Extreme Weather, Cyber Risks Top Concerns When Insuring Farms

As risks from extreme weather, technology glitches and cyberattacks rise, so does the need for agricultural insurance that can cover a rapidly diversifying and evolving industry.

“With the interest rates, production expenses, and cost of diesel constantly on the rise, the average farmer is feeling the squeeze as we move into 2024,” said Becky Tucker, program manager and broker, XPT Specialty Agency. “This increase in costs is making it harder and harder for the average farmer just to break even.”

The biggest concerns facing this sector are extreme weather, water rights, lack of available labor, increased regulations, insurance pricing and rising resource costs.

The agricultural community is bracing itself against volatile issues on several fronts, according to Missy Clifford, commercial lines development manager at The Richards Group in Brattleboro, Vermont.

Age-old weather concerns are exacerbated by climate change and more frequent extreme events. Clifford said costs are up across the board for seed, fertilizer, fuel, labor and insurance — just about every facet of the business.

Market prices are seeing significant fluctuations, as well, while ongoing regulatory changes impact how things are done, how much they cost and how much money is left in farmers’ pockets, according to Clifford. To survive, many farming operations are diversifying and expanding into new revenue-generating markets. These changing risk profiles require careful consideration to make sure every exposure is adequately insured, Clifford said.

Climate Change

Extreme weather has always been a top concern for farmers, but even more so now as recent climate-related events have led to frequent catastrophic losses.

“The change of weather patterns has impacted the loss frequency and severity, causing many markets to stop writing farm and ag coverage, completely changing the farm market,” Tucker said. “Instead of just one policy for all the insured’s needs, we are piecing everything out by each line of coverage.”

Tucker says that means some risks that used to be insured under one policy now can take three or more separate policies to meet all their coverage needs.

Excess liability is an area that has been under stress in recent years. Large farm facilities often need to secure multiple layers of coverage through different carriers to meet their needs. According to Tucker, there continues to be a need in this market for additional players to fulfil excess liability contractual requirements.

“With so many standard markets limiting their umbrella and excess limits, currently, there is a big need for second-layer excess policies,” she said.

Insureds are also looking at different options such as higher wind and hail deductibles (if not completely excluded) or self-insurance on some structures and hay, according to Tucker.

“There are ‘geographical gaps,’ where farm and ag carriers just won’t consider business,” Tucker added. “For example, Florida, Louisiana and coastal Texas are difficult to find coverage due to possible storms.”

In the face of increasing climate change impacts, insurers need to stay on top of not only weather events but the evolving risks that accompany climate shifts, such as disease, fire and pest infestations, Clifford added.

Tucker agrees that wildfire risk is a top concern to underwriters. “Not only the wildfire but the smoke that comes along with it,” she said, because of the long-term damage that smoke can cause.

The property insurance market continues to be challenging for some farmers, which is driving higher retentions. “A lot of these farmers are hoping for a second look or second option for their property coverage,” Tucker said. “Most of these insureds would take a higher deductible or an exclusion for wildfire if they could have coverage for everything else rather than just be declined,” she added.

Tucker says a few carriers are trying more innovative ways to assess geographical risk. She said that some are “working off more than just zip codes” and developing new systems and programs to address regions hit hard by wildfires.

Technology

As farms rely more on technology to increase yields and profits, and improve conservation, they become more vulnerable to ransomware attacks and data theft, leading to business disruption.

Drones, automation, water management technology and Real-Time Kinematic (RTK) Technology are all part of improving efficiency, but reliance on technology also brings new risks. These technologies have the capacity to help address some of the most persistent problems including helping farmers reduce water and fertilizer use, improving efficiency through use of machines, and by providing better information about weather, soil and other conditions that can help maximize yields without the need to plow under sensitive areas.

Clifford said that insurers need to have an eye on agricultural-related technology, the costs of repairing and replacing it, and the losses incurred if normal operations are interrupted. But with added automation, the risk of a cyberattack grows, she added. “This could paralyze some farming operations. An offer of a robust cyber liability endorsement would be beneficial to farming operations.”

Cyberattack threats to agriculture cooperatives triggered warnings from the Federal Bureau of Investigation in 2021 and 2022. The agency says attacks during the planting and harvesting seasons might result in the theft of private information, as well as operational disruption, which could result in financial losses and even food shortages. The September 2021 warning noted that ransomware threats increased as the industry implemented more smart devices.

Covering the Gaps

One area of opportunity for insurance professionals is combing through contracts to make sure clients have adequate coverage. Contractual obligations are an area that Tucker advises insurance professionals to pay close attention to in today’s market.

“Insurers should be taking notice of the contracts that these farmers and ag workers are in with the growers and packers,” Tucker said. “These contracts and insurance requirements are a large driver for why insureds purchase their policy.”

Tucker says agents and brokers need to ensure that coverage properly fulfills these contractual requirements for the insureds’ and additional insureds’ needs. While the issue isn’t new, she said making sure that coverage gaps are resolved between all parties can be more challenging in hard market times.