Why It Might Be the Right Time for Growers To Add Extra Insurance Coverage
October 12, 2022 Severe weather is unavoidable. Because of this, insurance can be a cost-effective way for vegetable growers to financially protect their businesses, says Traci Dooley, National Agency Sales Director for Hortica.
Most growers have an insurance policy, she adds, but they might not necessarily have the coverage they need, or enough of it. When Dooley talks with growers about severe weather risks, she typically focusses on two types: commercial property insurance and business income coverage.
Types of Coverage
Commercial property insurance can help growers pay for the repair and replacement costs if severe weather damages their buildings, equipment, or inventory.
“As inflation has raised the cost of these items and structures, some growers could be underinsured depending on their current policy’s limits,” Dooley says. “Owners can make sure they are sufficiently covered by talking with an agent and making a few updates to their policy, if necessary.”
Business income coverage, otherwise known as business interruption insurance, can help growers pay for lost income while their businesses are being repaired.
“It can help cover payroll expenses, lost revenue, and extra costs needed to keep your business running,” Dooley says. “With supply chain delays still prevalent, businesses can protect themselves against delayed repairs and lost income by updating their business interruption coverage.”
Traci Dooley
Certain coverages, such as flood insurance, may be more specialized. With these unique coverages, Dooley notes, growers may have waiting periods before their policies go into effect, “so don’t wait to update your policy,” she adds.
In short, severe weather is one of the greatest financial risks facing growers, Dooley says. Around 25% of businesses do not reopen after a disaster, according to the Federal Emergency Management Agency (FEMA).
“An emergency response plan can help you act fast and protect your employees in the event of severe weather,” Dooley says, “but it’s much more difficult to move your property out of harm’s way.”
Current State
For growers who have not updated their insurance policies recently, several trends could lead to more considerable losses and out-of-pocket expenses this year, Dooley says.
As inflation has risen, the cost of materials and property has followed, which means if a grower experiences property damage, it will mean higher repair costs.
This makes it crucial, Dooley says, for businesses to have enough property coverage listed in their policy — particularly if they have not had an updated property valuation recently.
“If your current policy is outdated or doesn’t reflect the true value of your property, you could end up paying for part of the costs to repair or rebuild damaged assets. An updated property valuation can help make sure your business is adequately covered if you need to file a claim,” Dooley says.
Much like inflation, the supply chain continues to be a challenge for the produce industry. If a business is damaged by severe weather, the grower could face construction delays and extended downtime while he or she awaits repairs. In some cases, it could take months longer than usual to get the business fully repaired and functioning again due to material delays.
“In the meantime, you have customers to serve and staff to pay,” Dooley says. “Now, more than ever, it’s important to consider business interruption coverage to protect your business. Think of business interruption coverage like disability insurance for your business. If you face damage and delayed repairs, business interruption coverage can help replace your lost income, payroll, and the associated expenses following damage. Not only should you consider including it in your policy, but you’ll also want to make sure you have enough. In some cases, you may need coverage that supplements your costs for six months compared to three, for example.”
Ideally, Dooley says, every business would purchase the exact right amount of coverage to pay for the damages caused by severe weather. And while that’s the intention of every policy, it’s rarely the case, she adds.
“As we’ve seen in recent years, severe weather has become more unpredictable, and the risk of being underinsured could financially set your business back months, and in some cases, years. You want enough coverage to give you peace of mind if your business is severely damaged,” Dooley says. “An insurance agent can help you determine the value of your property and customize the coverage you need. A few small adjustments to your premium or policy could make a large difference.”
From Bad to Worse
Extreme weather events have intensified by frequency and severity in different regions of the country. Over the past four decades, Dooley says, the U.S. saw around seven weather-related disasters that exceeded $1 billion in damages per year. That average is up to more than 17 events per year under the same definition from 2017 to 2021, according to the National Oceanic and Atmospheric Administration (NOAA).
“Unfortunately, we’ve already seen nine significant events as of this July,” Dooley says, “which means the pace is expected to remain high.”
Vegetable and fruit growers will face different weather-related risks depending on their region and location. When it comes to preparing their businesses, it is important, Dooley says, to understand to which weather-related events they are most susceptible. Thunderstorms, fires, floods, tornadoes, extreme heat, hurricanes, and hail all have the potential to create significant damage to horticulture businesses.
RELATED CONTENT: Hurricane Ian Deals Big Blow to Florida Agriculture — What Now for Growers?
More frequency and more severity lead to more risk, which oftentimes is reflected in premiums. But more importantly, it also influences the type and amount of coverage growers need to protect their business. Because risks and costs have increased, growers likely need more commercial property and business income insurance this year compared to previous years.
Weather Aside
Growers should consider insuring against several other types of misfortune these days, according to Dooley:
Supply Chain Delays — Supply chain delays mean it may take longer to rebuild, repair, or reconstruct buildings following damage. This underscores the importance of business income insurance, otherwise known as business interruption coverage, Dooley says.
Rising Inflation — Inflation has increased the cost of raw materials, which means repair and replacement costs also cost more. “The same damage to your property a year ago will now likely cost more, and your commercial property insurance should reflect that to ensure you’re adequately protected,” Dooley says. “If you don’t update your policy or talk with your agent, you could risk underinsuring your business, which means some of the repair and replacement costs could come out of your business’s budget instead of its insurance.”
Expanded Indoor Operations — As more growers expand their operations to the indoors, they could be adding more equipment and property to sustain their operations and deliver products to customers. “When you add, upgrade, or change property, you’re likely adding additional value to your business,” Dooley says. “It’s important to update your policy to reflect that increased value to make sure you’re accurately covered if you incur a claim.”
Cyberattacks — As more growers rely on online capabilities to fulfill customer orders and work with vendors, their data and operations are susceptible to breaches and ransomware threats. “If the wrong person gains access to your system, they may halt operations and demand a ransom for you to regain access,” Dooley says. “The result of one breach can be financially devastating to a business of any size. While there are several proactive steps growers can take to protect their systems, cyber liability insurance can serve as one final layer of protect if confidential data is compromised.”
Building and Facility Fires — No matter how a grower’s property is damaged, the repair and replacement costs are now likely higher due to inflation, and if the damage is severe enough to interrupt operations, enough business interruption coverage will be critical for businesses to manage their costs and protect their bottom lines, Dooley says.
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