Multi-Peril Products: Catastrophic (CAT) Insurance
CAT is minimum coverage yield insurance.CAT pays indemnities when actual yield
is below a yield guarantee.
Yield guarantee under CAT
CAT's yield guarantee is 50 percent of the Actual Production History (APH)
yield. Corn with a 150 APH yield has a 75 bu. yield guarantee (see Figure 1).
1. Per Acre CAT Yield Guarantee
| APH yield
|| 150 bu.
| Yield guarantee
|| 75 bu. = 150 APH yield x 50%
Indemnity payments under CAT
CAT makes payments when actual yield is below the yield guarantee. The payment
equals the yield shortfall times an indemnity price.
The indemnity price is 55 percent of the Federal Crop Insurance Corporation's
(FCIC) price. In 2001, the FCIC price is $2.00 for corn, giving an indemnity price
of $1.10 per bu. ($2.00 FCIC price x 55%).
Given a 75 bu. yield guarantee, indemnity payments occur when actual yield
is below 75 bu. For a 50 bu. actual yield, the yield shortfall is 25 bu. (75
bu. yield guarantee - 50 bu. yield). In this case the indemnity payment is $28
per acre (25 bu. shortfall x $1.10 indemnity price). Indemnity payments are greater
for lower actual yields (see Figure 2).
2. CAT Indemnity Payments for Different Yields1
| Actual Yield
|| Indemnity Payment
| 25 bu.
on information in Figure 1.
Choices under CAT
Farmers can choose to have CAT coverage using the Group Risk Plan (GRP). Under this option, yields are insured at 65 percent of the expected county yield using 55 percent of the Risk Management Agency price.
CAT has no premium. However, farmers pay $100 for each basic unit insured in a
Iowa State University Extension, Catastrophic Crop Insurance, March 2003,
Updated: January 2006