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HUB International 2021 Outlook

Agribusiness Industry

 

Transforming Uncertainty into Opportunity

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Reimagining Farm-to-Table

As farms and agribusinesses find new food distribution avenues and deal with supply chain disruption, they face new risks that require more internal safeguards.

Survival is in the pivot

And it's what the agribusiness industry will have to do to thrive in 2021.

Industry disruption and rising insurance rates have forced farms and agribusinesses to deviate from traditional avenues of revenue. To keep insurance costs down, businesses will need to strengthen internal safeguards to reduce the liability inherent in recalls, hemp distribution and catastrophic claims.

“Family-owned farms and large agribusinesses are now challenged to find alternate routes from farm-to-table, due to overproduction and underselling of many products like milk, grain, and packaged meat.”

Businesses are evolving and customer expectations are changing. Family-owned farms and large agribusinesses are now challenged to find alternate routes from farm-to-table, due to overproduction and underselling of many products like milk, grain, and packaged meat. Industry executives will have to be creative, thinking out of the box to find new customers and/or ways to reach the consumer directly. This will alter their risk.

Coverage lines will cost more in 2021 across the industry. Brokers are looking into creative options to minimize the effect on your business and shift in-house risk to prevent avoidable recalls and nuclear verdicts. Hemp growers will want to work with their broker to consider alternative coverages to the Federal Crop Insurance Program (FCIP) as well. And brokers will need to be creative in seeking out new avenues to offload risk among the rising tide of insurance costs, which in many cases are now anywhere from 25 to 50% more, based on needed coverages.

All of this will take creativity. It will take intentionality and understanding of how all market forces interconnect.

Here’s what you can expect from Agribusiness in 2021:

“If you have pivoted, your business’ risk profile is likely to shift, maybe even creating additional exposures.”

“New markets may also change your risk profile, whether that means creating new exposures or minimizing exposure with more local trade partners.”

1. Innovate in a disrupted supply chain.

Many farms and agribusinesses are seeing their demand dry up since the onset of the coronavirus pandemic. From dairies who traditionally contracted directly with restaurants or school districts to meat processing plants that have always sold to restaurants and vegetable and nut growers who distribute to small, specialty shops, COVID-19 is impacting demand in a major way. Many farms need to find a new route to the table. Today’s farmer or agribusiness executive is looking for new and innovative ways to minimize overproduction by getting their food supply where it’s needed, even if traditional channels have been eliminated. Whether that means selling 5-lb. bags of legumes on Amazon.com, or starting a local farmer’s market, unearthing new markets and opportunities will be critical to survival in the coming year.

If you have pivoted, or are looking into other avenues for product distribution, your business’ risk profile is likely to shift, maybe even creating additional exposures. Talk to your broker about additional markets or industries you’re considering. The agribusiness selling directly to thousands of consumers via Amazon.com will have a totally different risk profile than the farmer selling to the wholesale hospitality market. This means policy terms and limits may need to shift. Work with your broker to create a narrative of your exposures and goals so your broker can ultimately right-size your coverage moving into your next renewal.

Further, with China removed from the global food chain, the U.S. will be left with an overproduction of food; farmers will be left with costly crop and no one to sell to. As markets like China take a back seat, our North American trade partners like Canada and Mexico may become more important and USMCA could be another avenue for expansion. New markets may also change your risk profile, whether that means creating new exposures or minimizing exposure with more local trade partners. Ask your broker how this will impact your cost and coverage limits.

COVID-19 Impact

Many farms and agribusinesss are seeing their demand dry up since the onset of the coronavirus pandemic.

“Labor and inventory management will need to be handled with great agility.”

2. Personnel affect supply chain, too.

Farms and agribusinesses have suffered from a shortage of foreign workers who didn’t travel to the U.S. this season, and will likely not return until there’s a COVID-19 vaccine. For this reason, we will continue to see overproduction and ripe crop getting plowed under if market prices sink lower. Until technology can fully automate farm labor, the U.S. market will continue to face this challenge.

Meat processing plants currently face personnel issues as well. Since COVID-19 outbreaks hit a number of plants, workers are refusing to return to the assembly line. Some are even filing Employment Practices Liability (EPL) suits against the businesses for requiring them to do so. Make sure your meat plant or agribusiness is properly covered for potential EPL claims. Work with your broker to discuss every potential employee liability possible.

