Farms need specialty breakdown coverage for critical equipment

Information technology plays an important part in production and a computer’s sensitive electronic circuits are susceptible to electrical damage. … Add the mechanical equipment it takes to run a farm and the risk of loss is high.

In the grip of a heat wave, the owners of a fruit farm didn’t suspect a mechanical problem when a 600 hp deep well pump started producing less water. After all, the temperature had been soaring for weeks and other farmers were drawing from the same aquifer. Then the pump broke down, shutting off water to the farm and its crops.

The pump column piping had begun to separate, causing water to leak. Vibrations damaged the pump bowls, bearings, impeller skirts and motor clutch as piece by piece the well components unscrewed, bent and tangled. The pump eventually broke off and plunged more than 1,000 feet down the well shaft.

The farm watered its crops by using a smaller back-up pump and diverting all irrigation to the fields that had not been harvested. The main pump was repaired as crews spent hours fishing the damaged pump and parts from the bottom of the well. The farm’s equipment breakdown insurance policy paid $158,001 for extensive repairs and replacement parts to restore the four-year-old pump.

Farms and other agricultural operations need special insurance coverage to pay for unexpected breakdowns. Yet, too many farms lack equipment breakdown protection. Part of the reason may be a lingering attitude among some farmers that when equipment breaks, they can fix it. That may be so, but can they afford it? The high-tech equipment that is common on many farms is complex and can be more expensive to repair.

Today there are about two million farms in the United States, according to the U.S. Department of Agriculture. Most of them are still family run, but farmers work three and a half times more land compared with a century ago. To compete in a global market, they use computers to analyze soil and weather as they plant, water and fertilize fields. Cows wear electronic collars to track milk output and adjust their feed. Oranges are tagged with sensors to monitor the size and quality of the crop.

High-tech, high risk

As farms have changed, so have the risks. Information technology plays an important part in production and a computer’s sensitive electronic circuits are susceptible to electrical damage. An analysis of equipment breakdown claim data shows that power surges and other electrical line disturbances are now the No. 1 cause of all insured equipment loss. Farms also expose electrical equipment to damage from extreme conditions such as temperature changes, rain, dirt and dust.

Add the mechanical equipment it takes to run a farm and the risk of loss is high. From crop farms to small vineyards, ranches and orchards, traditional farm equipment still gets plenty of hard use. In addition to pumps and motors, farms may use milking carousels, refrigeration, and other types of mechanical systems, electrical distribution systems, boilers and hot water heaters. Farm equipment is more likely to operate for long hours under stressful loads, increasing the likelihood of breakdown.

Equipment breakdown coverage protects against the unique causes of equipment loss, just as property insurance protects property damaged by fire or windstorm. Equipment breakdown insurance is designed to cover risks that most property and farm policies don’t, including mechanical breakdown, electrical short circuits and boiler breakdowns. It can pay for the cost of repairs, spoilage and extra expenses. Equipment breakdown works with the farmowners policy to help fill coverage gaps.

With so much at stake, equipment breakdown is becoming a standard coverage that many commercial customers have come to expect and demand. Once offered primarily as a stand alone policy, insurers are embedding the coverage into their property/casualty packages, including farmowners policies. By adding equipment breakdown automatically, the risk is spread among many policyholders to help keep prices affordable and eliminate extra paperwork and handling costs.

Many companies reinsure equipment breakdown through a specialty insurer, which can provide quality coverage and experienced claim service. That way the primary carrier can broaden coverage without adding staff and resources to manage equipment losses that are different from other types of property claims.

Some equipment breakdown programs can even be extended to cover equipment in the farm owner’s residence. When included as part of the farmowners policy, this coverage can pay to repair or replace household equipment used for air conditioning, heating, hot water and other basic services. The typical cost might be pennies per day, compared with the potential for thousands of dollars in uncovered equipment repairs, or hundreds for extensive home warranties or service contracts.

Keeping up to date

Equipment breakdown coverage can help insurance carriers, agents and brokers retain farm clients and compete for new business. It’s a specialty coverage that can broaden a program to keep up with today’s growing farm equipment exposures. As new technology and farming methods continue to advance, equipment breakdown protection for farms has evolved to cover these changing risks.

Michael R. Fusselbaugh, senior vice president for strategic business development at The Hartford Steam Boiler Inspection and Insurance Company, is involved in the development and introduction of HSB’s strategic integrated products. He has served in many positions with HSB, including leading the company’s reinsurance relationships with other insurers and managing industry affairs activities.

Topics Excess Surplus Tech Agribusiness Property