There’s an overlooked crop insurance option that could give Manitoba producers better risk protection and lower insurance premiums.
It’s a whole-farm option known as Crop Coverage Plus, and it combines crops into a single insurance calculation, offers up to 90 per cent coverage, and may deliver lower premiums than the familiar crop-by-crop insurance, officials with Manitoba Agricultural Services Corporation said.
“It’s program that we see a lot of value in, potentially for a number of farmers, but [we] also recognize that perhaps… it’s not entirely understood in the farming community,” said David Van Deynze, chief product officer at MASC, during a recent webinar hosted by Manitoba Crop Alliance.
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WHY IT MATTERS: Crop insurance is an important risk management tool and a whole farm approach may be better for some operations.
How standard crop insurance works
Under standard crop insurance, coverage is based on each crop separately. MASC calculates a “probable yield” using about 10 years of production history, and farmers select coverage levels of 50, 70 or 80 per cent.
If actual yields fall below the selected coverage level, farmers receive a claim payment for that specific crop. That means a farmer could receive a payment on wheat even if canola or soybeans perform well.
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Whole-farm approach changes the calculation
Crop Coverage Plus takes a different approach by combining crops across the farm into one total production value.
Instead of calculating claims crop-by-crop, the program compares the total value of all harvested crops to the farm’s overall insured value. Because strong crops can offset weaker ones, claims are triggered only when total farm production falls below the coverage level.
“If you have a bit of a loss or a poor crop of wheat, for example, and you would normally have a claim on that wheat, but you have a bumper crop on your canola, for example, there’s a potential for your canola to offset any claim that you might have had on your wheat,” Van Deynze said.
But the trade-off is higher protection overall.
“The bonus side of it is the trigger point might be as high as 90 per cent rather than the 80 per cent single crop coverage,” Van Deynze added.
Diversity improves coverage and savings
One key advantage of the program is that farms growing multiple crops often qualify for higher coverage levels and lower premiums.
“The rule of thumb is generally with the more diversity you have in crops, the better off your Crop Coverage Plus is going to be as well as potentially your discount,” Van Deynze said.
MASC uses decades of yield data and statistical analysis to determine how crops perform relative to each other. Crops that don’t always fail at the same time reduce overall risk.
“We calculate a correlation coefficient for each crop combination,” Van Deynze said. “A correlation coefficient is a statistical measure that measures the strength of a relationship between two variables.” vavCrops with lower correlation (meaning they respond differently to weather or other risks) improve the chances of higher coverage or premium discounts.
Examples show potential benefits
A typical 2,000-acre farm seeded entirely to wheat would receive standard 80 per cent coverage, with no premium discount. Adding oats improved the coverage level to 88 per cent, though premiums stayed the same.
But when soybeans were added to the mix, coverage increased to 90 per cent and premiums dropped significantly.
“The offset between these three crops is significant enough that we’re even comfortable offering premium discount beyond that,” Van Deynze said.
In that scenario, the farmer would receive maximum coverage while paying about 14 per cent less in premiums compared to standard insurance.
Program focuses on large losses
The program is designed to provide stronger protection in difficult years affecting the entire farm, rather than frequent smaller payouts on individual crops.
“The thought process is, from a farmer’s perspective, ‘when do I need those indemnities and what level of indemnity do I think I need?’” Van Deynze said. “’Do I need them every time a crop, single crop, suffers? Or am I better off getting more money in situations where my whole farm suffers?’”
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He said MASC aims to balance premiums and payouts over time, regardless of which coverage option farmers choose.
“Our entire goal, whether we’re talking about standard coverage or Crop Coverage Plus, is that we break even. Over time, the amount of premium that we take in is roughly equal to the amount of indemnities that we pay over the long term,” Van Deynze said.
Suited to diverse rotations
The program may be most attractive to farms with diverse crop rotations, including crops with different growing seasons and risk profiles. For example, winter wheat often performs differently from spring-seeded crops because of its earlier harvest and different weather exposure.
“Winter wheat is one of those crops that does react differently than most of our spring-seeded crops,” Van Deynze said. “So it’s a good crop to have within a Crop Coverage Plus calculation, because it does seem to move differently than a lot of crops.”
Ultimately, he encouraged producers to evaluate how the program fits their farm’s crop mix and risk tolerance.
“It’ll depend on the crops that the farmer is growing, to determine what that correlation coefficient is,” he said.
Producers interested in learning how the program applies to their own operation are encouraged to meet with their local MASC office, said Scott Clayton, client services manager at MASC.
If farmers what to better understand how choosing whole farm coverage might affect their premiums, they can use the Crop Coverage Plus calculator on past seasons, he said.
“You can go back and use Crop Coverage Plus calculator to .. determine whether you would have had claims or would not have had claims in any particular year, and what [your] premium savings might have been,” he said.