“Product Liability and Product Recall coverage are key to transferring liability in consumer recall cases as well as excess or umbrella coverage, the latter of which will cost as much as 25 to 50% more in 2021 due to rising claims and recent nuclear verdicts.”

3. Mislabeled allergens still a major cause for recalls.

The leading cause of food recalls is mislabeled allergens. Sidestepping this avoidable pothole continues to be top of mind for food businesses everywhere because when a consumer gets sick, it can mean fatalities, plummeting stock values and a multi-million dollar class action lawsuit from consumers as well as investors and shareholders.

Product Liability and Product Recall coverage are key to transferring liability in consumer recall cases as well as excess or umbrella coverage, the latter of which will cost as much as 20 to 25% more in 2021 due to rising claims and recent nuclear verdicts. These policies cover costs associated with tracing the cause of contamination, identifying affected products, removing food from the shelves and consumer notification. Directors and Officers (D&O) insurance is also important to food recall scenarios, as the coverage protects a business and its executives from investor and shareholder claims. Farmers and agribusinesses can expect D&O coverage costs to increase by as much as 10 to 15% more in the coming year, in response to higher than average claims.

Many agribusinesses have changed course in some way since the onset of the coronavirus pandemic, and therefore, it is important to discuss any and all changes to packaging, distribution, labeling and more with your broker. While each of these critical coverages will cost more in the coming year, work with your broker to right-size your coverage by updating your risk profile to eliminate past exposures with umbrella/excess and D&O coverage. These updates may result in a reduction of costs.

“The U.S. hemp industry continues to grow fast. And yet those farming hemp still face a gap when it comes to securing coverage and transferring risk.”

4. Hemp growers seek new coverage options.

The U.S. hemp industry continues to grow fast — it’s expected to hit $23.7 billion by 2023. And yet those farming hemp still face a gap when it comes to securing coverage and transferring risk. The Federal Crop Insurance (FCIP) program hasn’t helped. In fact, it’s done little for U.S. growers. Because the program’s limits fall well below the expense to plant and harvest hemp, HUB suggests alternative coverages like parametrically-rated programs. While it’s not hard to obtain coverage for hemp transit, delivery and storage, there’s still a major gap when it comes to securing coverage for harvested hemp drying in the field.

Transporting hemp across state lines also remains a headache for growers and producers who are still getting stopped and ticketed because of the plant’s close resemblance to its higher THC content cousin, cannabis. Since there’s no effective way to prove this on the side of the road, many are still being pulled over for inspection and some are even losing their crop and paying fines. Regardless, hemp coverage limits for any type of policy should cover the cost of the production line and not projected revenue gains, as the latter varies.

2021 Cannabis Outlook

Learn about the challenges facing one of the fastest growing industries in the U.S.

Learn more

“CAT losses are currently taxing every market and agribusiness is no exception.”

5. CAT claims swell insurance costs.

Catastrophic or CAT losses are currently taxing every market, and agribusiness is no exception. The result of severe weather — hurricanes, wildfires and hail events — CAT losses have led to significant increases in coverage costs, including Property, which is expected to increase by +10 to 15%, General Liability by +5% and Umbrella by +20 to 25%. In regional pockets more susceptible to CAT losses, these numbers may be even higher. While risk mitigation is possible, farms and agribusinesses will want to work with their broker on mid-term endorsements, or changing policy coverage to better align with current risks. For example, if your farm has recently retired vehicles, reduced its workforce or pivoted heavily into another area of work, there may be a chance to alter your coverage mid-year in an effort to reduce premium dollars.

2021 Growth and Beyond

Farmers and agribusinesses are all navigating through a time of uncertainty, knowing that business models are evolving, and so are customer expectations and potentially our workforce. In many cases, innovation and disruption are leading the industry into 2021 and beyond. More specifically, work on the upcoming 2022 Farm Bill will ramp up in the early months of 2021 and will command the industry’s attention as we begin to focus on the industry’s next four-year cycle.

All this change will create more questions around risk, a business’ impact on insurance, and more. A good broker will be navigating the coming year together with you, helping you to refine your business’ story in order to tell it to the insurance carriers to help right-size your coverage and reduce potentially high premium rates in the coming year and beyond.

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