March 27, 2008 Crop Insurance – You Get What You Pay For

Many readers are unaware our Government has a taxpayer subsidized insurance program for “growers”. This important insurance program has seen many variations over the years. It supports and protects our agricultural way of life in the context of regular natural disasters that annually destroy crops. Insuring crops is similar to being asked to insure a burning building. It is not a matter of will there be a claim, but how big will it be?

The cost for the “catastrophic” insurance policy from the government is $100 a year. The majority of people buy this policy because it is “virtually free” insurance, until you have a claim.

Let’s assume a “grower” has 10 million dollars of nursery stock at risk. On a total loss he or she would be uninsured for the first 5 million. How many can absorb a 5 million deductible? Then on the next 5 million the government pays 55% of the remaining loss or $2,750,000. The grower would pay $7,250,000. For the small cost of $100 dollars, you get what you pay for.

Our program would pay $9,990,000 of the 10 million dollar claim and replace the destroyed nursery stock. Our deductible is only $10,000.

The government does have the ability to increase the coverage, but the most they can insure, at prices that are 3 to 4 times ours, is 75% of the exposure. Using the 10 million dollar claim example; the first $2,500,000 is still uninsured.

We support the decision to purchase the $100 dollar policy, but strongly caution against thinking it will be adequate protection in the event of a claim.

The wildfires in California, the floods in Missouri, the freeze in Tennessee, and the wind damage in Atlanta should be reason enough for people to understand the need for protection. When we started this insurance program the only market insuring against natural disasters was the government. No one else is insuring live assets like we are.

Most attempts at insuring weather related claims for live asset risks were previously based on a flawed assumption that the fruit and the trees, bushes, shrubs and vines all needed to be insured together. We studied the data and found that claims could be quantified separately. This alone is the reason we put the program together. We found that insuring live asset was like insuring ourselves for health and life insurance. We get hurt, we lose limbs, and we sometimes die, maybe not always from old age. We wanted to create a “death” insurance program for living assets which included “destruction” coverage for trees, bushes, shrubs, plants and vines whose diagnosis is terminal after being injured by natural disasters.

Lenders request “live asset” insurance coverage for wind, lightning, fire, freeze, flood, earthquake, hail to protect their investments, like they request home insurance.