An Introduction to the new Enhanced Coverage Option for Federal Crop Insurance

The Enhanced Coverage Option (ECO) is a brand new coverage option for federal crop insurance. Curious if it might be right for your farm? Check out the following Q&A for information. Contact our agents to learn more.

Matt Allen – Delavan – 309-244-9277

Joe Conroy – Minier – 309-392-2623

Brian Davis – Bloomington – 309-663-6200

Q1: WHAT IS THE ENHANCED COVERAGE OPTION?

Enhanced Coverage Option (ECO) is a new multiple peril crop insurance (MPCI) endorsement that provides area-based coverage for a portion of your underlying policy’s deductible in a manner similar to the Supplemental Coverage Option (SCO). It uses the same expected and final area yields, projected and harvest prices, and payment factors as SCO, but covers a band from 86 percent (where SCO coverage triggers) up to 90 or 95 percent of expected crop value. Like SCO, ECO is based on your underlying policy plan of insurance.

 

Q2: WHAT IS REQUIRED TO PURCHASE ECO?

ECO must be purchased as an endorsement to the Yield Protection, Revenue Protection, Revenue Protection with the Harvest Price Exclusion, Actual Production History, or Yield Based Dollar Amount of Insurance policy.

 

Q3: HOW DOES ECO WORK COMPARED TO OTHER CROP INSURANCE POLICIES?

ECO follows the coverage of your underlying policy. If you choose Yield Protection, then ECO covers yield loss. If you choose Revenue Protection, then ECO covers revenue loss.

The amount of ECO protection depends on the expected crop value, which is based on the liability and coverage level for your underlying policy. However, ECO differs from the underlying policy in how a loss payment is triggered. The underlying policy pays a loss on an individual unit basis and an indemnity is triggered when you have an individual loss in yield or revenue. ECO pays a loss on an area basis (generally county), and an indemnity is triggered when there is an area-level loss in yield or revenue.

 

Q4: WHEN DOES A LOSS BECOME PAYABLE UNDER ECO?

ECO begins to pay (triggers) when county average yield or revenue falls below 90 or 95 percent of the expected level depending on which ECO trigger you select. The full amount of the ECO coverage is paid when the county revenue or yield falls to 86 percent of expected county revenue or yield.

 

Q5: MUST THERE BE A LOSS ON MY UNDERLYING POLICY BEFORE I CAN COLLECT AN ECO INDEMNITY?

ECO payments are determined only by county average revenue or yield and are not affected by whether you receive a payment from your underlying policy. It is possible to experience an individual loss, but not receive an ECO payment, or vice-versa.

 

Q6: HOW DOES ECO COVERAGE WORK?

ECO coverage provides additional area-based protection above your underlying individual coverage. For example, suppose you purchase Revenue Protection for a corn crop with a 75 percent coverage level and you have also elected ECO. This crop has an expected crop value of $765.00 per acre, thus the liability on the underlying policy is $573.75 per acre ($765.00 x 0.75). This underlying policy leaves 25 percent (or $191.25) uncovered as a deductible. The dollar amount of ECO coverage is based on the trigger level you that you select. In this example, there are 9 percentage points of coverage (from 95 percent to 86 percent). Nine percent of the expected crop value is $68.85 (or 9 percent x $765.00). ECO may cover up to $68.85 of the $191.25 deductible amount not covered by your underlying policy. You may purchase SCO coverage for a portion of the remaining $122.40 of deductible.

 

Q7: HOW MUCH DOES ECO COST?

The exact premium cost depends on the crop, county, type of coverage you choose (such as Yield Protection or Revenue Protection), the price discovered for your commodity, the volatility of the market in the last five days of the projected price discovery period (for revenue-based plans) and the trigger level of 90 or 95 percent. The Federal Government pays 51 percent subsidy for Yield Protection and 44 percent for Revenue Protection. Premium rates are generally released in November of each year for spring crops. As a general rule of thumb, the premiums for ECO will be similar to other area plans sold at the same coverage levels in your county. You should talk with your crop insurance agent for more information.

 

Q8: WHAT HAPPENS IF I SELECT ECO AND ALSO SIGN UP FOR ARC?

Your choice of ARC has no impact of your eligibility for ECO. If you elect ECO and ARC for the same crop on a farm, your ECO coverage for that crop on that farm will be unaffected.

 

Q9: WHEN CAN I EXPECT INDEMNITIES TO BE PAID FOR ECO?

ECO indemnities are based, in part, on final county yields. These yields are calculated by RMA based on producer Acreage and Production Reports. Based on extended reporting periods, and similar to SCO and other area plans, final yield data are not available until the summer of the year following harvest. Final reporting dates for production from the preceding crop year vary by crop and county.

For more information please contact any of our agents.

Matt Allen – Delavan – 309-244-9277

Joe Conroy – Minier – 309-392-2623

Brian Davis – Bloomington – 309-663-6200