Crop Insurance Specialists

Crop Insurance Product

Group Risk Income Protection (GRIP)

GRIP is designed as a risk management tool to insure against widespread loss of revenue from the insured crop by county rather than by individuals. GRIP was introduced in 1999 and is similar to the GRP program, but adds a revenue component to the plan. While GRP is a county yield plan, GRIP works with both the county yield, and the price of the commodity based on the Chicago Board of Trade (CBOT).

To understand the concept of GRIP, you must first understand some of the terminology.

Expected County Yield: NASS (National Agricultural Statistics Service) establishes an expected county yield per acre for each crop. Planted, harvested and unharvested acres, in addition to yield trends, are used in establishing these yields.

Expected Harvest Price: This plan uses the Chicago Board of Trade (CBOT) futures contract prices for corn and soybeans to establish the Spring prices for these crops. For corn, it is the average closing settlement price of the December Futures Contract of the Chicago Board of Trade (CBOT) during the month of February. For soybeans it is the average closing settlemtent price for November Futures Contract on the CBOT during the month of February.

Expected County Revenue: This is the Expected County Yield, multiplied by the Expected Harvest Price.

Level of Coverage is used to calculate the Trigger Revenue. The Level of Coverage selected by the insured (between 70% and 90%) multiplied by the Expected County Revenue produces the Trigger Revenue amount.

Maximum Protection Per Acre: This amount is determined by multiplying the Expected County Yield by the Expected Harvest Price by 150%. The insured selects between 60% and 100% of this amount to calculate the Protection Per Acre. Only one amount of Protection Per Acre by crop and by county may be selected.

Harvest Price is CBOT's average monthly closing settlement price for specific crop futures. For corn, it is the average monthly closing settlement price in October for the December contracts. For soybeans, it is the average monthly closing settlement price in October for the November contacts.

Actual County Yield: This is determined by NASS after harvest is completed in the county. This figure is released prior to April 16 of the following year.

Actual County Revenue is the Actual County Yield multiplied by the Harvest Price. This is determined after the Actual County Yield is released.

Net Insurable Acres: The number of acres of the insured crop in the county reported to the Company by the Acreage Reporting Date.

Example:
50 acres of soybeans at 100% interest
200 acres of soybeans at 50% interest shared with Jones
100 acres of soybeans at 50% interest shared with Smith
200 Net Insurable Acres soybeans in one county

How to Select Coverage
To choose the desired amount of coverage, the insured makes two selections:

1. Select the Protection Per Acre
Select the amount of Protection Per Acre you want, ranging from 60% to 100% of the Maximum Protection Per Acre. The Protection Per Acre you select will be used in determining the amount of your premium. It will also be used as a factor in calculating the amount of loss payable if the Actual County Revenue for your crop is less than the Trigger Revenue.

2. Select the Level of Coverage
Select the Level of Coverage, ranging from 70% to 90% of the Expected County Revenue (a number calculated by multiplying the Expected County Yield established by NASS by the Expected Harvest Price based on the CBOT February contracts.) The Level of Coverage multiplied by the Expected County Revenue establishes the Trigger Revenue amount for your policy.

Premium Costs, and FCIC Subsidies:
Premiums vary by crop and county. However, the Federal Crop Insurance Corporation subsidizes the premium costs. They are the same regardless of where GRIP is written.

Example: Selecting the Protection Per Acre and Trigger Revenue
Crop: Soybeans
Expected County Yield: 46.3 bushels per acre
Expected Harvest Price: $5.50 per bushel
Expected County Revenue: $255 (46.3 x $5.50)
Maximum Protection Per Acre: $382 (46.3 x $5.50 x 150%)
Net Insurable Acres: 200

1. Selecting the Amount of Loss Protection per Acre
The insured may select an amount of Protection Per Acre, ranging from 60% to 100% of the Maximum Protection Per Acre. In this example, the Maximum Protection Per Acre is $382 (46.3 x $5.50 x 150% = $382) and the insured may select an amount of Protection Per Acre ranging from $229 (60% x $382) to $382 (100% x $382) per acre. (The insured may select only one amount of protection per crop per county).

