Hail Hits Your Wheat Field and a Crop Insurance Claim Moves to a Check

The sky turns the color of an old bruise, the wind drops, and for about eleven minutes the sound on the roof is a drum solo from the wrong end of the weather. Then it is quiet, and a farmer walks out to the wheat that was ready to cut in two weeks and finds it flattened and shredded. Hail does not read the farm bill. It does not care about the markets. It simply arrives, and a year of work goes into the dirt.

What happens next is the part few non-farmers understand, and it is the backbone of the modern farm safety net. This post walks you through it from start to finish. Every number and every date below is a hypothetical for illustration, a made-up farm in a made-up county, and the real rules change by crop, county and policy, so your own policy and the Risk Management Agency's documents control. I will mark where you must check.

The law and the players

The structure is simple once you see the cast.

• The Federal Crop Insurance Act. Congress first authorized federal crop insurance in 1938. The program was small and mostly experimental until the Federal Crop Insurance Act of 1980 expanded it and brought in private companies, the 1994 reform act added a basic "catastrophic" level, and the Agricultural Risk Protection Act of 2000 raised the premium subsidies that make higher coverage affordable. The statute is amended regularly in the farm bill.
• The Risk Management Agency (RMA). An agency of the Department of Agriculture, set up in 1996. It writes the rules, approves the policies, sets the premium rates and publishes the price and yield data. The Federal Crop Insurance Corporation is the entity behind the program, and the RMA runs it.
• Approved insurance providers. These are private companies. They sell the policies through agents, service the claims, and are reinsured by the federal government under an agreement with it. They cannot set their own premium rates, and they have to accept eligible farmers who apply. A farmer buys from a local agent, and the company sends an adjuster after a loss.
• The agent. The person who sells you the policy, explains the options and helps you file reports.
• The loss adjuster. The person who inspects the field and measures the loss. The adjuster works for the company but follows the RMA's rules.

Here is the part that confuses people. The government subsidizes the premium, so your premium is lower than it would be on the open market, and the government reinsures the companies, so they can sell policies in risky places. Private companies and a federal agency are joined at the hip. Conservatives have argued for years about whether that is a sound model, and I will come back to it at the end.

The hypothetical farm

Picture a grower with 200 acres of winter wheat in an imaginary Great Plains county. She owns the land, so she keeps 100 percent of the crop. Her policy is a revenue-based plan with a 75 percent coverage level. Her records, which the insurance world calls her actual production history, show an average yield of 40 bushels per acre. These are invented figures. Now, step by step.

Step 1: buy before the sales closing date

Every crop in every county has a sales closing date, the last day to buy a policy or change coverage for the coming crop year. For winter wheat in many Plains counties the date falls in the fall, around planting time, but it varies, so check the dates for your crop and county on the RMA's site or ask your agent. Miss it and you are uninsured for that crop.

On or before that date, the grower picks three things.

1. The plan. Yield protection pays when yield falls below the guarantee. Revenue protection pays when revenue falls below the guarantee, and it adjusts for price changes.
2. The coverage level. Typically from 50 percent up to 85 percent, depending on the crop and county. A higher level costs more and pays sooner.
3. The unit structure. How the farm's fields are grouped for claims, which affects the premium and how a loss is measured.

The premium is subsidized by the government, and the subsidy percentage is higher at lower coverage levels and lower at higher ones. The RMA publishes the schedules. Our grower pays her share, which in this hypothetical comes to $9 per acre. For 200 acres, 200 x $9 = $1,800. She will be billed on a date set in the policy.

Step 2: report the acres

After planting, the farmer files an acreage report with the agent by the reporting date for the crop. It states how many acres she planted, where, and what her share is. That report, together with her yield history and the price, sets the guarantee. Report accurately. A wrong acreage report can reduce or void a claim later, and misreporting on purpose can be fraud with real penalties.

Step 3: the storm and the 72 hours

Now the hail comes. This is the step where most mistakes are made, so read it twice.

The standard rule in the federal policy is that the farmer must give notice of loss within 72 hours of discovering damage, and no later than a fixed number of days after the end of the insurance period. Seventy-two hours is the typical deadline, and your own policy controls, so check it today and not after the storm.

How to give notice: call the agent or the company, say what happened, the date, and which fields. Write down the date and time of the call and who you spoke to. Follow up in writing if your policy asks for it. Do not wait to see whether the damage "turns out to be small." Notice costs nothing, and late notice can cost the claim.

Step 4: leave the evidence and meet the adjuster

After notice, an adjuster is assigned and will contact the farmer. The adjuster needs to see the crop as it stands. Do not harvest, replant, plow under or destroy the damaged acres until the adjuster has inspected them or has told you in writing that you may. If you need to clear the field, the policy generally requires you to leave representative samples of the crop, in strips of a set size, so that the loss can be measured later.

At the visit, expect the adjuster to walk the field, sample plants and heads, count damage, and review the farmer's records, including the acreage report and harvest records. Bring your records and be helpful. If you disagree with the findings, say so politely and ask for the reasoning in writing.

Step 5: harvest and the production to count

If the field is harvested, the farmer delivers or stores the crop and keeps the scale tickets and records. The company counts the bushels she actually harvested, plus any "appraised" bushels for acres that were lost to insured causes or left unharvested. This total is called production to count, which is the government's name for what a farmer calls "my crop" and tells you whose point of view the form was written from. In our hypothetical, after hail and harvest the production to count is 3,500 bushels.

Step 6: calculate the indemnity

Now the arithmetic, which is where the policy earns its keep. The grower has revenue protection at 75 percent. Revenue protection uses two prices. The projected price is set before planting, and the harvest price is set from the futures market near harvest. In this hypothetical the projected price is $6.00 per bushel and the harvest price is $6.50.

A. Bushel guarantee per acre. Average yield x coverage level: 40 x 0.75 = 30 bushels per acre.

B. Total bushel guarantee. 30 x 200 acres = 6,000 bushels.

C. The price for the guarantee. Under revenue protection the guarantee uses the higher of the projected and harvest prices, so $6.50.

D. Revenue guarantee. 6,000 x $6.50 = $39,000.

E. Revenue to count. Production to count x harvest price: 3,500 x $6.50 = $22,750.

F. Indemnity. Guarantee minus revenue to count: $39,000 - $22,750 = $16,250. Her share is 100 percent, so the check is for $16,250.

Check: her sales of 3,500 bushels bring $22,750, her indemnity is $16,250, and 22,750 + 16,250 = $39,000, the guarantee. That is the point of the policy. It does not make her whole. It puts a floor under revenue.

How far is that floor from a normal year? Normal production is 40 x 200 = 8,000 bushels, worth 8,000 x $6.50 = $52,000 at the harvest price. The guarantee is $39,000, so she carries the gap, 52,000 - 39,000 = $13,000, which is exactly 25 percent of $52,000. That 25 percent is her deductible. Insurance is not a check for the whole loss. It starts after the farmer has absorbed the first slice, and a higher coverage level shrinks that slice at a higher premium.

For comparison, suppose she had bought plain yield protection instead. The guarantee would use only the projected price: 6,000 x $6.00 = $36,000. Production to count would be priced at the same $6.00: 3,500 x $6.00 = $21,000. The indemnity would be 36,000 - 21,000 = $15,000. That is 16,250 - 15,000 = $1,250 less than under revenue protection, because the harvest price rose and yield protection ignores it.

A short records checklist

Most denied or shrunken claims come down to paper, not weather. Before the next storm, make sure you can lay your hands on these.

• Your policy and its special provisions for your county, with the dates marked.
• Last year's and prior years' production records, since your yield history is built from them.
• Your signed acreage report and any field maps or aerial photos.
• Scale tickets, bin measurements and settlement sheets from harvest.
• A dated log of every call to the agent and the adjuster, and copies of any letters.
• Dated photographs of the damaged field, taken before anything is moved.

An hour spent on a folder in August is worth more than a week of phone calls in November.

Step 7: the payment and what can go wrong

Under the standard rules, the company pays within a set period after the farmer and the company agree on the amount of loss, commonly 30 days. If she has a loan on the crop, the check may go to her lender or be split, because lenders often require an assignment of the indemnity. Her net for the year, counting the premium, is the indemnity less the $1,800 premium: 16,250 - 1,800 = $14,450 of benefit.

If she disagrees with the company's decision, the policy provides for review, including mediation and arbitration, and she may appeal to the National Appeals Division of the Department of Agriculture on certain decisions. Keep every letter. If a dispute arises, the paper trail is your case.

Two more notes for the real world. First, hail is only one cause of loss. A policy also covers drought, freeze, flood and other named causes, and leaves out causes such as poor farming practices. Read the exclusions. Second, many Plains growers also buy a separate private hail policy, which is not part of the federal program, to cover hail damage by percentage. That is a different product with different rules, and you should know which one you are filing under.

What conservatives should ask about this system

I have walked you through a program that works as intended. It gave a grower a floor under her revenue, it ran through private companies, and she paid a premium. It is fair to call that a good example of shared risk.

Now the hard question, in the form of the strongest argument from each side.

The defenders say: farming risk is unlike other business risk. Weather and prices are outside any farmer's control, the capital is huge and the margins are thin, and a country that wants a secure food supply should help farmers hold on through a bad year. Private markets alone will not insure widespread crop losses, because everyone in a region is hit at once. The critics say: the premium subsidy is large in dollars, it grows as the amount of insured crop grows, and it has no cap on what the biggest operations can collect. They argue that subsidized insurance can encourage planting on marginal land and bidding up land rents. They argue that the government should not be paying private companies to run a program it also reinsures.

I think both are partly right. A safety net for weather risk is reasonable. A subsidy that grows without limit, and has few strings, is harder to defend, and it deserves a hard look at the next reauthorization. For the history of how the farm safety net got here, read From the 1933 Farm Act to Freedom to Farm, How the Safety Net Got Built. For the claims people make about it, including the one that crop insurance is a "free check," read Eight Myths About Farm Subsidies That Both Parties Keep Repeating. For the credit side of farm distress, Embargo, Volcker and Foreclosure Is What Really Caused the 1980s Farm Crisis tells the story of what happens when debt, not weather, hits the family farm, and Four Farm Families, Four Ways to Hand the Land to the Next Generation covers how the land passes on. If you want to see how farm programs are bundled with other spending, Why Food Stamps Live in the Farm Bill and Whether That Marriage Should Last explains that, and Does Your Farm Owe Estate Tax? A Worksheet You Can Run at the Kitchen Table covers the tax side.

The bottom line

• Federal crop insurance runs through the Risk Management Agency and private approved providers. The grower pays a subsidized premium and carries a deductible.
• The calendar is the product: buy before the sales closing date, file an accurate acreage report, give notice of loss within about 72 hours (check your policy), and do not touch damaged acres until the adjuster says so.
• In our made-up example, a 75 percent revenue policy on 200 acres turned a $39,000 guarantee into a $16,250 check after hail, and the farmer still carried a $13,000 deductible. Insurance sets a floor. It is not a windfall.
• Ask your representative whether the next farm bill will put limits on premium subsidies for the largest operations, and whether it will keep the program simple enough for a small grower to use.