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Why Bother With Insurance? Tools to Hone Your Insurance Risk Management Plan

With the high risk exposure in agribusiness, insurance policy options should be carefully considered for proper coverage. This article provides helpful tips for proactive insurance management.

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Updated:

December 22, 2022

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Knowing how to use insurance properly can be confusing. Photo Credit: https://www.flickr.com/photos/striatic/2144933705

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Let's be honest, some business managers have pondered the question, "Why bother with insurance?", at some point in their career. Possibly it was when they were starting a business, shopping for a new insurance quote, looking for ways to reduce overhead costs, or making a premium payment. Knowing how to use insurance properly can be confusing.

Insurance is a form of risk management that shifts some of the risk of operating the business to the insurance carrier. Insurance was designed to cover pure risks--the uncertainty or chance of a loss from a situation or event that could occur. With the increased risk exposure in agribusiness, insurance policy options should be carefully considered for proper coverage. However, before exploring insurance options, it is important to review your understanding of risk on your specific operation. If you're not sure where to start, here are some helpful tools adapted from an Exploring a Small Farm Dream course to guide an internal assessment:

Prepare a SWOT Analysis

A SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats) is a process that can help provide insights into the past and think of viable solutions to existing/potential issues for your business. Learn more about how to conduct a SWOT analysis with your planning team by checking the resources at the end of the article.

Complete the USDA Risk Management Checklist

After you identify the business vision, goals, and objectives, do a risk management inventory. The USDA Risk Management Checklist and User's Guide covers production, marketing, financial, legal, general, food safety, and electronic components. The questions will prompt you to consider risk in each of these areas and identify where to get additional information.

Review Production and Financial Projections

Consider reviewing cash flows, balance sheets, and income statements. Sign up for an upcoming FarmSense in-person class or take the online course that explores these topics in-depth.

Understand Your Levels of Risk

There are varying levels of risk associate with people entering your property. To learn more about these levels of risk, see the link in the Tools section below for Agricultural Alternatives: Understanding Agricultural Liability.

Finding an Agent or Broker

The next step is to speak with a licensed insurance agent or broker. Do your research to find an agency or brokerage that meets your business needs and service expectations. Talking to your neighboring farmers is a good place to begin. Most agencies or brokerages offer some form of business or agribusiness insurance. Understand that a single company may not always have all the policies you need. Depending on your business type, it may be common to have multiple insurers.

Requesting Insurance Quotes

As you begin to request insurance quotes, be prepared to provide the following information at a minimum. This will save time in the long-run and provide more accuracy in your quoted premium. You must be honest as leaving things out can lead to unwanted exposure.

Name, address, and employer identification number (EIN)
Year business was established
Detailed description of business, including property and operations
Detailed description of buildings and structures, including construction type, year built, and square footage
Employees' names and drivers' license numbers, if applicable with business vehicles
Vehicle Identification Numbers (VIN) for business vehicles and equipment, including tractors, ATVs, trailers, etc.
Gross Annual Income and Annual Gross Sales
The value of all items, including specific figures for large items you wish to be scheduled
The dollar amount of liability protection you are considering
A description of any past losses you have experienced in the business

Understanding Insurance Quotes

Once you have a few quotes, ask plenty of questions for a clear understanding of what is included within each quote. Insurance jargon can often be very confusing. Have an agent sit down with you and discuss what each coverage means. For example, double check property values and deductibles, ask about endorsements and exclusions, and find out if there are ways to get discounts. It may be beneficial to ask for specific scenarios you are concerned about based on your risk assessment. In short, continue to ask questions until you are confident enough to make a good decision. Do not sign anything until you fully understand and have reviewed all details of the documents.

Reviewing Policy Renewals

Once you have insurance coverage, do not forget to review your policy renewals, or ask your agent for an annual assessment. This service can prove valuable long-term. Things to look out for are over or under insured property, vehicle and driver changes, changes to business type and scale, and many more. Be proactive rather than reactive when it comes to your business insurance. In the case of a loss, it is best to be prepared.

Tools and Information about Insurance Resources

If you are interested in learning more about insurance options related to your business, click on the resources below from the Penn State Extension website: