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Spot-Loss Hail and Coverage Levels

In 2001, 68 per cent of the acres insured under Crop Insurance were at the 70 per cent level, with only 14 per cent of the acres at 80 per cent coverage.

In 2002, with spot-loss hail no longer available, 53 per cent of the insured acreage was at the 80 per cent level. That spring, producers were looking at extremely dry conditions. That no doubt also contributed to producers choosing a higher level of insurance.

The year progressed to become one of Saskatchewan’s worst droughts with record Saskatchewan Crop Insurance payments of over a billion dollars. Not having the 70 per cent restriction from spot loss hail improved coverage levels for thousands of producers.

Since 2002, the acreage insured at the 80 per cent levels has been steadily declining. In 2005, only 28 per cent of the acreage was at the top level. This is, however, still double the percentage insured at 80 per cent when spot loss hail coverage was a factor in decision making.

The decline in the top coverage level in recent years is likely due to cost. Although producers would like to have the maximum level of coverage, the cost increases dramatically between the 70 per cent and 80 per cent coverage levels. The increase in cost is due to the increased risk as well as the decline in government support for higher levels of insurance.

The Alberta Situation

Alberta offers both subsidized and unsubsidized hail insurance to its producers.

The unsubsidized coverage is called Straight Hail Insurance. Anyone with an interest in an insurable crop can participate. Cereals, oilseed, pulse and forage crops on dryland can be insured to a maximum of $150 per acre. Governments do not contribute to either administration expenses or premium cost.

Subsidized hail insurance is an endorsement on regular coverage. Producers can take a hail endorsement even when choosing the 80 per cent coverage level. There is also “double dipping”. In other words, spot-loss hail claims are not offset by yield shortfalls.

Officials with Alberta’s Agriculture Financial Services Corporation (AFSC) say the hail option helps sell the crop insurance program. Approximately 85 per cent of customers take the hail insurance endorsement.

It should be noted that Alberta producers have access to several other crop insurance based programs that are not available in Saskatchewan. The Variable Price Benefit compensates a producer when there is a yield shortfall below the insurance coverage and the price of the crop has substantially increased during the growing season. This benefit is included with production insurance for annual crops.

The Spring Price Endorsement (SPE) and Revenue Insurance Coverage (RIC) are features that like Hail can be purchased and added to insurance coverage on a crop specific basis. SPE provides protection for production actually grown (up to the coverage level) when commodity prices drop significantly during the crop year. RIC comes automatically with the purchase of SPE and provides protection for production, grown or not, up to the coverage level elected under the basis insurance plan if prices during the year are significantly less than a predetermined floor price.

Beyond crop insurance, Alberta recently added an additional $261 million allocation to the CAIS (Canadian Agricultural Income Stabilization) program in the province. The change provides additional income support for producers to compensate for higher fuel and fertilizer costs.

The Manitoba Situation

Unsubsidized hail insurance is available through the Manitoba Agricultural Services Corporation (MASC) on an annual basis. Producers can apply any time during the growing season. For most crops, coverage levels of $75 per acre, $100 per acre and $125 per acre are available.

The province is divided into 16 risk areas. The basic premium rates for 2006 ranged from a low of 1.8 per cent to a high of 3.5 per cent. Manitoba has much lower incidence of hail than most areas of Saskatchewan and that claim history is reflected in producer premiums.