Cattle Loom Large on the Farm & Ranch Scene

Whoopee ti yi yo, git along little dogies
It’s your misfortune, and none of my own.

Whoopee ti yi yo, git along little dogies,
For you know Wyoming will be your new home.

That trail song, used by historian Walter Prescott Webb to introduce the chapter, “The Cattle Kingdom,” in his book, The Great Plains, illustrates the fate of Texas cattle being driven to northern markets after the Civil War.

Those rangy Texas cattle, mostly Longhorns, were descendents of the wild herds that flourished in South Texas before the Civil War, leftovers from both the Spanish and Mexican occupations of the area. They suffered innumerable hardships on their way north to be sold for shoe leather and tough steaks, but the hardy stock from Texas were the main source of beef for a hungry nation after the long, bloody war between the states.

And Texas remains the first in the nation in cattle production, with some 14 million cattle and calves representing 38 different breeds found on over 150,000 farms and ranches in the state. According to the Texas Department of Agriculture, cattle production is an $8.4 billion industry, and sales of cattle and calves account for about half of the state’s total agricultural output. (Texas also happens to be the country’s number one producer of horses, sheep and goats. The head count of all livestock in the state is higher than the number of people who live there.)

The 150,000-plus farms and ranches run the gamut from small family operations to giant corporate spreads that run thousands of head of cattle over many more thousands of acres of land. (The King Ranch in South Texas, with 60,000 head of cattle, covers 1,300 square miles, more than the entire state of Rhode Island.) But one thing those farming and ranching operations have in common, whether they are gigantic or miniscule, is insurance, most likely in the form of a farm and ranch owners (FRO) policy. Although the FRO has been described as a glorified homeowners policy, it really is a flexible coverage through which farmers and ranchers can not only protect their property, but also themselves and their operations from liability concerns.

Texas has its own FRO form but other states, like Oklahoma—also a big cattle producing state, may use the Insurance Services Office (ISO) form. According to Diana Trachier, the farm and ranch manager at South and Western General Agency in Addison, Texas, ISO coverages can be categorized as basic, broad and special. The basic covers basic perils, such as fire and extended coverage. The broad coverage includes water damage, and the special is more or less all-risk coverage. In Texas, a policy may be purchased for named perils, which can include fire, lightning and extended coverage; water damage may also be added. Beyond that, the insured would need an all-risk policy for more extensive coverage. The Texas form can be written as a monoline policy that covers just the dwelling, or it can be written to cover a full farm and ranch operation, and may include the main dwelling, the barns, the outbuildings, farm machinery, implements and supplies, as well as liability.

Trachier, who’s been writing farm and ranch coverages for over 10 years and whose firm writes policies in both Texas and Oklahoma for Travelers and other companies, said almost any type of farming and ranching account with a dwelling on it that meets the minimum value of $50,000 would qualify for an admitted carrier. “I run across very few that are below that [value],” Trachier said. “If they have a mobile home as the main dwelling, then we would utilize an excess and surplus lines carrier. But for your admitted carriers, if you have a main dwelling over $50,000 they can put together any package … to cover what the insured needs.”

Farm and ranch coverages are not limited to the FRO. Josh Klostermann, a producer for Texas Insurance Managers in Harlingen, Texas, who writes farm and ranch coverage on an Agripolicy form from One Beacon (formerly the agribusiness unit of CGU), said the policy he uses “allows us to do property as far as homes, barns, equipment, machinery and the liability side … It basically allows us to combine three policies that [the insured] may be carrying now with the property, inland marine and a GL onto one form to where paper-wise it simplifies things for them. And the coverage extensions that are offered to them aren’t on a farm and ranch owners policy.”

South Texas has experienced difficulties when it comes coverage for wind perils. Klostermann noted in that part of the state the availability of windstorm coverage is really a problem. “We’re on the coast here, we have to deal with the wind. A lot of the companies are getting to where they’re not wanting to include hurricane and wind in any of these property quotes.” Still, his clients are not going bare, as far as windstorm coverage is concerned. Most of his customers have gone to the windstorm pool for such coverage.

