From Seed to Supermarket

Agricultural Risks Require the Knowledge and Skill of Specialty Agents

Agribusiness insurance has grown significantly as food production has become a global commodity. Since World War II there has been a dramatic reduction in the number of family farms and acreage being cultivated for food production in the United States. Even so, food production continues to grow significantly.

There are a myriad of reasons why: better farming techniques; improved equipment and technology; more efficient delivery systems and the development of a global economy. The American consumer has an ever-growing number of products from which to choose — processed, frozen or fresh fruits and vegetables — and the price for this food is among the lowest in the world. From seed to supermarket, agricultural risks require experienced producers and service teams with specialized knowledge of the unique exposures and coverage issues inherent in the agribusiness industry today.

Production and Packing Plants

Thirty years ago there were very few insurance companies who would provide coverage for food production or packing plants. These facilities tended to be in rural areas, were usually of frame construction and were not sprinklered. As a consequence, they tended to catch fire frequently. As these facilities were rebuilt, owners implemented better risk management guidelines and rebuilt most facilities with concrete or steel and with automatic sprinkler systems. Bigger and more efficient facilities were built. Many of the smaller companies went out of business or consolidated. As a result, more insurance companies became interested in these larger processors and packers.

As competition for this business increased, property and liability rates went down. In fact, many of these food companies enjoy some of the lowest commercial insurance rates available today. The agent or broker who works in the food processing and food packing arena has access to a number of very good insurance products with which to help their customer.

Farm and Ranch

The farm and ranch segment of agribusiness insurance, though, is a much different ballgame. Despite the fact that farm and ranch insurance has, generally speaking, been highly profitable, there are significantly fewer insurance companies willing to underwrite these accounts. The reduction in the number of farms has been partially responsible. As the number of farms has decreased, there has been a corresponding reduction in the number of carriers writing their coverage.

In addition, policy forms, underwriting and rating practices have not changed a great deal over the years. Farm and ranch insurance companies still require a very complete application and specific details about each policyholder. The amount of work required to place a farm and ranch policy can dampen the enthusiasm of many agents and brokers thinking of pursuing these accounts.

Due to the high profile nature of recent losses involving the spinach and tomato industry as well as food ingredient losses from food manufacturers outside of the United States, consumers, manufacturers and the government are all very concerned about the food supply. Product contamination, product tampering and product recall policies are now offered by several U.S. insurance companies as well as several Lloyd’s syndicates. This provides an important safety net for growers and may cover much of the expense associated with this type of loss.

Since food production has grown significantly outside of the United States the need for strict food safety standards has intensified. U.S.-based food production companies have safety procedures mandated for their foreign co-packers. They often hire third party inspection companies to perform audits of the foreign packers. Unfortunately, even with significant risk management practices all losses cannot be prevented. Therefore it is imperative to have sufficient liability limits along with a product contamination and recall policy.

Crop Insurance

Another area of agribusiness insurance that has experienced significant growth is crop insurance. Agricultural, in general, is doing well and growers of the various commodities are looking to appropriately manage the risk of their growing crop production. While this is excluded under traditional property and liability coverages, growers can look to specialized crop insurance policies to protect their investment.

Much of the crop insurance placed in the United States is written in a subsidized program through the Federal Crop Insurance Corp. (FCIC) and private carriers. These programs are available only from agents and brokers who have appointments with the various companies who administer on behalf of the FCIC. Each agent selling crop insurance must meet annual continuing education requirements through carrier offered courses in order to remain licensed. This can be time consuming and even a bit tedious, but it is a necessary part of being a crop insurance agent or broker.

To a large extent the growth of crop insurance is driven by increasing commodity prices. As an example, with roughly the same number of policies nationally, premium volume is expected to increase from $6.5 billion in 2007 to an estimated $10 billion to 15 billion in 2008.

Workers’ Compensation

With respect to specific exposures and coverages, workers’ compensation for agribusiness accounts can be particularly challenging due to the seasonality and relatively low wages for farming, processing and packing employees. Because of this, having knowledgeable loss control and workers’ comp claims specialists on staff at your agency is extremely important. A qualified loss control consultant is able to provide another independent and objective “set of eyes” on the work place. They regularly review the client’s safety and injury and illness prevention programs to offer recommendations and assistance in preventing or mitigating losses.

The workers’ comp claims consultant’s true value is realized with complex and questionable claims. Having a specialist who can advocate for the customer’s interests in the claims management process adds considerable value and can differentiate you and your agency from others. Without this pre- and post-loss consultation and support, employers often see increased claims experience, adversely impacting both the direct and indirect costs of their workers’ compensation program.

Agribusiness Training

Most agencies and brokers specializing in agribusiness have knowledgeable and experienced producers and service teams that consistently build their knowledge of the unique exposures and coverage issues of the agribusiness industry through formal education programs.

One of the most anticipated training conferences (at various locations across the country) is the Agribusiness Conference offered through Insurance Skills Center. Participants can earn the Agribusiness and Farm Insurance Specialist (AFIS) designation, which is said to be the fastest growing accreditation program for insurance professionals in farm and agribusiness.

The program consisted of three parts and each is presented in two days with exams following each part. If you successfully pass all three parts you will earn the AFIS designation. Agency personnel who go through this program feel challenged and learn a great deal in a short amount of time. More details can be found at www.AgribusinessConference.com.

We hope that this article delivered a better understanding of the current state of agribusiness insurance.

Topics Carriers USA Agencies Workers' Compensation Agribusiness Training Development