Growers have a new coverage option in the 2021 planting season called Enhanced Coverage Option (ECO). This new endorsement provides insurance coverage to a previous gap on the top end of county revenue losses between 86% to 90/95%. PRM’s analysis has found this new coverage is coming with a high 2021 premium cost because of high commodity prices and rise in volatility.
Crop Insurance can be thought of in tiers. The base tier being the Multiple Peril Crop Insurance (MPCI). This tier has the choice of coverages such as Revenue Protection and Yield Protection. The next tier will cover up where the MPCI coverage ends up to 86% of losses. Currently Supplemental Coverage Option (SCO) and Agricultural Risk Coverage (ARC) align with the second tier.
Before the 2021 planting season, there was a gap (Deductible) from above 86% of losses putting the full risk on the grower. Enhanced Coverage Option covers the 86% to either 90% or 95% of county revenue, depending on which level of coverage the grower wants to select.
There is a large difference how ECO and MPCI are triggered for payment. The MPCI coverage is based on the individual grower’s operation while ECO is county based. For ECO, if the expected revenue is reduced below the elected level (90 or 95%), the grower will receive an indemnity payment. This can be separate from the individual grower’s yield or revenue which triggers the MPCI policy.
ECO is an endorsement to another policy meaning the grower must have already selected an MPCI option such as Yield Protection or Revenue Protection. It is also distinct and not affected from Farm Programs though the Farm Service Agency (FSA). These programs include Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC). ECO can be combined with these programs.
ECO may be an option for some producers who want to cover the top-tier county revenue losses by paying for it in their premium. Early feedback by PRM customers has been that the ECO coverage is priced at a higher end for 2021. This is because the high commodity prices and large volatility that is increasing all premiums for 2021.
Many growers may find a better option in the Farm Programs after an investigation into their policies and operation. The Farm Programs do not require to be paid into with a premium. Programs such as ARC and PLC may be able to cover the higher tier coverage losses without the significant premium increase with ECO.
The key to an operation’s success is a deep analysis of the options available. PRM’s Risk Management Advisors will partner with the operation to help find the best coverage mix based on their needs and risk tolerance. If a grower is interested in ECO, PRM would like to discuss if it is the correct fit for the operation.