Trachier agreed that in the first tier wind exposure areas, most insureds will have to go to the windstorm pool for coverage. However, “for the second tier up, I don’t know of any companies not writing that. I know that there’s been an issue with hail in different areas but that’s underwriting. That’s underwriting and price, depending on where it’s at, what the exposure is. Usually admitted carriers will write that … They’re going to look at the exposure … and price based on the exposure.”

And as far as prices go, Trachier acknowledged there’s been a “push on pricing” over the last year. She said five years ago they were looking at cutting prices, but now, “it’s taken an about face. Now companies are looking for anywhere from a ten to twenty percent rate increase depending on where they’re at in the marketplace. And that’s across the board, not just companies that I’m dealing with.”

Liability is an issue
Jimmy Norman, owner of the Norman Agency in Post, Texas, near Lubbock, said liability is a big concern for ranchers he serves. “A lot of ranches out here are 20,000 acres or more … most of the owners are wealthy, and even though it’s open range out here,” if someone gets injured on their property, the owners can get sued. He added that another liability is related to crop spraying. If “there’s a chemical drift and it kills something their neighbor doesn’t want to have killed,” it can be a problem.

Liability is also an issue for those ranches that supplement their income with other activities, like hunting. Trachier said that the farm and ranch owners policy in Texas would cover incidental exposures, such as if a property owner invited friends or relatives to the ranch and an accident occurred. But when it comes to hunting operations that generate receipts, a separate policy would be needed.

“When it gets into the real hunting—guided hunting and other outfits … there are several programs that cover that type of operation,” Trachier said. “A few … companies, even farm and ranch companies, will issue a separate CGL policy covering farm exposure and add on the hunting, based on receipts.” She added, “As long as there’s knowledge of it—the exposure—and it’s based on receipts, coverage should be obtained.”

Feedlots are covered
There were 137 cattle feedlots operating in Texas in 2000, according to the Texas Agricultural Statistics Service (TASS), and those feedlots marketed nearly 6,200,000 head of grain-fed cattle that year.

While many companies have pulled out of the feedlot business, the coverage is still available. Janet Cooper specializes in feed yard coverage for Hilb, Rogal & Hamilton (HRH), an agent/broker in Amarillo. Her company services “about 90 commercial feed yards … all over the state of Texas. Anybody who’s a member of the Texas Cattle Feeders [Association], that’s who we could write.” Cooper added that the company also writes in Arizona, Nebraska, Oklahoma, Kansas and New Mexico.

“We write everything that a feed yard could have … from their benefits coverage and group health, life insurance, any need they would have, this agency could provide the coverage,” Cooper said. She noted that they also offer a special workers’ compensation program for cattle feeders.

Cooper explained that, as far as property goes, a feeding operation would take out insurance on the buildings and machinery in the feed yard. In addition to the property, the operation would likely insure the commodities that make up the feeding formula they use. The insured would usually take out an all-risk policy—the broadest form available to the customer. It would include a standard fire form as for any commercial business. “Then you would tweak the policy if you need to in some way that would give them some type of coverage that maybe somebody else wouldn’t have,” Cooper said, “like … coverage for the cattle that are in the yard, for the formulation of the feed. If [the cattle] were to die from a bad formula—that would be a special endorsement.” She added that it’s a type of endorsement that is regularly sold.

Named peril coverage for the livestock in the feed yard is also available. “Every animal that’s in that feed yard would be covered by their named peril policy … The main thing they cover up here, of course, is winter storms,” Cooper said, adding that there are a lot more covered perils than just blizzards. She explained that in addition to all the weather perils, things like theft, fire, lightning, flattening the building, attack by wild animals and drowning would be covered.

Cooper said that most of HRH’s named peril livestock coverage is written through The Hartford livestock, but noted that for the property and casualty, and workers’ comp coverage, the firm uses “different companies at different times for different reasons.”

