Attention all farmers: Within the agriculture industry, even amid the current hard market for Property and Casualty Insurance, there are relative bargains to be found in Cyber Insurance and Environmental Liability Insurance.
While most lines of insurance for farmers are trending against buyers in terms of rates, availability, capacity and underwriting selectivity, Cyber and Environmental Liability insurance have remained stable. In fact, Cyber pricing is quite favorable.
As we head into the second quarter of 2021, let’s take a look at state of the Property and Casualty Insurance market for the agriculture industry, including Cyber Insurance.
The Outlook Entering 2021
Here’s the outlook for the agriculture industry as outlined in Alera Group’s Property & Casualty 2021 Market Outlook whitepaper, released in December 2020:
► Fewer insurance companies: The number of insurers willing to write property and casualty coverages for agriculture businesses is shrinking. Some are pulling out of the market entirely; others are no longer writing some types of risks. This can be based on a client’s location or the nature of their operation.
► Tighter underwriting standards: Insurance companies are saving their capacity for “the best of the best” clients. They are requiring very specific information and a high level of detail (e.g., how many people are working at a location at any given time).
► Higher deductibles: It’s common for carriers to require clients to increase their deductibles.
► Increasing risk of environmental liability: Intensified regulations, heightened scrutiny and pollution incidents pose a greater risk for agricultural businesses. Incidents can arise from the collapse of a grain elevator, a spill from a chemical tank, runoff into waterways or other mishap.
► A COVID-19 preparedness plan is a must: Most insurers will not even look at an account if there is not a plan in place.
The greatest insurance challenges in the agriculture industry appeared to come from four lines of coverage: Commercial Auto (with lower increases for clients with good loss histories), General Liability (some companies were requiring higher deductibles), Property (particularly in areas hard-hit by weather-related losses) and, most of all, Umbrella and Excess. With companies becoming increasingly reluctant to offer limits of $5 million and above, Excess carriers were playing larger roles in the agriculture industry, providing layers of coverage to reach the desired minimum.
Two lines of coverage appeared notably stable: Environmental Liability and Workers’ Compensation. Despite increased risks of pollution incidents, Environmental Liability Insurance remained widely available, with steady rates and limits. Workers’ Compensation, under the looming threat of COVID-19-related claims, nevertheless continued to offer consistent rates, availability, coverage capacity and underwriter selectivity.
To obtain the entire Property & Casualty 2021 Market Outlook whitepaper, including a detailed look at individual lines of coverage for the hospitality and gaming industries, click the link below.
Outlook Going Forward: The Future Is Here
In April 2019, MIT News proclaimed “The future of agriculture is computerized.” While the story was primarily about how scientists at the Massachusetts Institute of Technology were combining “botany, machine-learning algorithms and some good old-fashioned chemistry” to improve the taste of various plants, the headline applied to the agriculture industry in general.
Much of the farm work that not too long ago was done by hand is now performed by giant, computerized machines. The digitalized world allows for efficiencies that most 20th century farmers couldn’t have imagined, but computerized equipment is expensive and complex, and if ransomware or some other form of breach prevents it from working, resulting losses can be catastrophic.
As outlined by the International Risk Management Institute (IRMI), other agriculture/farming exposures include:
- Variable rate technology
- GPS soil sampling
- Computer-based mapping applications
- Remote sensing technology
- Radio frequency identification (RFID) tags
Even on farms where most of the work still is done by hand, cyber exposures are vast. Because such farms are employee-heavy, with much of the workforce turning over from year to year, farm owners have thousands of Social Security numbers and other personal information in digital storage. A breach of this information could lead to lawsuits that would put a farm out of business.
So, in many respects, MIT’s proclaimed “future” is already here. Fortunately, so are the insurance products to cover the cyber exposures that arrived with it.
Almost all property and liability insurance policies have some form of pollution exclusion, and failure to close coverage gaps can be extremely costly.
With residential developments sprouting up next to farmland with increasing frequency, farmers can find themselves subjected to lawsuits by neighbors over wells polluted by nitrates from fertilizer or landscaping damaged by accidental chemical overspray.
As litigation attorney Chad Blomberg said in a recent interview with Successful Farming about Tips on Avoiding Nuisance Suits:
“Evaluate your insurance regularly to make sure you have the protection you need. You may need to get a specialty lines insurance policy which requires a specialty lines broker. A lot of farmers have a farm policy that they simply renew every year without considering whether it meets their needs, or whether their risks have changed. Those policies commonly exclude pollution or environmental contamination. You may need to spend the money to buy a special lines policy for environmental pollution coverage, which, in the grand scheme of things, may be less expensive than you think. Without it, you may find yourself in a lawsuit defending the claims by your neighbors and at the same time in a lawsuit with your insurance company about whether there is coverage for the claim against you by the plaintiffs.”
What You Can Do
Here are a few basic steps to follow to mitigate costs and manage risks amid a hard insurance market:
- Work with an expert. Because agriculture industry risks and exposures can be extremely location specific – the needs of a farmer in Ventura County, CA, for example are very different from those of one in Dawson County, NE – it’s vital to work with an agent or broker who not only understands your business but also knows the local regulatory landscape and has developed relationships with insurance underwriters.
- Avoid underinsuring. A farmer may pay $200,000 for a tractor and $3,000 per year to insure it but hesitate to purchase an unscheduled property floater to cover equipment moved from one location to another, leaving a potentially expensive exposure.
- Consider alternative means of insuring, such as a captive program. The partially self-insured program my firm created for one of our clients saved almost $300,000 in Workers’ Compensation costs alone.
- Assess how you use technology and how disruptive a breach would be. This will enable you and your agent or broker to determine what coverage is absolutely essential and what you can do without.
- Register for Alera Group’s cyber security webinar. Join World Synergy to learn how to protect your business before a breach and what to do in the event a breach occurs.
About the Author
VP Risk Advisor
Barkley Risk Management & Insurance, an Alera Group Company
David Espinoza has spent all of his working years in the agriculture industry. A former grower, shipper and transporter of field products, he spent 10 years as CEO of the farm labor contracting business Trinity Produce Inc., where he developed deep knowledge of legal requirements related to the day-to-day management of employees, as well as a deep appreciation for risk management and regulatory compliance. He’s applied that knowledge to his work with insurance and benefits clients, helping them to protect their business, their employees and their bottom line.
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