100
80
60
40
20
0
Share of Premium
CAT Buy-up
Nursery
Fruits & Nuts
Veg. & Melons
All Crops
example, for specialty crops in the west or
the south, weather may be better than in
other areas, irrigation may be heavily used,
producers may be highly diversified and
plant multiple crops in a calendar year and
planting dates may be flexible, so that yield
risk may be less important than it is for
other crops and regions. In addition, much
of the price risk for some specialty crops
may be offset using contracts with handlers
or processors. Some of the key risks some
farms or crops face may not be related to
100
80
60
40
20
Source: Aggregated from RMA’s Summary of Business.
0
Share of Acres
CAT Buy-up
NA
Nursery
Fruits & Nuts
Veg. & Melons
All Crops
natural disasters or price. Consequently, if
a producer chooses not to participate in
crop insurance, or to participate at low
coverage levels, that may be an optimal
decision for the producer and not represent
a deficiency in crop insurance.
Participation in crop insurance varies
widely among individual specialty crops.
Participation is measured as acres enrolled
in the program as a share of total acres
planted (for vegetables and melons) or
bearing acres (for orchards for fruit and
nut production). The planted and bearing
acreage data are from USDA’s National
Agricultural Statistics Service (NASS) and
may overstate the acres eligible for crop
insurance coverage. Figure 6 shows the
enrolled acreage of principal insured specialty
crops as a share of planted or bearing
acres in 2011. The participation rates
range from three percent for fresh beans
(2011 is the first year of coverage for fresh
beans) to over 95 percent for dry peas and
beans. Overall, insurable specialty crops
enrolled 75 percent of their planted or
bearing acres in crop insurance in 2011.
While this participation level is below the
84 percent of U.S. principal crop acres
enrolled in crop insurance in 2011, it nevertheless
represents a high level of participation.
While insurable specialty crops are
well represented in crop insurance, there
are specialty crops that do not have insurance
available, and overall program participation
would be reduced, if the
acreage of these crops was considered in
estimating participation. Table 3 presents
specialty crops whose acreage is reported
by NASS and that did not have crop insurance
available in 2011. The table shows
the reported level of acreage planted or
bearing acreage in 2011 for each crop.
Some of these crops had crop insurance
available at some point in the past, such
as processing cucumbers, raspberries and
watermelons, and some will have policies
available for the first time in 2012, such as
olives and pistachios. Just because there
are crops that do not have insurance
available does not mean that immediate
efforts should be made to implement new
policies for these crops. Many issues must
be considered to determine the efficacy
38 AUGUST 2012

of a new crop insurance product introduction
and these issues are discussed in
the next section.
Challenges in Expanding
Insurance Coverage for
Specialty Crops
Developing, improving and expanding
specialty crop insurance faces special challenges.
These challenges explain why
some specialty crops are not insurable,
their plans of insurance and coverage levels
are often limited, and participation levels
are lower than for major field crops.
Here are some key issues that must be
addressed:
* Small acreages. Many specialty crops
have small levels of acreage. Small
acreage and production means the
potential market for selling crop insurance
is also small. This reduced marketability
reduces the sales incentive. In
addition, since delivery costs and agent
commissions are based on the premium
earned by sale of the policy, small
acreage means small premium, thus the
cost of selling and servicing that policy
may exceed the income to the company
and agent from the sale. Small
acreages also affect the overall costs
and benefits of developing and approving
a new policy for sale. Any new policy
comes with substantial variable and
overhead costs, including development
of underwriting standards and actuarial
ratings, IT development, agent and
company training and sales and marketing.
If the potential market is very small,
the benefits of developing and selling
the product may fall short of the costs.
* Complex farming practices. While
farming methods are similar for major
field crops that occupy tens of millions
of acres, practices for many specialty
crops are unique and vary from crop to
crop. For example, some crops may
need to be planted in raised beds, use
plastic, or have stringent requirements
for crop rotations, inter-planting, row
width, etc. These practices must be
known and their effects on yields must
be understood. These practices are the
basis for establishing the required good
farming practices and underwriting
Percent
Figure 6. Specialty Crops: Insured Share of Planted or
Bearing Acres, 2011
100
90
80
70
60
50
40
30
20
10
0
Citrus Fruit
Almonds
Cranberries
Macadamia Nuts
Potatoes
Dry Beans & Peas
Tomatoes, Processing
Prunes
Table Grapes
Blueberries
Dry Beans
All Insurable Specialty
Cherries
Apples
standards that determine what is insurable.
In addition, the complexity of
valuing production has led to complex
products such as AGR, AGR-Lite and the
nursery plan of insurance, which discourage
some producers from buying
coverage. The Senate-passed 2012 Farm
Bill seeks to create a simpler whole
farm insurance product to mitigate
Plums
Peaches
Figs
Avocados
Nectarines
Sweet Corn
Grapes
Onions 1/
Pears
Apricots
Walnuts
Tomatoes, Fresh
Pumpkins 1/
Chile Peppers 1/
Peppers 1/
Sweet Potatoes
Fresh Beans, Snap
Processing Beans
Cabbage
Fresh Sweet Corn
1/ Includes fresh and processing.
Source: RMA’s Summary of Business and USDA/ NASS Crop Production 2011 Summary,
Vegetables 2011 Summary, Citrus 2011 Summary and Non-Citrus Fruit and Nuts 2011 Summary.
Table 3.
some of these concerns (Section 11016).
* Loss adjustment. Determining losses is
a very complex task. Much research
must be conducted to provide loss
adjusters with the tools needed to accurately
assess the effects of weather on
crop production. Highly varied crops,
varieties, perennial trees, etc. add to the
difficulty and costs in establishing loss
Uninsurable Specialty Crops in 2011 and NASS 2011 Acreage
Crop Acres Crop Acres
Carrots, processing 12,790 Squash 1/ 50,200
Cucumbers, processing 85,000 Watermelons, fresh 138,600
Spinach, processing 10,200 Blackberries 7,300
Artichokes 1/ 7,400 Boysenberries 500
Asparagus 1/ 28,900 Raspberries 17,500
Broccoli 1/ 133,300 Strawberries 58,660
Cantaloupes, fresh 72,590 Tart cherries 36,000
Carrots, fresh 75,400 Dates 8,200
Cauliflower 1/ 37,680 Guavas 110
Celery 1/ 28,700 Kiwi fruit 4,200
Cucumbers, fresh 42,850 Olives 41,500
Garlic 1/ 25,650 Papayas 1,300
Honeydews, fresh 14,750 Hazelnuts 29,500
Lettuce, fresh 273,000 Pistachios 153,000
Spinach, fresh 35,700 Total 1,157.480
1/ Includes fresh and processing.
Source: NASS Vegetables 2011 Summary and Non-citrus Fruits and Nuts 2011 Summary.
CROP INSURANCE TODAY ® 39

