Unique Features of the Multiple Peril Program

The involvement of the Federal government in the MPCI program creates a social insurance program which operates on different principles than a privately underwritten insurance market. The important differences include producer premium subsidies, insurer expense reimbursements, and pricing for an underwriting loss. This section discusses these differences and other unusual characteristics of the program.

The MPCI program offers two levels of coverage, known as Catastrophic and Buy-up. The Catastrophic level of coverage protects against only the most severe outcomes, such as a complete crop failure. Specifically, Catastrophic coverage reimburses producers only when the actual production falls short of 50% of the APH yield, with the loss of yield evaluated at a 55% Price Election percentage. The most a producer could collect under this coverage would be 27.5% of the expected value of the crop. The producer premium for Catastrophic coverage is completely subsidized except for a $60 administrative fee per county per crop which is paid to the Federal government. However, an "imputed" premium is established which represents what the producer would pay if no subsidy existed.

Buy-up coverage allows the producer to purchase additional coverage at a partially subsidized price. However, the Buy-up and Catastrophic coverages are priced and sold as different deductibles rather than as distinct products. The premium at all deductibles is subsidized by a dollar amount determined from the cost of the catastrophic coverage.