Enhanced Coverage Option, or ECO, is the new federal product that made headlines last year. When paired with the new ECO+ add-on from FMH, farmers can now have farm-level coverage with a county-based plan and up to 95 percent of the expected crop value.
To learn why farmers should consider adding ECO and ECO+ to their risk management plans this year, we spoke with two experts from Farmers Mutual Hail: Ryan Benes, FMH Strategic Account Manager, and Ken Ripley, FMH Regional Sales Manager and Assistant Vice President of Sales.
1. The ECO and ECO+ pairing doesn’t have the same restrictions as SCO and SCO+.
While ECO has been called a sister product to SCO, or Supplemental Coverage Option, there are differences that make it accessible for more farmers.
“If you know what SCO is, you’re already halfway there,” said Benes. “Just like SCO, ECO is going to follow the underlying plan type: it uses the same prices, it has the same sales closing date, and ECO is an area-based plan of insurance. What makes it enhanced? ECO offers 95 or 90 percent coverage down to 86 percent.”
When combined with ECO+, farmers can secure both individual and county-level coverage up to the 95 percent level. Meanwhile, SCO’s highest trigger level caps out at 86 percent.
Ripley added, “Unlike SCO, where that could only be purchased if you signed up for Price Loss Coverage (PLC) at the Farm Services Agency (FSA) office, ECO and ECO+ can be purchased regardless of what you sign up for. That’s a big win and simplifies it.”
Producers can choose either PLC or Agriculture Risk Coverage (ARC) at their FSA office through March 15, 2022.
2. ECO and ECO+ on top of existing coverage – yes, you can even have a “gap.”
ECO and ECO+ can be added to either revenue or yield individual plan types, and to any underlying coverage level.
“There are no level requirements with ECO and ECO+, meaning you don’t need to have a certain level of coverage on your underlying buy-up plan in order to purchase ECO and ECO+ at the 95 percent level,” explained Benes.
“In the past, some of the push back with similar products was if you had a 75 percent policy, you were forced to buy up to 85 percent [to qualify for those higher coverage levels]. Now we can have that gap,” said Ripley. “That’s a big win – having the opportunity to put a higher trigger in but keep the individual level low.”
Ripley added that allowing the gap in coverage makes adding the ECO and ECO+ pairing more affordable.
3. Are you interested in both county and individual farm-level coverage?
As an area-based plan, ECO pays when the county experiences a loss, not the individual farm. That’s why Farmers Mutual Hail added ECO+ to its product lineup this year. ECO+ pays when the individual experiences a loss – so the farmer has more complete, top-end coverage.
“When you think about an area plan, you have to start thinking about your county. All losses are going to be based on how that county performs versus the individual producer’s actual loss or production,” said Ripley. “With ECO, you could get hit and the county wouldn’t get hit, and you’re not going to be covered.”
When ECO is combined with ECO+, both endorsements provide more complete coverage. If a farmer experiences both an individual and county loss, it can result in a possible payment from both endorsements.
“I would encourage the grower to truly look at their risk needs on their farm. If their risk needs are tied to spot losses like wind or hail events, they definitely want to stay with private products. Look at your risk portfolio and buy the product that best fits your needs,” he said.
4. The data doesn’t lie: ECO and ECO+ pay.
ECO and ECO+ offer 95 or 90 percent coverage down to 86 percent, a range that is considered shallow because the county and individual farms actual yield or price only need to drop a few points to trigger a loss, and thus a payment.
“We’re going to get some payments with this,” said Benes. “It has a very shallow loss trigger level of 95 percent. So, when we look at the Expected County Yield and if we’re going to come in lower than 5 percent of the yield, then we’re going to trigger a payment. If we look at revenue, and we fall more than five percent from an average year, then we’re going to trigger a payment.”
Benes calculated just how often this shallow loss trigger might occur with some real county historical data for ECO.
“I picked a county up in Ken’s neck of the woods and one near me: Blue Earth County, Minnesota, and Dallas County, Iowa. I looked back at the last 19 years’ worth of data to get an estimate of what kinds of payments we would have received over that time with ECO. For both Dallas County and Blue Earth County, ECO would have paid at the 95 percent level in nine of those 19 years for corn. That’s just under 50 percent! We are going to trigger payments fairly often with ECO because it is such a high level of coverage.”
To determine how ECO+ might pay out for farm-level coverage, a similar calculation can be done using a farmer’s yield history. For more information, farmers can talk to their FMH agent.
5. ECO and ECO+ are available almost everywhere.
Traditionally, area-based plans have not been popular in the western half of the U.S. Benes explained why that is, and why producers in those states shouldn’t overlook ECO and ECO+ just yet.
“We see a lot more area-based plans sold east of the Mississippi in general and there’s a couple of good reasons for that,” he said. “One is we just don’t get as much hail and not as much wind. Essentially, not as many of those spot losses. For producers west of the Mississippi, those are real risks they face.
“Another reason is just pure geography. If you look at the size of a county, say, in Indiana compared to the size of a county in South Dakota, those size of counties are quite a bit different. If I farm in a county that is geographically smaller, I am more likely to trend with that county yield versus if I am in a much larger county.”
So, what makes ECO and ECO+ different? Benes points to how the products can work together.
“With ECO, that [area-based] trend doesn’t necessarily have to hold true. The main reason being that I, as a producer, still get to keep my individual underlying coverage. I don’t have to give that up at all. This is just a chance for me to buy extra coverage to capture those shallow yield losses – those shallow revenue losses in particular – where I might not have been able to be even close to capturing those small losses.”
6. ECO is actually pretty affordable, so there’s room to supplement with ECO+.
ECO has a lot of factors working in the grower’s favor in terms of cost: area-based plans are usually less expensive than individual plans, the gap in coverage means growers don’t need to “buy-up” to that higher coverage level, and it’s a subsidized product as part of the federal program. Plus, ECO has a Percent of Price Option that can lower the premium cost but still allow that higher coverage band.
“The Percent of Price Option allows you to buy anywhere from 100 percent of the price down to 50 percent of price in one percent increments, so you can mix and match,” explained Ripley.
“Historically, your goal is to keep your loss trigger as high as possible. Instead of looking at the 90 percent level – even though that’s going to be a lower cost – you can put a 95 percent level in at 50 percent price and you’re going to the be at the cost of a 90 percent level at 100 percent price. So, it gives you that higher trigger and keeps your cost at a similar standpoint,” he added.
The Percent of Price Option is independent from the underlying policy, so it only affects the ECO cost and coverage.
Talk to Your FMH Agent About Pairing ECO with ECO+
Benes and Ripley said the best thing interested growers can do is talk to their FMH agent, who can help them review their own county’s historical data, assess their operation’s individual risk needs, and provide them with a quote on ECO coverage.
Learn more or find an agent: www.fmh.com/lead/eco