Earlier this year, Iowa farmer Mike Dahl opened an invoice for farm insurance and felt a jolt: The premiums had nearly doubled.
Feeling queasy from sticker shock, Dahl called his agent, who reminded him he had requested more coverage for a new $45,000 shed, along with some smaller add-ons.
While accepting some of the price hike as justified, the increase still caused Dahl to sit down and read the fine print in his policy.
“It was 15 pages, and on the last page, I found a 15% surcharge,” he recalls. “It was a new charge for foreign-material intake coverage on my combine. The company added this to my premium because I had made a claim in the last three years, and it will roll off once the three years have passed.”
Dahl is not the only farmer feeling sticker shock from insurance costs these days. Roiled by weather extremes and black swan events, carriers are squeezing customers to protect capital and minimize risk. That often translates to higher premiums, reduced coverage and even denied claims.
Every farm needs insurance. The more you know how to manage this business expense, the better off you will be.
Why insurance costs go up
Just 10 years ago, insurance was easy to sell, and carriers would fight for business. But things began to change around 2020 as extreme weather events ramped up just as political unrest and COVID-19 hit the country.
Insurers began paying higher sums related to riots, rising medical costs linked to the pandemic, supply chain issues and inflation. Average property insurance premiums rose more than 30%, mostly for homeowners threatened by hurricanes or wildfires. And rural America was caught in the insurance upheaval in 2020 when a derecho flattened an 800-mile strip across the Midwest.
“Until the derecho, insurance companies didn’t think a Florida-like event — a windstorm across the whole state — could actually happen in the Midwest,” says Logan Lyon, a farmer and independent insurance agent in eastern Iowa. “Many insurance companies didn’t realize there would be such widespread damage and have now adjusted, with much higher premiums.”
Shop around if you’re frustrated with your current policy coverage, agent or premiums. But don’t just shop price, as policies can always be cheaper with less coverage. Figure out what’s important for your business, consider your risk tolerance and go from there.
“If you have a reason to shop, then do it, but don’t make it a fun sport because it is a lot of work to compare and contrast,” Lyon says. “Every three to five years is a reasonable time, as long as you have a reason to shop. If premiums are good, you’ve had positive claims experiences, and you feel like your agent works on your behalf, there’s no reason to shop.”
Be a smart shopper
Consider what happens when you shop for new insurance. The underwriter will ask for your history. If they learn you have had three different carriers in the past three years, they may not be interested in your business, as your history will show how much you jump around.
If you are shopping for new insurance, visit AM Best for a tool that evaluates companies based on financial stability, cash reserves and consumer opinion. Stay clear of companies rated B-minus or lower.
At the agency Trusted Choice has a listing of over 250,000 independent insurance agents and ranks the top companies for farms.
Dahl’s sticker shock over his premium drove him to consider other options, though he has been with his carrier for 10 years.
“I’ve reached out for some quotes, but they have to come out and look at the buildings and equipment,” he says. “What I’m learning is new customers may be getting different terms on things like hail damage, compared to existing customers.”
Before shopping for new carriers,
try to negotiate new terms with your current carrier.
“You can request deductibles or limits get changed, but you have to pay attention and trust your agent’s advice,” Lyon says. “You have to know your own risk tolerance.”
Pay attention to policy notices
What if a claim is denied that you thought was covered?
Before calling your agent, consider the company changed your policy, sent you a notice required by law, and for whatever reason, you ignored it. That’s a common mistake.
“Most people haven’t educated themselves above what their agent has told them about their policy,” says Logan Lyon, an independent insurance agent in eastern Iowa. “Many consumers see the bill, see the values covered and say, ‘Perfect, let’s move on.’ ”
But there’s much more behind that when it comes to what is covered and what qualifies as a cause of loss.
Liability limits may shrink
Lyon says liability limits can often be reduced. For a standard farm customer, a first line or underlying liability limit is usually $1 million, with higher optional layers or an umbrella policy. Some carriers have started to limit farm liability to $5 million. You once could get a $10 million umbrella policy without any extra underwriting, but in the last few years, carriers started restricting higher-limit umbrellas.
Why? Those high levels expose the carrier to a higher cost in case someone wants to “sue you for all you’re worth.”
Farms can be insured by more than one insurance company to secure higher levels of coverage, but all parties will want to know who is covering what.
Ugly soft metals?
While a change in deductible is clear-cut, other changes may be more subtle. Say your $600,000 shop has a $1,000 deductible, and you experience hail damage. It’s possible your policy has a “cosmetic exclusion,” meaning surface damage is not covered. This exclusion is often only made to outbuildings with metal coverings and dwellings with soft metals, Lyons says.
“If someone has a million-dollar shop right outside their house and it has hail pings, and you see all those hail dents every day, I can see why it ticks you off,” he says. “But the policy may not pay for a replacement if the damage is simply cosmetic. Ugly is a common exclusion on soft metals.”
Individual building deductibles are not common but are showing up more often on polices. Make sure you know what’s in your policy.