Agricultural commodity prices are down and insurance rates are up. There have also been extreme increases in input costs like fertilizer, seeds, pesticides, insecticides, farm equipment, and land, which is putting further pressure on your ability to afford premiums while still remaining profitable.
We at Nesbit Agencies understand farmers are struggling to manage costs while still affording premiums. It’s a tough situation. While we can’t control external factors affecting the cost of your premiums, your insurance agent can help by reviewing your options for taking on more risk in exchange for lower premiums. Your agent can also review your claims history to help you better understand how this impacts the calculation of your annual agricultural insurance premium and give you insight into what puts upward and downward pressure on prices for insurance premiums in the insurance marketplace.
Understanding The Insurance Marketplace
One of the most empowered moves you can make as an agricultural insurance policyholder is understanding the insurance marketplace. When you understand the environment you’re insuring in, you can make more informed decisions around your investments in safety and property maintenance.
Because we are invested in your success too, your team at Nesbit will always be here to help you assess the marketplace and advise you on how you can respond in a way that will not only reduce your premiums in the short run but ultimately work to bring premiums down for everyone in the long run.
Home Insurance: Changes To Replacement Costs And Cosmetic Damage Exclusions
Current issues to focus on in keeping costs down include high replacement costs and cosmetic damage exclusions on farm buildings.
Traditionally, if a home is destroyed, insurance will pay to rebuild it under one of two methods: actual cash value and replacement cost. Both methods take into account the cost of repairing or replacing the home, which these days means higher replacement costs than usual as both the materials and labor to rebuild homes have both increased in recent years.
Fortunately, Minnesota is considered a valued policy state, meaning the law requires the insurance company to pay out the coverage amount stated on the declaration if a building is deemed a total loss. So it would be wise to check with your Nesbit insurance advisor to make sure you have enough home insurance coverage in case of such a catastrophic loss.
The other change we’re seeing is a growing number of cosmetic damage exclusions on dwellings and farm buildings, which applies to damage that does not inhibit the function of the building. This means that if the appearance of your home or farm building is damaged but it can still serve the purpose it was built to serve without inhibition, it may not be covered under your new policy. In other words, small indents to roofs and siding caused by hail might not be covered. The purpose of these exclusions is to lower premiums and to increase the policy’s capacity to respond to functional damage—like a broken gutter—which inarguably inhibits the function of a building.
Some companies are allowing the policyholder to “buy back” this coverage so cosmetic damage can be covered. Please review your policy carefully and reach out to your agent for all your coverage options.
Insuring Farm Vehicles
When it comes to insuring farm vehicles, the type of insurance is often related to the type of vehicle and how it is used. Consider which of these four policies best fits your situation:
Personal Auto Insurance
Is the farm vehicle, such as a pickup, also used as a personal vehicle and registered in the farmer’s name? Check with your insurance advisor to see if a personal auto policy may work for you. And make sure to go over whether an umbrella policy is warranted to avoid high liability judgments should you get in an accident.
Commercial Auto Insurance
The larger the farm vehicle, the more likely you’ll need a commercial auto policy. This goes for large pickups too. And whether the vehicle is titled to a farming entity will also come into play here. Check with your insurance advisor to see if a commercial policy is not only best but required.
Farm Auto Insurance
Have a vehicle that is used only on the farm? Can’t qualify for a personal or commercial auto policy on the vehicle? Consider farm auto insurance. Ask your insurance advisor if this lower cost option may work for you.
Farmowner’s Insurance
If you have unlicensed vehicles, perhaps these are older vehicles or ones you use infrequently—and even then, only on the farm—a farmowner’s policy may be a good fit. The rules are very particular concerning licensing requirements and how the vehicle is used, so check with your insurance advisor before moving forward on this option.
Additional Cost Saving Strategies
Farmers can employ several strategies to afford increasing insurance premiums for buildings and equipment when facing high input costs and low commodity prices. These include adopting precision agriculture, mitigating farm-related risk, diversifying your income streams, exploring new options for financial management, and working with your insurance advisor to adjust your policy, shop around, and negotiate.
Precision Agriculture And Technology Adoption
According to the US Government Accounting Office (GAO), somewhere between 20% and 30% of Minnesota farms are using precision agriculture practices. These practices can include remote sensing platforms, in-ground sensors, targeted spray systems, and automated mechanical weeders. The benefits of such practices run the gamut from reduced use of certain crop inputs like herbicides, water, and fertilizer; limited use of chemicals and nutrients, leading to better environmental outcomes concerning runoff; and improved profits through more efficient use of crop inputs.
Risk Mitigation Practices
Don’t overlook soil health when mitigating farm-related risk. Conservation practices like covering crops, no-tilling, and crop rotations to improve soil health which will lead to better yields and higher profits. We also recommend utilizing integrated pest management (IPM) techniques to manage pests and reduce pesticide costs. According to the US Environmental Protection Agency (EPA), an IPM program uses a four-tiered approach: set action thresholds, monitor and identify pests, prevention, and control. Installing an IPM program on your farm can lead to more economical pest management and reduced hazards to the people and land in your farming environment.
Diversification
Diversify income streams by adding other enterprises beyond traditional crop production to your farm business such as agritourism activities, selling some of your harvest at farmers markets, or offering pick-your-own events on your farm. You may also consider growing a variety of crops or raising multiple types of livestock to reduce exposure to any single market.
Financial Management
Exploring new options for managing your money can help alleviate some financial pressure, which will make it easier to afford your insurance premiums. Work with your banking institution and your financial advisor to buffer against income variability by maintaining cash reserves and accessing lines of credit. You might also utilize marketing tools like forward contracts or futures hedging to lock in favorable prices.
Policy Adjustments
You should be reviewing and adjusting your agricultural insurance policy with your insurance advisor each year to ensure an optimal balance between premiums and protection. To save on premiums, you may consider higher deductibles, which can be beneficial as long as you have the reserves to cover them in the event of a claim.
Shop And Negotiate
You have power over whom you choose to carry your agricultural insurance policy. Don’t hesitate to shop around with different insurance providers and negotiate for better rates, especially for bundled policies covering multiple risks. An independent insurance agent like Nesbit can help you compare options from multiple carriers so you don’t have to spend your time going from carrier to carrier for a quote.
By implementing these strategies, farmers can better manage the increasing insurance costs amidst high input expenses and low commodity prices.
A Note From Nesbit
As your insurance advisors, we acknowledge our responsibility to help you manage your agricultural insurance costs and prevent situations that may result in you having to file a claim. We do not take this responsibility lightly. Some insurance agencies may sign off once the policy is signed and their commission is in pocket, but that’s not what you’ll get with a family agency like Nesbit. At Nesbit, we follow up with resources and offer ongoing guidance to help you reduce risk exposures, so when it comes time to renew, your premiums are significantly lower.
Phone 952-941-9418 or email us to book a free evaluation and quote.
