Agribusiness Adopts Self-Insurance to Manage Unique Risk
National companies or local farmers both have unique exposures to loss that threatens their revenue. The agribusiness can be defined as encompassing crops, processing, packaging, manufacturing and distribution, just to mention a few. Threats include disease, pollution, and Mother Nature, not to mention equipment breakdown and business interruption. While an increasing number of large farmers already retain a portion of their risk through a captive, more medium-sized growers are appreciating the financial benefits of captives, either through their own means or with group captives.
While the lines of coverage such as workers’ compensation, liability and automobile can be placed in captive for agribusiness, growers, for example, face unique exposures in the agribusiness industry that has been getting a lot of notice – subsidies. For example, in 2015, Congress seriously considered reducing or eliminating the subsidies for crop insurance premiums for growers whose adjusted gross income exceeded a certain level. If passed, a large number of growers and farmers would likely stop participating in the RMA-managed crop insurance program and instead choose to “self-insure” or purchase private insurance coverage. For many, the decision to self-insure would have included the use of a captive since it meant that they could amass loss funds with significant tax advantages. For those that were not large enough to capitalize their own captive, a surge in participation in Group Captives would have been the result.