Science, Technology Deal a Tough Hand in Agribusiness Market

From chicken to fish farms, orange groves to bean stocks, the agribusiness market has high-stakes for farmers, agents and insurers. Changing trends, additional exposures and advanced technology comparable to “Buck Rogers” deal the industry a tough hand.

“Farmers are risk takers,” Vince DeVargas, president of WGA Insurance in Oxnard, Calif., said. “In the Midwest, for example, you plow a field, plant a seed, pray for rain and at the end of the season you harvest; you either get a bumper crop or a lousy crop.” By trade, farmers take risks everyday and while technology has addressed many of those risks, it has also greatly increased the number of insurable exposures. “Farm operations have become increasingly sophisticated with an escalating degree of automation in almost all segments,” Dr. Emmett J. Vaughan, professor of risk management for the University of Iowa, said. According to Vaughan, reliance upon technology in agribusiness has been growing, which has ultimately
caused insurance premiums to rise more than typical hard market conditions.

“[Farms] are becoming more efficient due in part to computers and general technological advancements,” Vaughan reported. According to Vaughan, this growth of technology has driven the agribusiness market into a state of higher capital intensity which affects the farmers overall investment and vastly increases their exposure to risk. “The combines, tractors and machinery equipment simply all cost more because they are more sophisticated … There is just more risk today and more assets exposed.”

Not only has the role of the farmer changed but the role of the agent working in the agribusiness market has also changed.

“It’s really a very scientific business and is very risky,” Scott Dunn, president of Oak Valley Insurance Services in Santa Maria, Calif., said. “People who want to be involved in the insurance side of agribusiness really have to get into it [agricultural industry]. It helps to have a farming background or the ability to learn.”

Besides knowing the ins-and-outs of the market, agents should partner with insurance representatives specializing in agribusiness explained J.J. Horan, president of South & Western General Agency Inc. in Dallas, Texas.

“It is not personal lines. It’s not commercial lines. It is a unique niche that requires expertise,” Horan said. “There are multiple pitfalls for agents that venture into this class, and working with an MGA that ‘speaks the language’ will pay dividends for both agent and insured.” He also added that it’s important for
agents to make sure the carrier is financially solid and dedicated to the farm business. Today, agents play a critical role in helping farmers control insurance, says Vaughan.

“A lot of farmers think of their insurance as over-costly, partly because they go about the process of buying insurance wrong. A lot of people buy insurance that they don’t need at the expense of something that they really do need. So they end up with a lot of money spent on being improperly insured … As the insurance expenditures by farmers have gone up, agents have needed to find ways to help farmers get a bigger bang for their buck,” Vaughan said.

Product liability is one of the “must-have” coverages for today’s farmers. “Litigation is a big problem in agriculture,” DeVargas said. When flaws are found, property is damaged or people experience loss, a lawsuit is almost certain to follow. “The problem of contamination is inevitably linked to the farm of origin,” Vaughan added. “Take a dairy farmer that produces milk for example, a million things can go wrong in terms of contamination.”

According to recent report by Horsham, Pa.-based Jury Verdict Research, a firm that tracks trends in personal-injury jury verdicts and settlements, the median compensatory jury award for farm products was $1.47 million more than the median award for consumer products. The median awards for transportation and medical products were at least $1 million, while the overall median award for products liability was $700,000. Vaughan said as the output of farmers continues to grow, the size of liability judgments has also gone up, which means farmers need higher liability limits now more than ever. “It’s kind of a vicious cycle.”

Workers’ comp is also a huge challenge for farmers, particularly in California, a state that produces more than 60 percent of the fresh produced consumed in the U.S. The good news is the agribusiness market has begun to show signs of subtle softening, at least in some lines.

While final reports are not yet in, Vaughan estimates the industry as a whole dropped about 15 points in combined ratio, from 116-117 to a combined ratio of about 100, or break even. Horan added, “It is still common to see combined ratios well over 100 on many farm books of business. However, for those companies that have addressed rating needs over the past three or four years, we should see some leveling off. But we need to remember that claims inflation is running at 7 percent or better. So just to stay even, you need a minimum of 7 percent increase at renewal.”

Topics Agencies Tech Agribusiness