adjustment standards for specialty
crops. Understanding, measuring, valuing
and insuring quality losses are also
major challenges.
While there are numerous
challenges in designing,
selling and servicing specialty
crop insurance compared with
more homogeneous, largeacreage
field crops, excellent
progress has been made in
expanding coverage and
participation for specialty crops.
* Price discovery. For many specialty
crops, the only plan of insurance available
is Actual Production History
(APH). Some producers would like
revenue insurance such as the
Revenue Protection (RP) plan of insurance.
However, revenue plans that
guarantee expected revenue require
forecasted prices that are transparently
and appropriately determined. Many
specialty crops do not have organized
exchanges where such prices may be
discovered, preventing the use of revenue
insurance, such as RP. Some specialty
crops are sold at retail prices, so
a loss of production may have an
insurance value that is well below the
producer’s loss of revenue. Valueadded
on-farm activities are not normally
covered under the Federal Crop
Insurance Act. Other crops, such as
organic crops, may be sold at a price
premium. The Senate-passed 2012
Farm Bill partially addresses price
issues by calling for wholesale and
retail prices to be used for organic
crops (Section 11021).
* Insurance effects on production.
Because production volumes are small
for many specialty crops, to the extent
that crop insurance might encourage
more production by reducing production
risk, the price and producer income
effects could be magnified because of
the thinness of these markets. (One
example of research in this area is by
Ligon, E., Supply and Effects of Specialty
Crop Insurance. NBER Working Paper
No. 16709, January 2011.)
* Grower interest. Some specialty crop
producers have many alternative risk
reduction methods available, such as
irrigation and diversification, which
reduce their interest in multi-peril crop
insurance, and they may prefer to selfinsure.
Some specialty crop producers
simply do not want crop insurance to
be made available for their commodity,
fearing that crop insurance may
result in new production in their markets.
The Senate-passed 2012 Farm Bill
partially addresses this concern with a
provision requiring that new products
must involve a “consultation with
groups representing producers of commodities
in all major producing areas
for the commodities to be served or
potentially impacted, either directly or
indirectly” (Section 11009).
* Rating and adverse selection/moral
hazard. The unique features of many
specialty crops may make premium
rating difficult. Misrating leads to
charging too much and causing low
participation and adverse selection or
charging too little causing adverse
selection and excessive program costs.
Often incomplete crop and market
information and uncertainty in product
performance results in coverage limitations,
such as setting the maximum
coverage level at 75 percent.
* Specific perils. Because some specialty
crop producers have alternative
risk reduction methods, they may face
only one or two primary perils, such as
a freeze affecting fruit trees in April,
and insurance against a specific peril
would be preferable to more costly
multi-peril insurance. Some single peril
products are available from the private
sector outside of the Federal crop
insurance program.
* Non-weather risks. The major risks
for some specialty crop producers are
from perils that are not natural disasters,
such as food safety scares that disrupt
demand or labor shortages that
disrupt planting or harvesting. Such
risks are not insurable under the
Federal Crop Insurance Act. The
Senate-passed 2012 Farm Bill does
contain a provision requiring a study
on insurance for producer losses due
to food safety and contamination
issues (Section 11017).
Conclusion
Specialty crop agriculture is a very significant
part of the farm economy.
Specialty crops are increasingly important
in addressing diet and health issues.
While there are numerous challenges in
designing, selling and servicing specialty
crop insurance compared with more
homogeneous, large-acreage field crops,
excellent progress has been made in
expanding coverage and participation for
specialty crops. Considering the different
perils faced and the available alternative
risk management approaches, the average
participation rate for insurable specialty
crops is a respectable 75 percent. There
are excellent new product development
processes that have been responsive to
the needs of specialty crop producers.
The Section 508(h) process and USDA’s
Risk Management Agency’s (RMA’s) own
authority to contract for new and
improved products have resulted in over
50 new product introductions since 2000.
For 2012 alone, seven new or improved
products were introduced: popcorn,
strawberries, tangerine trees, citrus,
camelina, pistachios and olives.
Specialty crops are an important and
growing sales opportunity for the crop
insurance industry. The industry would
welcome any improvements in specialty
crop insurance products that increase customer
satisfaction. The 2012 Farm Bill is
likely to feature a number of provisions
directed at specialty crops that should
complement the strong new product
processes in place and help crop insurance
to be even more effective in meeting
the risk management needs of the nation’s
specialty crop producers.
40 AUGUST 2012

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products through a trusted network of
people who understand agriculture.
To learn more, visit www.RainHail.com or
call 1-800-776-4045.
Rain and Hail
Agricultural Insurance
The ACE Group of Companies
www.RainHail.com
Rain and Hail is an equal opportunity provider.