Elevators and other companies that purchase commercial agriculture facility insurance are “feeling a lot of pain” due to sudden, unexpected increases in insurance costs, according to insurance executives.
Scott Aukes, president of the ag division for Assured Partners, a national insurance brokerage based in West Des Moines, Iowa, will speak at the North Dakota Grain Dealers convention in Fargo on January 16, 2023. He claims that businesses are seeing radical changes in terms and conditions, such as much higher insurance premiums and deductibles, as well as coverage terms for general policies covering buildings and equipment. At the meeting, co-op leaders and other insurance executives echoed his concerns.
Increases of 100%?
“We’ve seen insurance premiums increase by 20% to 100%,” Aukes said, “while their deductibles increase by 50% to 200%.”
Higher insurance costs could have a significant impact on some companies’ “financial performance,” and “that’s a bad deal,” Aukes said grimly.
“I think we’re in for another couple of years,” he predicted. He claims that co-ops large enough to take on a large enough “retention” (deductible) will be at the top of the list for every insurance carrier still in the game.
With a total premium of $200 million, Assured Partners works with 1,200 agricultural companies in the Midwest. Customers in Iowa, Minnesota, North Dakota, and South Dakota buy from them. They sell insurance from primary insurance carriers and are consistently among the top three brokers for a given carrier.
To begin with, only a few major insurance carriers deal with agricultural businesses, and those are dwindling, according to Aukes. In comparison, he estimated that about 50 major corporations might work with electrical contractors.
“If you’re an ag cooperative with large property values in rural America, there’s only about five willing to write your business,” Aukes said, noting that a major carrier recently dropped grain elevator coverage.
The general distance from things like fire protection and other factors are among the reasons. In the context of major weather “patterns” and “nuclear verdicts” awarded by juries in the last five years, it’s been “next to impossible” for re-insurance companies to calculate premium rates that allowed them to continue to make money, he said.
Losses from Reinsurance
In turn, insurance companies sell some of their risk to “re-insurers.” These re-insurers, mostly based in London, have been losing money in recent years.
“Specifically, (reinsurers) have been particularly hard hit in recent years, so re-insurance companies are changing their terms, conditions, and, more specifically, their costs to retail insurance companies.”
According to Aukes, the increasing frequency of weather patterns, such as derechos or snow storms, can harm re-insurers in general. Insurance companies are limiting or withdrawing property coverage for things like sow units for hog production and dairy milking operations.
Aside from accepting higher “retentions” or deductibles, Aukes said some ag co-ops are considering self-insurance alliances to absorb losses as a group rather than traditional insurance.
He mentioned that Minnesotans established Parthenon Agency LLC, a “captive risk management agency,” to help cooperatives reduce risk.
He also stated that elevators should work with brokers who have access to all insurance carriers and are willing to tell about the elevator’s real, verifiable safety and maintenance programs in order to qualify for the best terms available.
“And be honest: If you have some 1980 grain bins on which you previously provided’replacement cost’ coverage? Please do not expect replacement cost coverage on these in the future unless you have completely rebuilt them and they are truly ‘worth’ replacement costs,” Aukes said.
One elevator operator in the audience inquired about insurance rates for “wood-cribbed” facilities, some of which are still in use even though most companies stopped building them in the 1960s.
“Are they still available?” Aukes said, half-jokingly at first, then seriously: He speculated that grain stock coverage in the building might be possible. But what about the structure itself? “It’s going to be difficult.”