Alness Insurance Services LLC
INSURANCE RISK MANAGEMENT SERVICES
Farmers deal with risk every day. Weather, costs related to equipment/inputs/rents and market variability are common areas where farmers manage risk in order to perpetuate a profitable operation. One important area that often gets relegated to the backburner is insurance for farm operations. On our farm it does and I’m an insurance agent! Perhaps now would be a great time to review your farm policy.
Each farming operation is unique so it is important to build a strong relationship with your agent in order to work with them to understand your farm’s individual needs and find a policy that covers your operation most adequately. A key element that your agent should assist you with is understanding the exclusions on the policy – the worst time to find out information regarding coverages and exclusions is after a claim has occurred. How does the insurance company handle cosmetic damage from hail? Is it excluded? In addition, you should understand whether property coverages for buildings, equipment, livestock and grain are basic, broad or special form or if you have chosen not to insure them at all. What do these coverages include? It is also important to understand the differences between actual cash value or replacement cost when insuring property. Lastly, farmers should also understand what types of deductibles they have on your policy and if you are being surcharged to have a smaller deductible.
It is important to regularly update your farm property inventory including farm machinery, livestock, harvested feeds and crops and covered inputs. As the markets vary, it is important to look at the value being placed on grain and as equipment values fall, it may be appropriate to re-value the equipment as well. Typically, your inventory should be updated on an annual basis, if not more often. Are you storing more corn and less soybeans? Have you increased or reduced herd size? Many policies will only pay a maximum value on livestock or market value whichever is less. What is the market price of your livestock now? Many of my clients have created a spreadsheet that can be easily amended and emailed for their convenience.
Prior to the decrease in market prices, many farmers updated their facilities so making sure that they are insured properly is a wise decision. It is important to consider what the accurate replacement cost of a building would be and the potential property damage risks of your operation. Are there older buildings that are now insured that will not be replaced if they were to be destroyed? Perhaps it would be best to remove those from coverage. These considerations can be taken into account when the policy is reviewed.
Lastly, take a look at your deductible level, which often goes unchanged for years, even decades. Perhaps a higher deductible would provide significant cost savings. Many insurance companies now surcharge for smaller deductibles. Is yours one of them? Also, it is important to understand if there are multiple deductibles – perhaps by location. If there are multiple policies, is there an option to create one deductible? Higher deductibles can also help reduce claim frequency, which can also be a cost savings as some companies in the insurance industry use claim count as a rating tool.
The insurance industry is changing and therefore as a policyholder you should commit time to reviewing your policy and the coverages you need for your farm operation.