Revenue policies make up the bulk of the premium for the MPCI program, according to the report, so the loss ratio for revenue products has the most significant impact on the overall results of the program
OLDWICK, N.J:
Premiums in the US multi-peril crop insurance (MPCI) program surged in 2021 to a record high of $14.9 billion, an increase of nearly 40% over the previous year, according to an AM Best report.
The new Best’s Market Segment Report, titled, “U.S. Crop Writers Benefit From Rising Commodity Prices and Innovation,” also states that private crop insurers also experienced a record-high jump in premium as well, to $1.3 billion from $1.1 billion in 2020.
Private crop products largely consist of crop hail insurance and other covers that are not government-subsidised, and can be combined with MPCI or other protections to reduce deductibles and increase coverage up to the actual cash value of the crop.
The MPCI program covered more than 444 million acres in 2021, with an estimated value of more than $150 billion.
“Commodity prices have risen significantly since 2019, driving MPCI rate increases and solid premium growth,” said Connor Brach, senior financial analyst, AM Best.
“Losses stabilized due to more favorable growing conditions as well as rising prices,” said Brach.
Revenue policies make up the bulk of the premium for the MPCI program, according to the report, so the loss ratio for revenue products has the most significant impact on the overall results of the program.
In 2019, the loss ratio for revenue policies peaked at 106.7 amid unprecedented prevented planting claims, but has been much lower the past two years, dropping to 58.6 in 2021.
The combined ratio of MPCI writers was 94.9 in 2021, down from a peak of 108.6 in 2019, while private crop insurers recorded a combined ratio of 122.0, a 24.9 percentage-point improvement from the previous year.
Despite the improved segment performance, challenging market and macroeconomic conditions, including inflation and rising costs for fertilizer, diesel, herbicides, labor and other inputs, are pressuring farmers’ returns.
“Higher diesel prices have had a particularly significant impact on farmers, as they rely heavily on diesel for food harvesting and transport,” said David Blades, associate director, industry research and analytics, AM Best.
“Supply chain bottlenecks also has limited the availability of new machinery, as well as parts to maintain older equipment, while higher interest rates are raising borrowing costs for expanding or reinvesting in a farm,,’ said Blades.