1. March 10, 2010 Insuring Today’s Farms and Agribusinesses
Kirk Hansen, Director of Education
Joseph S. Harrington, CPCU Director of Corporate Communications
American Association of Insurance Services
Wheaton, Ill.

2. Today’s Ag Market 2007 Census of Agriculture
Number of farms leveled off
About 2.2 million reported in 2007 ag census
Small increases after decades of decline

3. Today’s Ag Market Growing diversity of farms
Increased number of small farms (sales less than $2,500 per year)
Increased number of large farms (sales greater than $500,000)
Decreased number of mid-sized farms (sales $2,500 to $500,000)
Increased number of farms with multiple locations

4. Today’s Ag Market, cont. “Vertical integration”
Production and processing happening at the same location
Increased capitalization
Automation subject to loss, including equipment breakdown
Time element exposure
Intensification of operations
More production, and more risk, per acre
Implications for rating
Owners still onsite, mostly
Exposure for household property
Exposure for personal liability

5. Today’s Ag Market, cont. Farm income rising faster than farm prices
Growing percentage of non-farm income
“Agritainment” and “agritourism”
Sales of finished products
Employees or guests?
Use of volunteer labor in “community-supported agriculture”
Growing use of contract farming
Owner of land, owner of stock, and operator may be different parties
Complex insurance arrangements

6. Example Apple Holler, Sturtevant, Wis.
At least eight distinct operations:
Apple orchard
Restaurant
Bakery
Gift shop
Theatre
Catering
Hayrides
Animals

7. Example 2 Huber's Orchard & Winery, Starlight, Ind. U-Pick
U-Choose Christmas trees
Wine making
Wine tasting
Wine and liquor store
Milk - hard cheese processing
Bakery
Grocery store
Petting zoo
Farm tours
Gift shop
Weddings and parties - including food & drink
Liquor manufacturing .

8. Insurance product needs
Broad range of commercial and agricultural coverages
Ease in limiting, adding, or excluding coverages
Adequate, flexible rating plans
Coverage for personal exposures

9. Traditional farmowners policy
Dwelling form
Farm property form
Farm income and equipment breakdown forms (newer)
Farm personal or farm commercial liability form
Acreage-based rating

10. AAIS Agricultural Output Program (AgOP)
First standardized property program designed for agribusiness
Broad property and inland marine coverage built into coverage parts
Flexible “deficiency point” rating plan
Eligibility extends to operations that:
Buy, sell, store, or process agricultural products;
Manufacture goods from agricultural products
Sell goods or services to agricultural customers
Engage in farming to supply agricultural commodities for manufacturing or processing

11. AAIS AgOP, cont. Three main coverage parts:
Property and income coverage
Crime
Equipment breakdown
Dec page entries, not policy language, control . . .
Which coverages apply
The corresponding limit (entering “0” effectively excludes a coverage)
Loss settlement terms (ACV, replacement cost, stated value)

12. AgOP sample declarations

13. AgOP sample declarations

14. AAIS AgOP, cont. Deficiency point rating
Rates a risk as a whole rather than as the sum of disparate exposures
Deficiency points for risk characteristics
Disaster exposure
Climatic hazards
Special occupancy or production conditions
Lack of private protection
Inadequate public protection
External exposure (neighboring premises)
Construction exposures

15. What the AgOP adds . . . . . . to companies that write farmowners
An up-to-date product for vertically integrated operations
Product for non-farming ag risks
. . . to companies that write commercial property
A market segment tool with coverages, terms, and options designed for agribusinesses
Alternative to modifying commercial forms
Minimizes potential coverage gaps
Eliminates multiple deductibles

16. AAIS Agricultural General Liability (AgGL) Program
First standardized ag GL program
360+ classifications
Two base forms; two approaches
Farm Commercial Liability Form
Designed for farming operations
Can be “built up” by endorsement or dec entry to cover other types of activities
Agribusiness Commercial General Liability Form
Designed for most agribusiness risks
Covers all activities except those excluded
Can be “scaled back”
Personal liability coverage available

17. Farm Commercial Liability Form
AAIS AgGL, cont.
Topic
Farm Commercial Liability Form
Agribusiness CGL Form
Product processing
Coverage limited to processing that does not alter the form of products (washing sorting, etc.).
Not differentiated from other activities; no restriction of coverage.
Farm stands
Coverage limited to stands on insured’s premises selling insured’s products. “
Business activities
Excludes coverage for all business activities not identified on declarations.
“Agritainment”
No coverage for ed/rec activities; can be added by dec entry.
Can be excluded by endorsement

18. AAIS AgGL, cont. Five principal coverages
Coverage L — Bodily Injury Liability and Property Damage Liability
Coverage M — Medical Payments
Coverage N — Farm Chemicals Limited Liability
Coverage O — Fire Legal Liability
Coverage P — Personal and Advertising Injury Liability
Farm Chemicals Limited Liability Coverage
Provides built-in “chemical drift” coverage
Covers liability for property damage arising from release of chemicals in normal farming operations
Does not apply to chemicals released from an aircraft

19. AAIS AgGL, cont. More than 40 exclusions
Ag-specific exclusions, including
Certain types of fire loss arising from logging or lumbering operations
Violations of the Migrant and Seasonal Worker Protection Act
Losses from livestock diseases (hoof and mouth and “TSE,” includes “mad cow”)
Up-to-date series of commercial exclusions (silica, known injury, etc.)

20. AgGL, cont. Sales-based rating for 64 farm classes
Analogous to 1980s introduction of sales-based CGL rating
“…the level of sales of farm products is a better indicator of farm size, since it unambiguously measures economic activity in dollars.”
U.S. Dept. of Agriculture
“Insurers may wish to re-consider their traditional reliance on acreage as the primary exposure measure for the liability side of FMP. A switch to average farm revenue… can greatly assist in returning this line to a stable underwriting posture…”
MarketStance

21. AgGL, cont. AgGL rating information
Converted acreage-based loss costs to sales bases with use of USDA data
Commodity Price Stabilization Plan
IRPM plan for developing a premium debit or credit based on characteristics of the risk

22. Questions? Kirk Hansen Joseph Harrington AAIS Director of Education
Joseph Harrington
AAIS Director of Corporate Communications