The Hartford’s International Business Group offers a number of feedlot cattle coverage options in addition to the named peril livestock coverage. As described on the company’s Web site, those options include coverage for contaminated feed, coverage for cattle in transit from one site to another, reimbursement for infection by “cattle measles,” and liability protection in the event that the insured unknowingly buys or sells mortgaged or stolen livestock.

Animal mortality
According to Trachier, animal mortality policies aren’t usually included as part of a farm and ranch form, so insureds that need such cover on their animals usually take out a separate mortality policy. But, Trachier noted, cattle can be added onto a FRO policy for limited coverage, like fire and lightning. “If cattle get killed by lightning there can be coverage,” she said. “But the exposures aren’t that great. And the insured can also purchase—if he has liability—animal collision, which usually only pays up to $400 per head of cattle killed by collision with a vehicle … And that’s very cheap. But if [the insureds are] really looking for coverage, full coverage, on their herd, then a true animal mortality policy would be their best route.”

Norman indicated he doesn’t write a lot of animal mortality for ranches since most ranchers prefer to take their chances on the individual animal. He noted that mortality is generally written for livestock raised by 4-H and FFA members, youth who raise animals for auction at stock shows, or for high-dollar animals, like a prize bull that might be worth $10,000 to $15,000. Those policies are mostly written for 4 to 10 percent of the value of the animal.

The Hartford is one carrier that writes animal mortality in Texas. Its limited animal mortality coverage will protect the insured against loss from a variety of perils, including fire, lightning, windstorm, hail, theft, collision and upset while in transit, accidental shooting and drowning. The Hartford also offers endorsements to its mortality policy that includes coverage for certain medical and surgical costs, as well as for loss of use of the animal.

A new player in the market
Fireman’s Fund Agribusiness , headquartered in Overland Park, Kan., is planning to be a new player in the farm and ranch market. The company has applied for admittance to Texas and expects to be providing a farm and ranch product in the state by May or June of this year.

According to Kirk Hodgson, director of Farm and Ranch Agribusiness for Fireman’s Fund, the company will be “targeting the farmers and ranchers that generally produce over $250,000 in farm revenues. And that’s going to target the cow-calf operations, cattle ranching operations, the row crop operations, dairy operations and even some of the tree-nut-fruit operations. Possibly even some of the vineyards, if they’re big enough.”

We’re looking to insure, typically, a farm and ranch that’s got generally over $300,000 in insurable property values,” Hodgson continued. “That’s going to include the home, the outbuildings, and any farm equipment and machinery that goes with the insurance account.”

Fireman’s Fund will use an adapted ISO 98 form filed with what Hodgson called “Fireman’s Fund cultural endorsements.” That is, the company takes “the basic policy that anybody can … use and we approach it from a Fireman’s Fund perspective, which is really to advance the coverages, expand the coverages to provide for asset protection for the clients that are willing to buy a better and more broad coverage.”

Hodgson indicated that, initially, Fireman’s Fund will market the agribusiness products in Texas through general agencies. “In addition we’ll likely appoint some of the larger independent agents in some select locations. Because agribusiness in Fireman’s Fund also includes the crop insurance—the federally subsidized crop insurance program, we’ll also speak to some of the crop insurance agents that also have a specialty in property and casualty.”

The $250,000 in revenue is kind of a guideline, as is the $300,000 in insurable property values,” Hodgson said. “We’re really trying to go after the medium to large size farms, so the rating methodology is basically the standard property and casualty rating approach, which will be available using our Web-based AgriWare quoting facility.”

Hodgson noted that Fireman’s Fund farm and ranch division is known for its specialty niche endorsements, like those for orchards and dairy operations. He added that as the company expands into Texas it will likely be “developing something more specialized to the cow-calf operations, as well.”

Topics Texas Agencies Excess Surplus Agribusiness Property Wisconsin Kansas Iowa Oklahoma Manufacturing Property Casualty Missouri