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Farm & Ranch Market: Evolving to Mitigate the Risks of Today
While the farm and ranch insurance space faces different risks than other property lines, many challenges of insuring those risks are often the same. Namely, extreme weather and natural catastrophes, which have tightened conditions in farm and ranch in some of the toughest states.
"The entire marketplace sentiment is also echoed in the farm and ranch markets," said Chris Moore, president of EPIC’s farm and ranch division.
"As carriers are seeing their reinsurance costs go up, they’re looking to mitigate either their current exposures or reduce their risk in cat prone states."
Long story short, everyone wants to write business in Indiana, Ohio, Michigan, where natural catastrophe risk is less, while reducing their exposures in high cat states like Florida, Louisiana, Texas, California and Oklahoma, he said.
The extremes that seem to come with weather related claims for the crop insurance sector in recent years are an increasing concern for insurers, says Mark Mossman, senior vice president, claims, at NAU Country Insurance, part of QBE North America.
"From a claims standpoint, drought and excessive moisture and isolated [weather-related] incidents, I would say are the biggest concerns for us," Mossman said. And it’s not just drought or heavy rain. "It’s anything we would view as extreme weather behavior," he said. "If we get a drought, it seems like it’s an extreme drought. If we get excess moisture, it seems like it’s extreme moisture."
Droughts are a more frequent concern for some parts of the country, while more frequent and extreme precipitation is a rising concern in other areas. Both are expected to get worse in coming decades. Insurance payments to U.S. farmers for crops lost to droughts and flooding have risen more than threefold over the past 25 years.
While mitigating extreme weather-related risks seems an unlikely scenario in the farming world, it’s not, says Mossman. "There’s a lot of different farming, cultural practices that farmers follow to help maintain soil moisture in a drought," he said.
"For example, no-till farming is probably on the increase, and with minimal till, it’s a newer practice that has become mainstream by planting a cover crop," he said. A cover crop means there’s more of a grassy-type of crop planted, and that helps to conserve moisture, Mossman explained. It also helps to put nutrients back in the soil. "I would say in the last five years, that’s becoming much more mainstream than in the past."
Technology, like in other industries, is helping to mitigate risks including drought and other extreme weather exposures, he added. "On the technology side, one area making a difference is in the seed technology. The seed technology that we have today is so resilient to extreme weather conditions."
Other risk mitigation areas include underground drip irrigation and systems that push precision agriculture. Mossman said there are many elements of farming technology that fall under precision agriculture but all have the intent of helping the farmer to combat weather-related risks.
Moore says finding ways to reduce carbon emissions is of growing concern to the farming sector as well.
“Another very large movement is green energy production on farms,” Moore said. “Farms showing how they’re reducing their carbon footprint.”
For example, dairy farms are turning to methane digesters to reduce their carbon footprint. Digesters take cow manure and convert it into energy while also eliminating manure odor. Energy is the primary economic benefit of a digester because a dairy farmer is then able to use the electricity or gas generated from the digester to fuel the energy needs of the farm. But Moore says that some farmers are adding on to this process for additional revenue.
"Now what we’re also seeing is an added step to where there’s a biogas converter put in on these methane digesters," Moore said. "So now the methane is captured by the digester and then it’s scrubbed and cleaned and processed by the biogas converter, which now turns it into natural gas that can then be injected directly into the pipeline."
This is a growing trend, he says. "In my book of business alone, over the next 18 months, I’ll probably see eight to 10 of these biogas converters being built on farms."
Moore also says farmers are adapting by diversifying revenue streams in other areas.
"American agriculture is innovative and as creative as any industry that we have in this country, when it comes to trying to do things better, be more sustainable, be more environmentally conscious and utilize the natural resources that they’re using on the farm to maximize the benefits while minimizing the use of that natural resource," Mossman said.