LRP insurance was designed to be a price protection plan. According to the University of Nebraska Lincoln article, cattle producers that purchased the optional insurance would be compensated the difference in price fluctuations from a set price that was agreed upon at the beginning of the LRP insurance policy. Cattle producers were able to buy protection for a given number of weeks, but the maximum policy could be no longer than 52 weeks.
But what happens to the cattle producers who did not purchase LRP insurance in June of 2003? Well, similar to a flood victim who did not purchase flood insurance, they will probably suffer costly losses. And, of course, U.S. cattle producers are most likely in a current scramble to protect themselves by trying to purchase LRP insurance before the real effects are apparent, but it’s to late. The current U.S. mad cow scare has prompted the USDA’s Risk Management Agency to put the breaks on new LRP insurance applications, according to an article posted on agweb.com. The article states, “applications for Specific Coverage Endorsements for Fed Cattle and Feeder Cattle under the Livestock Risk Protection (LRP) Insurance Policy are temporarily suspended pending further review of market conditions” and the article further adds, “It is expected that this discovery will have a significant effect on the price of cattle for the foreseeable future.”
What can we as personal insurance consumers learn from this? If in the past you considered an optional insurance coverage for your personal portfolio such as umbrella or life insurance, but declined it feeling the risk was probably so small you would rather not waste your money, maybe it is now time to reconsider your decision and again review your insurance portfolio.
