Owners of an agribusiness, like a farm or ranch operation, can become frustrated with insurance policies due to a perceived lack of control over their premiums, and the belief that it’s more expensive to pay for insurance, rather than assume the risk themselves.
When an agribusiness chooses to forego a traditional insurance policy, they may self-insure through a captive structure or simply go bare.
Going Bare
When a farm or ranch chooses to step away from a traditional insurance policy, they may choose to assume risk and pay out of pocket. This is often referred to as “going bare.”
Some agribusinesses see this as an attractive option because they will have greater control over their cash flow and can invest the money they would be paying for insurance premiums.
That may work for a well-capitalized operation, but the solvency of smaller farms and ranches may be threatened by:
- a catastrophic event (fire, tornado, or flood)
- bodily injury occurring on the property
- several bad years of production in a row
Captive Structures
Captive insurance is a formal self-insurance vehicle that often takes the form of a subsidiary created to insure the parent company. This is often more specialized and capital‑intensive than what many of our agents see day‑to‑day.
This IRMI podcast episode with Steve McElhiney is a good listen as it provides some insight on how self‑insurance is evolving in agribusiness.
Tips for Insurance Agents with Clients Considering Self-Insurance
If an agribusiness mentions they are considering foregoing insurance, it’s important to take the time to understand why.
Agribusinesses that have made investments in risk mitigation, such as precision irrigation or food safety protocols, can become frustrated when premiums rise in their region due to losses of less diligent peers.
In order to keep an agribusiness with a traditional policy, agents must be able to address their concerns, and articulate why a policy is more efficient. In some cases, agents may benefit from working with an MGA to rewrite a more customized policy.
Fine-Tuning Coverage Without Giving Up Protection
Agribusiness insurance is not a generic business policy; it is a specialized suite of coverages designed to cover a variety of risks from property to liability.
If a farm or ranch wants to have more control over their cash-flow, and has a flexible risk tolerance, they may choose to limit their coverage to a specific policy such as liability or vehicle.
Agents can help explore ways to fine-tune coverage and manage costs, such as:
- Reviewing equipment values: a 2019 tractor may no longer warrant a $150,000 limit.
- Adjusting policy options: consider:
- switching from special to broad perils
- raising deductibles
- adding a separate wind/hail deductible to reduce premiums
- Review liability and outbuilding coverage levels for accuracy.
Each of these options carries important trade-offs that agents can help clients consider, but they may provide meaningful opportunities to reduce premiums.
Tips for Insurance Agents with Clients Exiting Self-Insurance
If a self-insuring agribusiness determines that a traditional policy may serve them better, they may find it difficult to gain coverage.
Traditional underwriters view a lack of third-party validated loss history with extreme suspicion, as they generally require several years of loss run reports that detail every claim, payout, and reserve. For most self-insured businesses, these standard reports do not exist.
To help underwriters see that a farm or ranch has been managed safely during a self-insured period, agents should provide:
- A clear, concise explanation of the operation, why coverage was dropped, and why it is being sought again now.
- A signed no-known-loss statement
- Strong evidence of disciplined safety and maintenance practices, such as:
- Formal safety training, meetings, and documentation.
- Written maintenance schedules with completed work records and shop logs.
Bridging the Gap with Non-Admitted Insurance
If you are struggling to find a traditional carrier to issue a policy to a formerly self-insured client, non-admitted insurance may be the solution.
At Stroud, we utilize ARU’s flexible coverage package to give our agents the ability to cover high-risk farm and ranch operations.
Please contact us today to determine if a non-admitted insurance policy could be the right solution for your client.