The agricultural industry is complex, with a wide variety of operations and risks unique to each of those operations. Because agribusinesses face a number of common and distinct risks, these operations may be suitable for captive insurance solutions to protect financial assets from loss. A captive insurance program has the potential to be extremely cost-effective for agriculture-related businesses; in this overview, the benefits of such insurance solutions will be illustrated.
Risks in Agricultural Operations
The agriculture industry encompasses many different types of operations, including:
- Crop cultivation
- Animal husbandry
- Crop and meat processing/packaging facilities
- Retail sales of equipment, chemicals, and seed
- Equipment repair facilities
- Crop storage and transport operations
- Fertilizer and pesticide applicators
Each of these aspects of the overall agriculture industry comes with risks unique to operations, with exposures that can threaten revenue. Growers are subject to natural disasters, such as excessive rainfall, droughts, and wind events; pests, diseases, and fires can also wipe out an entire season of production in a matter of days or even hours. Manmade effects such as theft or property destruction pose significant risks as well. Combined, these risks have been faced by farmers for centuries, and while risk mitigation is an important component of agribusinesses, common risks have only grown more perilous as farming practices have evolved.
An emerging risk revolves around government-supported agricultural subsidies. The United States Congress has threatened to reduce or eliminate certain subsidies, particularly in crop insurance premiums, if agricultural operations exceeded a pre-determined adjusted gross income level. The effects of such legislation could be catastrophic, forcing farmers to purchase private insurance at great expense. Unfortunately, private insurance providers are often under-equipped to extend coverage for unique risks in the agricultural industry, leaving growers and producers without the coverage they need to protect their investments and their operations.
Captive Insurance Programs: Benefits for Agribusinesses
Faced with insufficient private insurance coverage or the high expenses associated with commercial insurance policies, many farmers and growers have turned to captive insurance programs. Captives are flourishing in the agriculture industry, helping businesses protect their assets from loss at cost-effective rates.
There are many benefits of a captive insurance program besides cost savings. Captives can allow participating members to be covered by the same policies, and for the policies to have higher deductible limits than traditional commercial insurance products. This reduces the expenses associated with premium payments. Captives typically reinsure deductibles, protecting members from excessive and business-threatening impacts of high deductibles if the member were to file an insurance claim.
Another benefit of a captive insurance program is in the coverage itself. Traditionally, commercial insurers were reluctant to extend coverage for certain aspects of the industry, such as fertilizer production, transport, storage, and application. Insurers imposed restrictive preventative measures in order for farmers to obtain coverage, requiring expensive fire suppression equipment and alarms that were not compatible with the unique risks fertilizer products presented. Captives, on the other hand, can help control costs, building in liability coverage for these risks unique to agriculture and helping to protect agribusinesses as a result.
Finally, captive insurance solutions can be tailored to the needs of members, unlike traditional insurance programs. Each agriculture-related business has its own needs and exposures, and with a flexible captive insurance program protecting those operations, growers and producers can rest easy, knowing that their assets are shielded from the losses associated with crop damage, liability claims, and business interruption.
About Caitlin Morgan Captive Services
Caitlin Morgan Captive Services provides clients with captive insurance solutions supported by years of experience in establishing the successful formation and implementation of a wide range of captives. To learn more about how we can help you, please contact us at (317) 575-4440.