New Crop Insurance ECO Available for 2021

If protecting more of your farm’s revenue is on your 2021 crop wish list, consider a brand new crop insurance product called Enhanced Coverage Option (ECO). ECO provides county-based coverage for a portion of the deductible of your underlying multi-peril policy, similar to the Supplemental Coverage Option (SCO).

For the 2021 crop year, ECO will be available for 31 spring-planted crops including corn, soybeans, and wheat. ECO can be purchased as an endorsement to an eligible individual insurance plan, like Revenue Protection (RP), Revenue Protection with the Harvest Price Exclusion (RP-HPE) or Yield Protection (YP).

ECO uses the same expected and final county yields, projected and harvest prices and payment factors as SCO. ECO can be purchased at either a 90% or 95% coverage level. The ECO coverage “band” extends from the selected level down to 86%, the point where SCO begins to offer coverage. SCO will provide coverage from 86% to the coverage level of the underlying RP, RP-HPE, or YP policy. An important item to note is that producers do not have to buy both. A producer could purchase ECO and not SCO, and vice versa. In contrast to SCO, individuals are eligible to purchase ECO regardless of their farm commodity program choice (ARC/PLC). SCO can be only be purchased on acres with PLC.

ECO triggers payments when the final county revenue (yield x price) falls below 90% or 95% of expected county revenue. Expected revenues at the county level are defined as the approved county yield multiplied by the projected crop insurance spring price. The producer elects a 90% or 95% coverage level and payments are then based on the individual’s insurance liability. The county loss, measured in percentage points, up to a maximum of 9%, multiplied by the individual’s expected insured value per acre determines the ECO indemnity payment. SCO payments operate in the same way, with coverage beginning at 86% and ending at the coverage level elected by the farmer for their individual plan of insurance.

Let’s take a look at an example of a 95% ECO policy purchased with an 85% RP policy. The county expected yield is 200 bu/ac and the projected crop insurance spring price is $4.00/bu. This provides an expected county revenue of $800/acre (200 x $4.00).

• The ECO coverage range is 9% (95% - 86%)
• The producer’s approved yield 210 bu/ac
• The resulting ECO coverage amount is the Expected Revenue multiplied by the Coverage Range:
  • ($4.00 x 210 bu/ac) x 9% = $75.60/acre ECO coverage

In the fall, the Harvest Price comes in at $3.80/bu, while the final county yield is 190 bu/ac. This results in a final county revenue of $722.00/ac (190 x $3.80).

• The loss percentage is calculated:
  • Max(95% - {$722/$800} = 4.75%
• Next, the payment factor is the loss percentage divided by the coverage range: 4.75% / 9% = 52.78%
• Finally, the ECO indemnity is the payment factor multiplied by the ECO coverage amount:
  • $75.60/ac x 52.78% = $39.90/acre paid.

What about the cost? This is an obvious question, especially when something “new” hits the market. While premiums will vary based on your county you and your farm’s APH, ECO is subsidized at a rate of 44% when combined with RP, and 51% with YP. This will make it a competitive product with the private products offered by AIPs, albeit with differences in how each product provides coverage. If you have purchased a “private product” to enhance revenue and or yield coverage in the past on your farm, just remember that your coverage and indemnity payments were based on your individual yields, which is a stark contrast to the county based ECO plan. If you would like to get an ECO quote for your farm, please give one of the Compeer Financial insurance officers a call at (844) 426-6733.