Farmers struggle as the insurance industry gets hammered by climate change challenges

Farms losing their insurance. Property owners going without any coverage. Insurance companies driven to closure by severe weather. We’ve seen the headlines before, and they’re only getting worse.

The Spring of 2024 has brought another round of severe weather, with May topping out as the second-most active ever at 6,100 storm reports and 36 lives lost, nationwide. A number of those tornadoes hit Arkansas, and when insurance companies have to pay out on more claims than they anticipated, it can lead to instability. After this spring’s storms, the Farm Bureau Mutual Insurance Company of Arkansas had its balance sheet assessment moved down to adequate because of claims paid. This added to the insurance company’s troubles after its credit rating went down to fair just earlier. Credit ratings for insurance companies assess the company’s continued likely ability to pay out on successful claims in the future, so their credit rating is an important measure of stability.

Many farmers see Farm Bureau-affiliated companies as among the most reliable providers of insurance to the agricultural sector, so it’s concerning to see cracks emerge. Yet another longstanding stalwart of farm insurance, the rural mutual provider, is also struggling under current weather conditions. Rural mutual insurance companies were among the very first providers of insurance to farmers, with companies in operation for as long as two hundred years. Mutual insurance companies are like cooperatives- they are managed for the benefit of members, rather than to generate a profit for shareholders. Despite historically outperforming their corporate peers, twice the number of mutual insurance companies entered liquidation in 2023 as compared to the year prior.

Insurance companies then feel they have little choice but to reduce their risk exposure. That often means pulling out of certain markets or geographies and turning down applicants with specific risk exposure. But once farmers lose their insurance coverage, it can be very difficult and expensive to get a policy back in place. Where just 5 percent of homeowners had no insurance in 2019, that number is up to 12% in 2023, with this article illustrating the effect on one food-growing family.

Severe weather and its losses can also lead insurance companies to limit risk in other areas. From refusing to cover farms that grow leafy greens to rejecting applicants with any kind of agritourism or education, it is harder to get and maintain an adequate and affordable insurance policy for farms of all types.

One of the takeaways from all these stories of gloom is that it pays to shop around. Farmers facing a difficult insurance situation have to greatly expand their network and have in depth conversations with potential agents and brokers about their needs. The more a farmer knows up front, the easier it can be to have that conversation confidently.

Additional Resources

Make sure you are adequately protected and check out our FREE resource, Farm Property Insurance Basics, which provides essential knowledge on property insurance for your farm and ranch. If audio is more your style, check out our FREE podcast episode: Got Coverage, and hear directly from an experienced farmer about property damage coverage and how critical it is to the farm business.