Demand For Food, Fuel Creating Ample Need for Agribusiness Insurance

The need for agricultural insurance is growing like a weed. “This is the greatest time we’ve had in our business,” said Christopher Leliaert, vice president at Towers-Perrin Reinsurance, in his assessment of the state of the agricultural insurance market.

Speaking at the opening session of Insurance Skills Center’s 21st Annual Agribusiness Conference in Sacramento, Calif., Leliaert said there are three things driving the U.S. agricultural insurance market: energy demand; U.S. consumer demand; and world demand for agricultural products.

In attempting to solve the nation’s energy crisis, people have started to turn to alternative fuels, such as wind power and biodiesel, Leliaert said. They’ve also realized they can “put food in gas tanks,” by producing ethanol from corn, he said. As a result of that increasing demand for food as fuel, farmers are dedicating more fields to corn production, Leliaert said.

As demand for corn grows, corn prices increase. Subsequently, as corn production increases and fields dedicated to wheat production decrease, and prices for wheat increase. “This is boon for us,” Leliaert said, explaining that the increased value of wheat and corn products is boosting the need for more ag insurance.

Additionally, demand for U.S. agricultural products is increasing, both domestically and abroad, he added. “The world is looking to us for food. We know that’s true because of the amount of livestock and grain that’s being exported — from hogs to corn to rabbits.”

There is a demand by consumers for consistent, year-round delivery of food products, Leliaert explained. “Agribusiness is becoming more and more global, so demand for products and ability to respond is greater,” he said. That increased demand is leading to higher prices for agricultural products. And as agricultural commodity prices skyrocket, there is a big impact on U.S. farmers, who are seeing a significant increase in their agribusiness gross income. That impacts every aspect of the farm-owners, agribusiness and crop insurance market. He noted that the lines are becoming blurred between agribusiness and farm owners.

The increased demand for agricultural products mean that insurance products are evolving to reflect the changing markets. Among the changes, Leliaert said, are:

• Products such as the American Association of Insurance Services Agricultural Output Program (AgOP) — the standard program for insuring property exposures of an integrated agribusiness enterprise and provides broad commercial property and inland marine coverage in a single policy form — are becoming more accepted;
• Boiler and machinery coverage is in greater demand, as farm equipment values increase;
• There is a significant increase in property capacity with ethanol/biodiesel, consolidation in the grain markets and produce processing and storage; and
• Insurance company requirements are greater. Ratings from A.M. Best or Standard & Poor’s are taking on greater importance, multi-state filings are required, and there is a demand for international products.

Another agribusiness insurance change associated with food as fuel is that the grain storage business has increased in value, Leliaert said. Local on-farm storage of grain has increased the demand for property insurance coverages, he noted.

“This changes a lot of things. Now people in Texas are growing corn, but where are they storing the grain? What do we do about the peak season endorsement?” he asked.

Leliaert also noted that products liability coverage is in greater demand, as the traceability of food gains importance. With issues such as E. coli contamination in spinach and lettuce making the news, everyone is concerned about food safety. Food safety issues affect insurance coverages dealing with products liability, business income, market loss, public perception, loss control and product recall.

“To us as an industry, food safety is an issue,” Leliaert said. “Product liability used to be thrown in, but maybe we should look at that,” he advised. “Look at product recall as a reality. [With traceability,] the issue goes all the way back to the farmer. This is a good thing to keep in mind. We can look at food safety issues as a problem or an opportunity.”

Finally, Leliaert said the trend in “lifestyle” or “hobby” farming is boosting the need for agricultural insurance. He noted the hobby farm market is growing at about 2 percent per year, and accounts for nearly half of all farms in the United States today.

“City people have discovered farming is a lifestyle,” he said. Population growth in rural areas on farms is increasing, with the country experiencing its first gain in rural population since the Depression. With the increase in farms, there is an increase in need for agribusiness and farmowners insurance coverages.

A few years ago, Leliaert said the crop insurance business was less than $1 million in premiums. By 2008, multi-peril crop insurance premiums are expected to total $8 billion. “Who knows how high it’ll go beyond that?” he asked.

“The leading companies in the agribusiness world are being impacted by the raising up of the agricultural business. This is a big success story,” Leliaert concluded.

Insurance Skills Center’s Agribusiness Conference was held on March 19-20. Visit www.AgribusinessConference.com for more 2008 conference locations and dates.

Topics USA Agribusiness Market