Many years ago, while reading an annual report from a small country insurance company, the Chairman wrote to the effect last year there was 10 barn fires and we had to pay out. This year there was 3 barn fires and we recorded a surplus. This year we always inspected the barns and put in preventive measures for barn fires not to spread.

The insurance company was doing risk management, it likely costs farmers more to insure preventive measures were in affect for lower insurance rates. In larger insurance companies, one of the most important departments is risk management or what rates should people pay that will ensure the insurance company makes money?

In an article by Patrick Cooley of the New York Times News Service, whether you believe in climate change or not, insurance companies are motivated to make money and they react to changes. In the last few years, because weather has been changing both drought and floods, the risk management people in the insurance companies have been hard at work. American farmers who grow fruits and vegetables are often finding crop insurance prohibitively expensive or even unavailable.

A 2021 study from researchers at Stanford University found that rising temperatures were responsible for 19% of the $27 billion in crop insurance payouts from 1991 to 2017.

About 85% of the country’s commodity crops which include corn, soybeans and wheat are insured, according to the National Sustainable Agriculture Coalition.

In contrast, barely half the land devoted to specialty crops such as strawberries, apples, asparagus and peaches was insured in 2022.

An example is Bernie Smiarowski who farms 700 acres in western Massachusetts. His farm is fertile and along the Connecticut River. Last year due to floods, he lost $1.25 million worth of potatoes. It was the 3rd straight year of challenging weather. His expenses are $2,000 an acre with yields from 20% to just breaking even.

One of the problems with the federal insurance system is that agents make more money insuring vast tracts of corn and soybeans. Most insurance plans cover a single crop, meaning specialty farms growing a variety of fruits and vegetables need to buy multiple policies.

Kristen Ward, regional V”P for crop insurance at Farm Credit Mid-America, said her company worked with farmers in 6 states covering barley to grapes. Premiums offered to farmers are based on risk, which is rated according for where the crop is grown.

More than 220,000 American farms grow specialty crops according to the American Farm Bureau Federation. However only 18,659 whole farm revenue policies have been sold in a decade.

Federal crop insurance started in the Great Depression, under the program the $18 billion program pays half a farmer’s crop insurance premium to guarantee a secure food supply. The current bill was extended to 2024, what comes next is anyone’s guess as there are many different points of view. For example, Sen Chuck Grassley, a Republican’s farmers benefit so he says leave the program alone.

For Mr. Smiarowski’s farm, he and others appealed to the Governor for help but his share only covered 20% of his losses. As a true farmer, he said when times are bad, you get what you can and you hope for a better next year.

Linking to dividend paying stocks, vest financial interests are where to look for when examining issues. There may or may not be climate change, however insurance companies change their premiums because something changed, and they do not like reporting losses. Fortunately, many insurance companies are mandated by the government to have reserves or be able to use re-insurance to mitigate losses and report profits to pay dividends.

There are more questions than answers, till the next time – to raising questions.