Uninsured Bird Flu Loss Not Chicken Feed

The outbreak of avian influenza attacking poultry livestock inthe Northeast, and lately Texas, will have no impact on insurers,as no coverage exists to protect farmers and poultry producers whendisease strikes their flocks.

To date, three states–Delaware, New Jersey and Pennsylvania–haveidentified a strain of avian influenza in chicken flocks. Thestrain does not affect humans, unlike the more virulent formidentified in Asia, but is a cause of concern for chickenproducers.

In Delaware, more than 70,000 chickens have been culled in orderto prevent the spread of the disease. Both New Jersey andPennsylvania have reported very limited infections among a fewbirds.

In Texas, which is suffering a more virulent form of thedisease, 6,600 chickens were destroyed and a 10-mile quarantinearea was imposed around the farms in Gonzales County, said AllenSpelce, a representative for the Texas Department of Agriculture.He said that with the quick action taken it is hoped the outbreakwould be contained.

According to figures from one source, the losses in livestockalone in Delaware and Texas together could amount to close to$230,000.

When it comes to disease, there is no mortality coverageavailable to farmers for mass numbers of livestock, according toBob Fulwider, principal and executive vice president of the RayWuestenberg Agency Inc., based in West Liberty, Iowa.

Insurers do not extend coverage for disease to livestock simplybecause it is a risk with high loss ramifications, added Mr.Fulwider, who is a member of the Independent Insurance Agents &Brokers of Americas Executive Committee.

Farmers can buy mortality coverage, but it is limited toindividual animals–usually breeding bulls and cows and horses, henoted.

The federal government does not offer an insurance plan for thisexposure, said Shirley Pugh, director of public affairs for theRisk Management Agency, a department within the U.S. Department ofAgriculture that handles the federal Crop Insurance Program. Sheadded that there are no proposals for such a coverage on the boardat this time.

Jim Rogers, a representative for Animal and Plant HealthInspection Services with the USDA, said that there is no set policyon compensation to chicken producers for their losses. Sometimesthere is reimbursement, and sometimes there is not.

He said in both Delaware and Texas, orders to destroy the flockscame from the state, and usually the federal government does notstep in to compensate in those cases. However, in cases of highpathogenic flu, the federal government does get involved in thesituation. He stressed that these events, just like in the humanpopulation, are seasonal.

Don Manley, executive of specialty market agricultural businessfor Westfield Insurance Company, based in Westfield Center, Ohio,said the company, which is a major writer of agriculture business,was looking at introducing an avian influenza coverage back around2001, but there was no interest in the farm market for theproduct.

The disease, however, is affecting a $2 billion export market,warned Richard Lobb, a representive for the Washington, D.C.-basedNational Chicken Council, an industry association.

According to the USDAs Web site, as of Feb. 27, 35 countrieshave banned chicken imports from either all of the United States orfrom those individual states affected by the outbreak. Mr. Lobbsaid the Chicken Council is most concerned with total bans onimports from Hong Kong, China, Mexico, South Korea and Japanbecause they are the largest consumers of U.S. chicken.

Mr. Lobb explained that poultry farmers do not own the chickensthey raise. Corporations, such as Purdue and Tyson, contract thefarmers to raise the chickens for them. So the losses from disease,for the most part, are not suffered by the farmers, but thecorporations.

In Delaware, a complex tier of self-insurance and state poolcompensation is helping chicken processors weather the destructionof flocks to keep the disease in check, he said.

Corporations there are assuming the first $100,000 in losses.The second tier of loss is assumed by an industry pool, which heestimated at about $2.5 million. There is a third-tier limit ofabout the same amount assumed by a state pool. From there, however,it is a question as to what compensation may be available.

Unfortunately, he said, the state pool system is not universalthroughout the country, meaning some corporations are subject tohigher loss exposures, and mechanisms for controlling the outbreakof disease are not in place as they are in Delaware.

One of the worst losses was just a few years ago in Virginia,where the industry lost 130 million chickens before an avian fluoutbreak was brought under control, Mr. Lobb noted. It was awake-up call to neighboring states, which Delaware heeded, keepingthe outbreak to one flock so far, he said.

In Texas, James Langford, vice president of compliance,regulatory and governmental affairs for the Texas Farm BureauMutual Insurance Company, a major livestock insurer in the statebased in Waco, Texas, said there is some mortality insuranceavailable through the carrier, but not for this peril.

A major factor in not offering the coverage has to do with thesimple fact there is not enough statistical information availableto underwrite the risk and price it properly, he said.

Joe McGowan, a captive agent for Farm Family Casualty Insurancein Camden, Del., a major insurer of poultry stock in the statewhich is a wholly-owned subsidiary of American National InsuranceCompany in Glenmont, N.Y., said the company does not offer coveragefor this peril.

Such coverage might be useful to cover business interruption forfarmers, he noted. While the local farmers, contracted by the majormeat producers to raise the chickens, do not own the birds, they dosuffer from a loss in revenue since it could be as long as 60 daysbefore their pens are declared free of the virus. However, thefarmers are very aware of the lack of coverage.

It has come up in the past with some clients as an item ofdiscussion, said Mr. McGowan. They are all well aware that there isno coverage available.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, March 5, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.