While they are still relatively rare, there appears to be a growing number of farms with locations in more than one state.
Mechel Paggi, director of the Center for Agricultural Business at Cal-State Fresno, says he knows of ranchers who drive cattle on land they own that stretches from northern California into neighboring states, and that some Midwestern wheat farmers have established operations across state lines.
“You typically run into this type of risk with agents who are located near a state border,” says Sherry Taylor, a former farm underwriting manager who is now a farm insurance trainer and consultant based in Dale, Wis.
“It’s certainly common to have farms spread out over
multiple locations, but most often within states,” says Debi Summerlin, AAIS vice president for insurance lines, and principal developer of its farm and agricultural insurance programs.
Multi-state risks have long been common in commercial lines, where there are well-established process and procedures for insuring them under one policy.
Inter-state account rules typically allow commercial carriers to select which state’s rating information to use for pricing coverage, as well as which state’s compliance (amendatory) endorsements to attach, based on where a risk is headquartered, where the bulk of its operations or insured values are located, or where the insurance was transacted.
When it comes to pricing commercial property risks for their appropriate territorial hazards, commercial underwriting software applications have long been structured to accommodate multiple locations in multiple states.
The relative ease of utilizing commercial rules and rating information for multi-state accounts is part of the reason they are deemed more suitable for insuring industrial-scale agribusiness accounts.
Most American farms are still operated by owners who live on them, however.
Given the localized nature of most farm risks, and the mix of personal and commercial risks they present, farm insurance programs typically don’t have features in place to address multi-state locations.
In the general absence of inter-state account rules for farm insurance, insurers are starting to develop approaches to insuring family -operated farms with locations in different states.
With regard to the selection of rating information, AAIS has heard of companies taking two approaches:
- Rating each property risk according to the rating information of the state it is located in, and rating the liability coverage according to the rating information for the state where the farm is headquartered; or
- Rating the entire risk, both property and liability, according to the rating information for the state where the farm is headquartered.
“The practice of providing liability coverage under a single limit is prudent,” says Summerlin.
“You want to avoid providing liability coverage [through multiple forms] that would allow for stacking of limits,” she says. “Liability coverage extends to an entire operation and not necessarily to a single location.”
Summerlin and Taylor both caution against using an expedient, single-state approach to insuring farm property exposures, however.
“People have no choice but to rate farm property according to the state where it’s located,” says Taylor. “That’s the only way to get the right rate. Plus, you’ve got to worry about state requirements about pricing the dwelling.”
Carriers might get away with isolated instances of headquarters rating for farm property, Taylor says, but they run the risk of regulatory sanction if a complaint is made to a state department.
“It’s more of an ethical concern,” she says. “You want to rate a policy properly.”
Taylor acknowledges that rating farm property by the manual for each state raises marketing and operational concerns.
Companies that have long operated in one or a few states may need to be licensed in adjoining states, and agents and applicants will question why the premium for property in one state is greater than that for a comparable or even larger exposure in another state, she says.
Also, proprietary farm underwriting systems are often not structured to provide rating information for different states for one policy.
“Traditional [farm insurance automation] products aren’t typically friendly to these situations,” says Rob Ivimey,
president of Garvin-Allen Solutions, Halifax, N.S., a software developer that supports farm insurance rating
and policy administration.
Ivimey and Taylor say that farm insurance automation systems, even those that allow a company to enter locations in different states, typically require them to be rated according to the information provided for the headquarters state, or to be edited and rated manually.
According to Ivimey, Garvin-Allen’s Advanced Insurance System, which supports the AAIS Farmowners Program, allows users to rate farm property in different states according to the rating information for the state where it is located.
AAIS farm and agricultural insurance programs include some features that could be useful in insuring multi-state accounts under a single policy, says Summerlin.
In particular, the farm property coverage form provided under the AAIS Farmowners Program allows companies to write blanket or scheduled coverage on farm personal property while writing scheduled coverage on farm building property.
Thus, while building property at each location can be
appropriately rated according to its territory, farm personal property can be rated according to its permanent location or general concentration, depending on how much it moves about.
Also, the AAIS Agricultural Output Program provides a useful tool for insuring multi-state risks by providing a countrywide rating plan with options for writing blanket or scheduled coverage.
“The AgOP in general is well-suited for multi-location risks,” Summerlin says.
Multi-state farms
