What Farmers and Ranchers Don’t Know About Their Insurance Could Cost Them Everything
Farmers and ranchers already carry more risk than just about any other business owner out there. Weather, markets, equipment, labor — the list never gets shorter. What concerns me is how many of them are also carrying insurance gaps they don’t even know exist until something goes wrong.
And right now, something is going on that every cattleman in this country should be paying attention to.
The Screwworm Is Back
For the first time since the 1960s, we’re seeing confirmed cases of screwworm in the United States. If you’re not familiar with it, screwworm is a flesh-eating parasite that was largely eradicated decades ago through a long and costly effort. It wiped out thousands of cattle before it was brought under control, and it is not a pleasant way for an animal to go.
The reason it matters from an insurance standpoint is the same reason it mattered back then: nobody quite knows how to classify it yet. Is it a parasite? A virus? The language in your insurance policy matters enormously here, because every word becomes significant when a major claim is on the table.
The Gap Nobody Is Talking About: Business Interruption
Here’s where I see the biggest exposure for cattlemen right now. If even one animal in your herd comes down with screwworm, you could be required to quarantine the entire operation. One steer, and your whole business will be stopped.
Business interruption coverage sounds straightforward, but the devil is in the details, and with something that hasn’t been seen in over sixty years, there’s no established precedent for how insurers will respond. Mortality coverage, quarantine coverage, and business interruption will be up for debate, and insurance companies are very good at finding language in their policies that limits their exposure when the claims get large.
We saw exactly this play out with avian influenza a few years back.
What Bird Flu Taught Us
When bird flu swept through the Midwest and East Coast, millions of birds were wiped out. Flocks had to be destroyed. There was no vaccine, no recovery, just loss. And it’s a big part of why egg prices spiked the way they did.
What happened on the insurance side was predictable in hindsight: as the losses became catastrophic, coverage started disappearing. Insurers found ways to limit their exposure; exclusions got tighter, and the farmers who needed coverage most were suddenly finding out they didn’t have what they thought they had.
Screwworms have the same potential. If it gains traction, you can expect the insurance industry to respond quickly, and not in the farmer’s favor.
Most Cattlemen Aren’t Buying the Endorsements That Would Protect Them
There are endorsements available that can add infestation coverage to a livestock policy. Most cattlemen aren’t carrying them. The honest reason is the cost. It’s prohibitive for a lot of operations, and so the exclusion stays on the policy, and most ranchers figure they’ll deal with it if it happens.
That works fine until it happens.
This Is Exactly Why 831(b) Plans Were Built
An 831(b) captive insurance plan creates a tax-advantaged reserve fund for a rainy-day bucket that exists specifically for situations like this. Risks that are hard to insure, exclusions your standard policy won’t cover, catastrophic events that no one saw coming. When your commercial insurance falls short, your 831(b) is there to soften the blow.
The ranching and farming business is doing well right now. Cattle prices are strong. For the operations that are profitable today, this is exactly the right time to be building that reserve. Because the bad years always come, and the unknowns keep multiplying.
I hope you never have to use it. But if you build it and never need it, you still win. And if something like screwworm turns into a full-blown crisis, you’ll be very glad it’s there.
