A customer has 200 acres of silage corn they would like to insure.
They can select coverage from options of $150, $175, $250 or $350/acre.
Three monthly precipitation options are available to choose from:
Option 1 - 20/40/40/0
Option 2 - 15/35/35/15
Option 3 - 0/20/40/40
Finally, either a 125 or 150 per cent monthly cap for precipitation must be selected.
Customer coverage selected is $250 per acre on 200 acres of silage = $50,000 total coverage
The customer was concerned about early rainfall and selected weighting option 1 and monthly cap of 150 with coverage weighted across the months of May to July as: 20% (May) + 40% (June) + 40% (July) + 0% (Aug)
Payment calculation (shown in table below):
Weighted % of Normal for May = Measured Precipitation / Normal Precipitation x Monthly Weighting
= 60 / 80 = 75% of Normal in May
May weighting = 20%
75% x 20% = 15.0%
Repeat per cent of normal calculation for all months.
The sum of the monthly weighted % of normal = 76.3%
The payment rate for 76.3% of normal is 7.0% (see Payment Schedule)
|May Precipitation||June Precipitation||July Precipitation||August Precipitation||Total|
|Measured Precipitation (mm)||60.0||60.0||10.0||25.0|
|Normal Precipitation (mm)||80.0||50.0||30.0||20.0|
|% of Normal||75.0||120.0||33.3||125.0|
|Monthly Weighting (%)||20.0||40.0||40.0||100|
|Weighted % of Normal||15.0%||48.0%||13.3%||0.0%||76.3%|
= total coverage X payment rate
= $50,000 X 7.0%