Uninsured Bird Flu Loss Not Chicken Feed

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

To date, three states–Delaware, New Jersey and Pennsylvania–have identified a strain of avian influenza in chicken flocks. The strain does not affect humans, unlike the more virulent form identified in Asia, but is a cause of concern for chicken producers.

In Delaware, more than 70,000 chickens have been culled in order to prevent the spread of the disease. Both New Jersey and Pennsylvania have reported very limited infections among a few birds.

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

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

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

Insurers do not extend coverage for disease to livestock simply because 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 to individual animals–usually breeding bulls and cows and horses, he noted.

The federal government does not offer an insurance plan for this exposure, said Shirley Pugh, director of public affairs for the Risk Management Agency, a department within the U.S. Department of Agriculture that handles the federal Crop Insurance Program. She added that there are no proposals for such a coverage on the board at this time.

Jim Rogers, a representative for Animal and Plant Health Inspection Services with the USDA, said that there is no set policy on compensation to chicken producers for their losses. Sometimes there is reimbursement, and sometimes there is not.

He said in both Delaware and Texas, orders to destroy the flocks came from the state, and usually the federal government does not step in to compensate in those cases. However, in cases of high pathogenic flu, the federal government does get involved in the situation. He stressed that these events, just like in the human population, are seasonal.

Don Manley, executive of specialty market agricultural business for 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 around 2001, but there was no interest in the farm market for the product.

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

According to the USDAs Web site, as of Feb. 27, 35 countries have banned chicken imports from either all of the United States or from those individual states affected by the outbreak. Mr. Lobb said the Chicken Council is most concerned with total bans on imports from Hong Kong, China, Mexico, South Korea and Japan because they are the largest consumers of U.S. chicken.

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

In Delaware, a complex tier of self-insurance and state pool compensation is helping chicken processors weather the destruction of 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 he estimated at about $2.5 million. There is a third-tier limit of about 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 universal throughout the country, meaning some corporations are subject to higher loss exposures, and mechanisms for controlling the outbreak of 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 flu outbreak was brought under control, Mr. Lobb noted. It was a wake-up call to neighboring states, which Delaware heeded, keeping the outbreak to one flock so far, he said.

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

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

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

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

It has come up in the past with some clients as an item of discussion, said Mr. McGowan. They are all well aware that there is no coverage available.

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

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Uninsured Bird Flu Loss Not Chicken Feed

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