Earlier this week, the National Cotton Ginners Association held a zoom meeting with a number of insurance representatives to discuss the situation we’re all facing with our insurance. Last year many were caught flat footed with huge increases in premium and very little ability to try to find alternatives.
Over the past couple of years, most of the ‘traditional’ agribusiness insurance carriers have left the market. The ones that are left are either limiting who they write or charging exorbitant premiums relative to previous years. The theme of most of the presentations was this isn’t a matter of greed it seems to them to be a matter of survival.
This contraction or hardening of the market is not just in our world but came home to roost in the past 24 months in a big way. The crisis in the insurance property and casualty market seems to have been brewing a while. The rapid increase in housing prices and inflation of building materials and steel has the potential to make this worse. We are not alone but it doesn’t make our situation any easier to handle.
One of the things that was brought out and should be obvious if you think about it for a bit is how insurers make money. This is a WAY oversimplification but in general is the situation. They make money in a couple ways.. one is to have fewer losses than premium and the other is to invest their cash and use that as another revenue stream. If you have underwriting losses but investment gains or investment losses and underwriting gains they offset..not great but not a crisis. But if investments aren’t going well and the losses climb in a huge way (big weather events, wildfires, hurricanes) etc coupled with unprecedented increased cost to rebuild it creates a crisis.
What can be done? We have no control over MOST of the ingredients that made up the situation we are in. We (the ginning industry) do have some control over part of the picture. The only part we can work on is to make the industry more attractive…what ever that means. As mentioned before, losses vs premium is ONE piece of the puzzle. Our industry has had some HUGE losses in the past several years. It’s not regional, it’s not a particular type of operation according to those on the call. Module losses, seed losses, baled cotton losses, electrical and press losses have all gone up. The vast majority of the losses are fire related.
Those on the call (from all parts of the country) said we should expect to see a LOT more scrutiny on loss control…beyond the traditional losses control questions or inspections we’re used to. We, as an industry should be prepared to develop some best management practices (BMP’s) to start with. If we can make ourselves more attractive, we may be able to attract more insurance companies back to the market and then maybe some premium stabilization can begin to occur.
The presenters all implied that this is a long term problem with no short term solutions. If we can stop having very large losses such as large seed house fires, module yard fires, press fires it would go a long way to making the industry more attractive.
Once we’ve established our industry as an attractive (fewer losses than premium) we can start to see some improvement in the market according to those on the call. It seems to have become a chicken and egg situation. We’ve seen this before in workers comp. The industry put a huge focus on employee safety and few gins are now in a market where they can’t get insurance and premiums are somewhat more predictable (although not cheap).
Send your comments to dusty at southern-southeastern.org