Supplemental Coverage Option (SCO)
The Supplemental Coverage Option (SCO) is a county-level* crop insurance option that provides additional coverage for a portion of a producer’s underlying crop insurance policy deductible. Producers must buy it as an endorsement to either the Yield Protection (YP), Revenue Protection (RP), Revenue Protection with the Harvest Price Exclusion (RP-HPE), or APH policies.
*SCO is based on Production Area, which many times is equivalent to the county. However, it is important to remember that they can differ. Production Area for ECO/SCO/ARP: The geographical area that the expected and final area yields are based on, designated generally as a county, but may be a smaller or larger geographical area as specified in the actuarial documents.
How does SCO work?
SCO follows the coverage of your underlying policy. If you choose Yield Protection (YP), then SCO covers yield loss. If you choose Revenue Protection (RP), then SCO covers revenue loss.
The amount of SCO coverage depends on the liability, coverage level, and approved yield for your underlying policy. However, SCO differs from the underlying policy in how a loss payment is triggered. The underlying policy pays a loss on an individual basis and an indemnity is triggered when you have an individual loss in yield or revenue. SCO pays a loss on an area basis, and an indemnity is triggered when there is a loss in yield or revenue loss on a county level.
For example, suppose a grower’s corn crop has an expected value of $765.00 per acre (170 bushels at $4.50 per bushel). Assume the grower buys a Revenue Protection (RP) policy with an 80% coverage level (this is the ‘underlying policy’). The underlying policy covers 80% (or $612.00) of the expected crop value and leaves 20% (or $153.00) uncovered as a deductible.
At this point, the grower has the option to buy SCO coverage. Since the underlying policy is Revenue Protection (RP), SCO will also provide revenue protection, except that payments will be determined at a county level. SCO revenue coverage is described in the table.
The SCO Endorsement begins to pay when the county average revenue falls below 86% of its expected level. The full amount of the SCO coverage is paid out when the county average revenue falls to the coverage level of the underlying policy. In this example, it is 80%.
SCO payments are determined only by county average revenue or yield and are not affected by whether you receive a payment from your underlying policy. So, it is possible for you to experience an individual loss but not receive an SCO payment, or vice-versa.