What is the purpose of the 150-percent multiplier and how does it impact the actuarial soundness of GRIP?
The maximum protection per acre makes use of a multiplier that is generally available with GRIP and GRP programs. The multiplier serves two purposes: (1) to account for the decreased variability of county-average yields as compared to individual yields; and (2) to allow growers with above average yields to purchase a higher level of liability. Growers with below-average yields may also choose to insure some percentage above the county average. However, because producers with below-average yields are unable to influence either the frequency or severity of area plan indemnities, conventional overinsurance concerns are not applicable. Likewise, adverse selection against the program is not an issue as the county loss ratio (for a given coverage level) will be the same whether one, a few, or many producers purchase the coverage.
