Global insured losses from natural catastrophes hit $60 billion in the first half of 2024, according to preliminary estimates from the Swiss Re Institute. (Credit: Sepp Photography/Shutterstock)
You can’t control the weather; but you can control how you prepare for and react to the weather. That’s the seed insurance agents must sow among their agribusiness clients as the United States contends with more frequent and severe weather disasters.
Farmers know only too well how one tornado can take out a grain bin, one hail storm can damage a barn roof beyond repair, and one flood or drought can wipe out a crop. Accepting the elements is a known hazard for those in farming and agribusiness, but applying risk management techniques and practices can be part of a mitigation strategy.
Protecting against the impacts of extreme weather is no easy feat. It requires a careful balance of insurance risk transfer and loss control — and in many cases, farmers may have to self-insure certain aspects of their business, especially when they’re operating in areas prone to natural catastrophes.
Securing coverage in a tricky market
Global insured losses from natural catastrophes hit $60 billion in the first half of 2024, according to preliminary estimates from the Swiss Re Institute. Severe thunderstorms — and the strong winds, tornadoes, hail and heavy rain that often come with them — accounted for 70% of insured losses globally, with the majority occurring in the United States.
Multiple years of weather-related insured losses in the multi-billions have forced agribusiness insurers to reevaluate their pricing, coverage limits, terms and conditions. Insurers are also focusing more on overall exposure management, carefully considering how much risk they’re willing to cover in certain geographies.
For instance, insurers are being more cautious about how they underwrite agribusinesses located in the so-called “Tornado Alley” — which includes segments of popular farming states like Oklahoma, Kansas, Nebraska, South Dakota, Indiana, Missouri, Iowa, Illinois, Ohio and Texas — as well as in wildfire-prone western states like California.
Some carriers are also pulling back from certain classes of business that are more vulnerable to severe weather-related losses. The dairy industry is a good example of a segment that is out of favor right now, due to the nature of dairy structures and the vulnerability of their long, low-pitched roofs (shielding livestock, robotic equipment and hay from the elements) to wind and hail damage. Poultry- and hog-confinement businesses are challenging for similar reasons.
Despite this careful response to elevated weather risks, the agribusiness insurance market remains competitive, and there are ample ways for insurance agents to secure the coverage their clients need, either through the primary commercial market or with an excess and surplus lines alternative.
Know the client’s assets
The first step agents should take is a thorough assessment of their client’s assets. This includes evaluating farm equipment (like grain bins, elevators, combines and harvesters), buildings (homes, livestock barns and shelters, crop storage and other special-purpose infrastructure), as well as livestock to ensure all are properly insured with adequate limits.
As hard as it may be — with farm net income dropping by almost 7% in 2024, according to the U.S. Department of Agriculture — agents must encourage their agribusiness insureds to keep their insurance coverage limits in line with inflation. They need to account for the rising costs of materials and labor and the potential delays in repairing or replacing damaged equipment or structures in the wake of extreme weather events or other vast disruptions like the COVID-19 pandemic.
If a client is struggling to cover the costs of their farm insurance plan, there are ways to manage that. For example, they may opt to self-insure some of their older buildings or structures that are already in a state of decline and particularly vulnerable to weather-related losses. They could also request actual cash value instead of replacement cost coverage for certain properties deemed less desirable by underwriters.
Risk management practices
Beyond a comprehensive insurance plan, strong risk management practices can also help agribusiness owners mitigate the financial impacts of extreme weather.
Agents should work with farmers to develop disaster recovery plans, ensuring they have strategies in place to protect their operations if a major event occurs. This may include establishing relationships with local contractors who can assist with cleanup and rebuilding after a storm, as well as stockpiling essential supplies.
Farmers can also spread their risk geographically by storing equipment and livestock in different locations on their property. For example, keeping all equipment in a single barn may increase the risk of losing everything if a tornado or fire hits that structure. Diversifying the storage locations of key assets can provide a buffer against total loss.
Modern technology can also be extremely beneficial from a risk management standpoint. Ever-advancing weather technology is helping farmers to anticipate and prepare for extreme weather events. Some are also employing drones and satellite imagery to gain better understanding of the vulnerabilities of their land and structures and using that intelligence to shape their farming practices and help protect themselves against weather-related losses. Of course, technology also creates other types of risks, like cyber liability, but the positives generally outweigh any additional risk assumed.
Extreme weather events present significant challenges for the agribusiness sector, and with the right insurance coverage and risk management strategies, farmers can protect their operations from the increasing volatility. Agents play a critical role in this process, helping farmers assess their coverage, identify gaps and prepare for potential disasters. By working closely with their clients, agents can help ensure that farms remain resilient in the face of an unpredictable climate.
Dave Ruppel is the assistant vice president of Agribusiness Sales and Underwriting at Westfield. Ruppel leads a team of more than 50 insurance professionals handling. He has been with Westfield for 28 years in various underwriting and leadership roles.
Any opinions expressed here are the author's own.
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