2. Selecting the Amount of Loss Protection per Acre
The insured may select a Level of Coverage amount ranging from 70% to 90% of the Expected County Revenue. The Level of Coverage multiplied by the Expected County Revenue determines the Trigger Revenue amount. In this example, if an insured selects the 90% Level of Coverage, the Trigger Revenue is $230 per acre (90% x $255 = $230). When NASS announces the Actual Yield per Acre in April of the following year, it will be multiplied by the Harvest Price to obtain the Actual County Revenue. If this amount is below the Trigger Revenue of $230, a Loss will be paid.
Example: Calculating a loss payment on 200 Net Insurable Acres of soybeans in One County

Expected County Yield = 46.3 bushels per acre
Expected Harvest Price = $5.50 per bushel
Expected County Revenue = $255 per acre
* Harvest Price = $5.00 per bushel
** Actual County Yield = 35 bushels per acre
Actual County Revenue = $175 per acre ($5 x 35)
Protection per Acre = $383 (46.3 x $5.50 x 150% x 100%)
Trigger Revenue = $230 ($255 x 90%)
* The Harvest Price for soybeans is fixed by CBOT in early November.
** The Actual County Yield is established by NASS the following April.

In this example, Actual County Revenue is less than Trigger Revenue, therefore, a loss payment is due. The loss payment is calculated as follows:

Trigger Revenue minus Actual County Revenue ($230 - $175 = $55)
Divided by Trigger Revenue equals loss percentage (55/230=23.9%)
Loss percentage multiplied by Protection Per Acre,
Multiplied by Net Insurable Acres equals loss payment
(23.9% x $383 x 200 = $18,400)

ADVANTAGES OF GRIP COVERAGE:

• Cost per acre is the same for higher risk crops as for lower risk crops.
• No Actual Production History (APH) record keeping is necessary. However, it is recommended (but not required) that history be maintained in the event you change coverage from year to year.
• Provides an affordable insurance plan.

DISADVANTAGES OF GRIP COVERAGE:

• No loss payments on individual units.
• No replant provisions.
• No prevented planting coverage.
• No loss payment until the following year.
• No upward price protection. Losses are paid only if the Actual County Revenue falls below the Trigger Revenue. If the Actual County Yield is less than the Expected County Yield, scarce market supply may drive up both Harvest Price and Actual County Revenue. In such a situation, fewer bushels will be required to meet the Trigger Revenue and no loss payment will be made.

HARVEST REVENUE OPTION
In years past, one of the disadvantages of a GRIP policy was the lack of upward price protection. In years when there are large losses to a crop, the fall price tends to rise. When this happens, only products like CRC, or RA-HPO take the increased price into consideration in calculating loss payments.

New in 2004, FCIC has introduced the Harvest Revenue Option. Under this new coverage plan, the Protection Per Acre and the Trigger Revenue both increase when the Harvest Price is greater than the Expected Harvest Price.

The following example shows the benefit of the Harvest Revenue Option (HRO). In this example, a loss payment of $15,617 is made, whereas, without the HRO, no claim is recognized.

Example: Harvest Revenue Option
Actual County Yield = 35 bushels
* Harvest Price= $7.00
*Expected Harvest Price = $5. 50
**Trigger Revenue = $230
**Actual County Revenue = $245
Protection Per Acre = $382

Under the new Harvest Revenue Option, the Protection Per Acre and Trigger Revenue increase automatically if the Harvest Price exceeds the Expected Harvest Price.

Increase in Protection Per Acre
The amount of increase in Protection Per Acre is determined as follows:
Harvest Price divided by Expected Harvest Price equals percent of increase ($7.00 / $5.50 = 1.27%)
Percent of increase multiplied by original Protection Per Acre equals new Protection Per Acre (1.27% x $383 = $486)

Increase in Trigger Revenue
Under the Harvest Revenue Option, if the Harvest Price exceeds the Expected Harvest Price, the Trigger Revenue is recalculated using the Harvest Price, resulting in an increased Trigger Revenue amount. The amount of increase in Trigger Revenue is determined as follows:
Expected County Yield multiplied by Harvest Price multiplied by Level of Coverage equals new Trigger Revenue
(46.3 x $7.00 x 90% = $292)

Calculating the percentage of loss
The percentage of loss is calculated using the new Trigger Revenue, as follows:
New Trigger Revenue minus Actual County Revenue divided by new Trigger Revenue equals percentage of loss
($292 - $245 / $292 =16.1%)

Calculating the loss payment amount
The loss payment amount is determined as follows:
Percentage of loss multiplied by new Protection Per Acre multiplied by Net Insurable Acres equals loss payment
(16.1% x $486 x 200 = $15,617)

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