Hail Damage Can Affect Crop Insurance Yields
Hail storms are a common occurrence in Iowa and other states in the Midwest. Crop damage can range from moderate to a total loss. Fortunately, producers who suffer hail damage to their crops often carry crop insurance, and may be compensated for at least part of their losses. The size of the indemnity payments will depend on both the quantity and quality of the grain that is harvested.Two distinct types of policies insure against hail damage: general multiple peril insurance (MPCI) policies and “named peril” policies. Named peril policies generally cover damage due to hail, wind and/or fire. They do not cover yield losses due to other weather events, or price risk. These policies are sold by private crop insurance companies and their premiums are not subsidized by the U.S. Department of Agriculture.
Named Peril Insurance
Policies written specifically for hail risk are called “crop-hail,” and provide a maximum dollar amount of coverage per acre, with a fixed percent deductible. “Companion” hail policies are similar, but provide coverage only in addition to that provided by a standard MPCI policy, that is, they cover some or all the deductible portion.
When hail hits an insured farm, damage is estimated as a percent of what the yield would have been without the weather occurrence, but a specific yield estimate is not made. The adjustor may look at the crop soon after the damage occurs, but often will defer an appraisal until later, possibly just before harvest when crop damage is more evident. If the crop is harvested before the final appraisal, check rows should be left.
After a damage estimate is agreed on, the indemnity payment is equal to the percent loss minus the percent deductible, times the dollar value of coverage. Many policies have a “disappearing deductible,” which means that as the percent crop loss increases the unpaid deductible portion decreases until eventually the entire loss is paid. This is usually done by multiplying the appraised loss by a factor of 1.25 or 1.50.
Multiple Peril Crop Insurance
A more widely used form of crop insurance is known as multiple peril crop insurance, or MPCI. It covers losses from a wide variety of natural causes. Some types also provide insurance against decreases in market prices. Premiums for MPCI policies are partially paid from U.S. Department of Agriculture appropriations.
For MPCI policies the volume of crop delivered is first corrected to a standard moisture percentage, such as 15 % for corn and 13 % for soybeans. The total number of bushels produced is then reported to the insurance agent. However, when grain has been affected by hail the volume of grain may be adjusted for low quality discounts. A quality adjustment factor is computed based on three factors:
- If grain receives a “sample” grade due to excessive kernel damage or broken kernels and foreign material, a discount of 9.9 % is assigned. Additional discounts may be applied if a musty, souror otherwise objectionable odor is detected.
- Additional discounts are taken if the grain has a low test weight, beginning at samples testing lower than 49 pounds per bushel for both corn and soybeans, down to 46 pounds for corn or 44 pounds for soybeans.
- Excessive kernel damage, beginning at damage in excess of 10 % for corn and 8 % for soybeans, up to 35 % kernel damage for either crop, results in a further discount.
The quality adjustment factor is equal to the total of the discounts subtracted from 100 percent. If damage is in excess of the “chart values” for either low test weight or kernel damage, the discount will be based on the price discount assessed by the buyer of the grain compared to the local market price on the same day. For example, if the local market price for corn is $3.20 per bushel and the buyer offers only $2.40 for damaged corn, the volume of grain reported for crop insurance purposes will be reduced by 25 %. Production that is not sold will have an adjustment factor of 50 %.
Additional discounts may be taken for if substances such as aflatoxin, vomitoxin or fumonisin are detected in the grain. Each substance has a separate discount table, ranging up to 40 % for aflatoxin and fumonisin and 45 % for vomitoxin. Samples tested for aflatoxin must be obtained before grain is placed into storage. Details about the quality discounts applied for damaged or tainted grain can be found in the “special provisions” section of a standard MPCI crop insurance policy.
The bushels of production at the standard moisture level will be reduced by the sum of the quality adjustment factors to arrive at the “production to count” bushels. These bushels will be used to settle claims for any MPCI policy, and to calculate actual production history (APH) yields for future policies.
For more details consult your licensed crop insurance agent or insurance provider.
, retired economist.