Catastrophic Nature of the Coverage

MPCI can be considered to be a catastrophic form of coverage. For an individual producer, MPCI compensates the producer for a portion of his loss when his yield is abnormally low. In this sense, MPCI is a high deductible product. However, when one producer has a poor year because of climatological factors, it is likely that many other producers will also have a poor year. This strong correlation of the experience between exposures limits the insurer's ability to reduce its risk through diversification. As a result, even the statewide MPCI experience can vary dramatically between years. For example, Chart 2 of Iowa experience shows two years since 1980 with loss ratios in excess of 350% and another year with a loss ratio in excess of 200%. If the experience were examined over the past 5 years only, Iowa would seem to be a very profitable market.