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December 4, 2023

Addressing the challenges in obtaining insurance for grain and feed companies

Many industries are facing challenges, including grain merchants, elevator operators, feed manufacturers, processors, and grain industry suppliers. Kody Kirkendall, vice president of marketing; Terry Lively, employer services safety and compliance manager; and Kendall Woodward, vice president, agribusiness practice leader and risk services, recently participated in a panel discussion at the National Grain and Feed Association's 52nd annual Country Elevator Conference and Trade Show.

To summarize this discussion, we created a Q and A piece, but if you have any questions not addressed within this blog, please reach out to one of our Marsh McLennan Agency agribusiness specialists today.

This past year has shown many insurance challenges for the grain, feed, and processing industry related to property insurance and reinsurance. Increased frequency of natural disasters, economic concerns, and poor market performance have all resulted in insurers steadily increasing rates, raising deductibles, and implementing stricter underwriting standards to return to profitability. Panelists from Marsh McLennan Agency gave attendees a nuanced view of the current insurance marketplace and discussed additional ways to obtain the insurance coverage needed to do business.

Why, if a company isn't in one of the higher risk areas, those with higher weather conditions like a derecho, hurricane, or tornado, and has a low loss experience, did they experience a significant spike in insurance rates?

“Insurance is a pooling mechanism, so everybody's going into the same insurance pool regardless of whether they've had claims; they all share the same carrier reinsurance landscape. So, the carriers that insure them buy more insurance from reinsurance companies, which are writing coverage all over the United States and, most often, worldwide. And so, a grain company in the Pacific Northwest who doesn't have to worry about a hurricane down in Florida will still get affected because the reinsurance company's rates will go up and, therefore, pass those increased rates onto the consumer.

So, it's all about the finality of their reinsurance treaty agreement and who they share that reinsurance company with, most often their competitors, that either got hit or didn't get hit with those same storms.”

Why are many insurance carriers looking at wood cribbed elevators as a higher risk and potentially not insuring those facilities? Why has the insurance industry changed its stance on these facilities so quickly?

“There is a valuable life span for elevators. Most insurance companies have determined that any frame elevator built in the ‘50s through the early ‘70s has exceeded its useful life span compared to the superior construction of a concrete elevator or a steel elevator. An example of why insurance companies do not like the outdated frame structure is if it has an electrical shortage, it has no salvage value because the combustibility risk is so high. So, it's not a matter of if a loss happens but of when it happens. Insurance companies are looking for superior construction with fire mitigation installed in those facilities, and the frame elevators simply need it. Or if they do have it, it needs to be updated or inoperable.”

How do the different lines of insurance affect an insurance carrier offering a quote to a potential insured?

“Many companies have entered the marketplace, writing specific lines of business, which is a change from what happened years ago. Workers' compensation and property programs in the last 10 years have been profitable and returned the most equity. In contrast, auto casualty and general liability have not been. So now the package carriers want workers' compensation lines. This will help them to get outside their box and write something that's not as profitable. I will need the workers' compensation as a piece of that because that's the best-performing line from a loss experience perspective. And so, in that regard, it does affect the overall account.”

How can a company’s leadership decide where to focus their risk management attention when running a grain or feed facility?

“The company needs to focus on what is explicitly causing them pain in the market and what they are getting charged an additional premium for because that is where their losses stem from. Suppose a product liability issue exists with a food manufacturer or grain elevator doing organic beans. In that case, they might need more adequate quality control and record retention policies, which will affect their general liability rates.  

However, if they're having multiple fires, it's a property problem. Suppose they need strong HR and safety leaders. In that case, it's a workers' compensation problem. Hence, they need to focus on what's causing them the most issues with high premium rates in the market, which will differ for each co-op.”

When a loss control or risk consultant comes to the grain or feed location and makes recommendations for corrections, are these recommendations focused primarily on what type of items? Do the loss control or risk control recommendations cover all safety items that the company should be doing? Why don't they cover everything like OSHA, DOT, and EPA if not? 

“They will typically focus on three things:

  • Property CAT exposures like fire, wind, and hail
  • Workers' compensation like employee safety and health
  • Product liability lines

Another question we ask is what might cause more of a loss for the carrier than what might be an OSHA item. As safety consultants, we look for something that might be catastrophic at the facilities and for what would fall more into the OSHA or the employee safety side of things that goes beyond just workers' comp. Meanwhile, when the insurance carrier's risk consultants go out, they look for machine guarding and fall hazards.

So, as safety consultants, we get more into the details of OSHA because the insurance carrier spends less time on the details of OSHA. They worry more about the loss on our side of the house while we're looking at the holistic approach. We look at what might cause a loss and what might help protect the employee and improve the employee.”

Even though OSHA does not currently require Dust Hazard Analysis (DHA), do the insurance carriers care if a facility does a DHA, and if they do, how thorough do carriers look at these?

“The insurance carriers do care if the facility does a DHA. The analysis can tell a story of a company. These stories can include lessons learned from a claim and what they changed operationally to ensure that it doesn't happen again to be proactive. Companies should consider formalizing a Dust Hazard Analysis to share with that carrier. It says the company is a step above their peers and leading in the industry.”

We understand your challenges in the evolving agribusiness and grain and feed industry. For more information regarding any of the topics covered, please contact one of our agribusiness specialists.