Crop insurance is purchased by agricultural producers, including farmers, ranchers, and others to protect themselves against either the loss of their crops due to natural disasters, like hail, drought, and floods, or the loss of revenue due to declines in the prices of agricultural commodities.
Crop-yield insurance and Crop-revenue insurance are the two main branches of Crop insurance Crop-yield insurance :
Crop-hail insurance is generally available from private insurers in countries where insurance is provided by private sectors as hail is a narrow peril that occurs in a limited place and its accumulated losses tend not to overwhelm the capital reserves of private insurers. The crop-hail programs can be traced back to 1820, where farmers began cooperatives in France and Germany .
Multi-peril crop insurance (MPCI): covers the broad perils of drought, flood, insects, disease, etc., which may affect many insureds at the same time and present the insurer with excessive losses. To make this class of insurance, the perils are often bundled together in a single policy, called a multi-peril crop insurance (MPCI) policy. MPCI coverage is usually offered by a government insurer and premiums are usually partially subsidized by the government. The earliest MPCI program was first implemented by the Federal Crop Insurance Corporation (FCIC), an agency of the U.S. Department of Agriculture, in 1938. The FCIC program has been managed by the Risk Management Agency (RMA), also a U.S. Department of Agriculture agency, since 1996 . 
Crop-revenue insurance:
Crop-revenue insurance covers the decline in price that occurs during the crop's growing season. It does not cover declines that may occur from one growing season to another. Covering price for all seasons will amount to "price support," and would raise a series of complex agricultural-policy and international-trade issues.
Crop revenue insurance is a combination of crop-yield insurance and price insurance. For example, RMA establishes crop-revenue insurance guarantees on corn by multiplying each farmer's corn-yield guarantee, which is based on the farmer's own production history, times the harvest-time futures price discovered at a commodity exchange before the policy is sold and the crop planted. There is a single guarantee for a certain number of dollars. The policy pays an indemnity if the combination of the actual yield and the cash settlement price in the futures market is less than the guarantee. |
