First of all, most AgriInsurance insurance policies are yield-based, meaning applicants must have an accurate prediction of their probable yield for the year. This number must be obtained by a program administrator, and the policy will then be provided based on this assessment.
Periodically, program managers or provinces must certify to the federal government that the probable yield offered is actuarially sound and obtain an actuarial certification of the probable yield methodology used for each insurance plan.
The coverage then offered is called the production guarantee and is calculated as follows:
Production Guarantee = Unit of Exposure x Probable Yield x Coverage Level
When applying for AgriInsurance, applicants will need to provide both the unit of exposure, as well as their desired coverage level, which acts similar to an insurance deductible. The unit of exposure is typically the number of acres. The coverage level will vary based on the producer’s risk tolerance and the plan offering. Most plans vary from 60% to 90% coverage level. If a producer selects a 90% coverage level, this means if they would retain the first 10% any yield decline as a deductible, with an indemnity payment of up to 90% of their insured production in the event of a yield decline. In the extreme case of a total loss, the producer would receive 90% of their insured production in claim payments.
Two other actuarial certifications are also required by the federal government to subsize the insurance program: one for the premium methodologies and one assessing the self-sustainability of the program. The actuarial certification of the premium rate methodologies requires an opinion stating that the premium rate methodologies are determined in an actuarially sound manner. The objective of this requirement is that premiums charged be reflective of the plans’ expected loss potential. The actuarial certification of self-sustainability requires an opinion stating that the insurance program is able to recover from a catastrophe in a timely manner.
Axxima is well versed in AgriInsurance plan design and required actuarial certifications that meets the federal government guidelines.