Katie Kuehner-Hebert

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]

Technology Risks

Agribusiness Goes High Tech

Farmers and ranchers are using sophisticated technology to increase productivity and reduce injuries.
By: | August 3, 2016 • 5 min read
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Farmers and ranchers are using sophisticated technology to increase productivity and reduce injuries.

The use of sophisticated technology boosted agricultural productivity and reduced worker injuries, but it brought new exposures for farmers and ranchers.

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Drones, robots, RFID tags and precision farming are just some of increasingly sophisticated technologies used in agribusiness.

Mike Williams, senior product director for Travelers’ agribusiness division in Hartford, Conn., said drones are broadly used in agribusiness, not only for determining topography, the moisture content of the soil and the health of crops, but also to collect data — and even locate animals.

“A rancher who has miles of pasture fencing is using drones, instead of driving a truck or ATV all that way, to make sure the fence is not broken or damaged so cattle won’t wander,” Williams said.

“If a cow has wandered from the herd, they can use a drone to help locate that animal, especially if there is bad weather and the rancher doesn’t want to risk sending employees out because they could get injured.”

But there are risks: Drones could run into wind turbines, collide with helicopters spraying chemicals on crops, or start wildfires if they fall in brushy or grassy areas, he said.

The Federal Aviation Administration now requires licensed pilots to operate drones for commercial purposes, and the drones must be within the operator’s line of sight.

 Glenn Drees, managing director, food and agribusiness, Arthur J. Gallagher & Co.

Glenn Drees, managing director, food and agribusiness, Arthur J. Gallagher & Co.

Farmers and ranchers are also using tracking and sensors, such as RFID tags, on cattle to track their location, their weight and what they are being fed, so that they can more efficiently manage their herds, said Glenn Drees, managing director, food and agribusiness at Arthur J. Gallagher & Co. in Cincinnati.

Agricultural robots are used to harvest, irrigate and weed fields.

Then there is precision farming, which uses GPS technology and satellites to gather soil information and weather data. Farmers and ranchers can analyze the information and respond, based on identified conditions, such as providing chemicals to just certain portions of a field, Drees said.

That not only boosts productivity, but also lessens the use of pesticides — a concern in consumers’ minds right now, said Tami Griffin, national practice leader for Aon’s food system, agribusiness and beverage practice in Kansas City, Mo.

Cyber Security Concerns

But as technology use increases, so does concern about cyber security.

“There is a lot of information going onto a data platform, such as seed traits, chemical usage and soil conditions,” Griffin said. “There are concerns about how that data may be used — especially in the wrong hands.”

In March, the FBI warned farmers about the risk of data breaches, including whether agricultural data could be used to manipulate the market and cause economic harm. There is also fear that an anti-GMO activist could hack into a system, gain access to the location of GMO crops and sabotage the yield.

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Farmers should review their contracts with the companies that provide precision farming data services for them to determine who owns the data, and what the company does to protect the data, Griffin said.

Farmers should also know whether the firms follow best practices such as having two-factor authentication measures, how they are monitoring their systems, and how they are making sure there is no unauthorized access to that data.

Typical general liability policies would have gaps in coverage for technology risks and a stand-alone cyber policy would be needed to cover data breaches, Drees said.

“Small to mid-sized farmers may not need these policies, but they should make sure any third-party firm providing precision farming data services on the cloud has a cyber policy,” he said, adding that farmers also need to ask such firms how they safeguard information.

Farmers who have sensitive machinery embedded in their tractors and equipment should make sure they are storing it properly, protecting it from the dust or hay particles constantly moving around, Williams said.

Farmers also need a well-thought-out contingency plan if something happens to the smart equipment and they don’t have access to the data that they’ve been using to improve efficiency, he said. Business continuity insurance could come into play, depending on the type of loss.

“Certainly something such as a fire or severe weather that could damage the smart equipment could trigger coverage, but not just a temporary loss of connectivity,” Williams said.

Many agribusinesses now use solar panels to provide energy to farms, methane digesters for dairies or confinements that capture manure and convert methane gas into energy to run farms or sell back to the grid, said Julie K. Barnhil, divisional vice president at Great American Insurance Group in Cincinnati.

Jeffrey Cruey, the carrier’s divisional president, added that one of the biggest exposures from newer technologies is from mechanical breakdowns and electrical disturbances.

Failures of equipment such as tractors are not covered under a typical farm policy — which is typically covered under a vehicle policy — but separate equipment breakdown coverage will cover the failure of a GPS attached to a tractor, as well as loss of farm income.

‘Agritainment’ Venues

 Kevin Poll, director of product development for personal property and commercial farm, ISO

Kevin Poll, director of product development for personal property and commercial farm, ISO

There’s also emerging technology pertaining to “agritainment” — when farmers and ranchers provide entertainment venues, such as concerts, pick-your-own-fruit excursions, hayrides or haunted houses, said Kevin Poll, director of product development for personal property and commercial farm at ISO, a Verisk Analytics business in Jersey City, N.J., that drafts policy language that carriers can adopt for their own products.

Using drones with these activities might require separate coverage not currently provided under a typical farm policy, Poll said.

At year end, ISO will introduce policy language for a variety of endorsements that provide coverage options for farmers that engage in agritainment, and in the following year, it will look at developing language for the use of drones on farms.

“Vertical farms are a hot topic now — there could potentially be skyscrapers built that are devoted to farming in urban environments,” he said. “We’re looking at what kinds of coverage such a farm would need.”

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With all of the new exposures, however, Steve Simmons, associate vice president of agribusiness risk management at Nationwide Mutual Insurance Co. in Des Moines, Iowa, emphasized that smart technologies in farming and commercial agribusiness are reducing, rather than increasing losses.

“These new technologies save lives, reduce damages and costs to property. We need to encourage farmers to make an effort to use them because they’re very good for the industry,” he said.

Technology also has a great opportunity to more efficiently use freshwater supply, which is very important in raising crops especially in drought areas, Drees said.

By 2050, the world population is expected to reach 9.6 billion — “which means that farmers will have to increase food production to feed that many people,” he said. &

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]
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Workers' Comp Legislation

Legislation to Collateralize Workers’ Comp

Some states want fully liquid collateral backing large deductible workers’ comp programs.
By: | August 1, 2016 • 4 min read
Magnifying glass on money background

Money’s no good if you can’t get your hands on it.

That’s what’s motivating insurance regulators to seek legislation that would require collateral backing large deductible workers’ compensation insurance programs to be available in liquid form and not co-mingled with other funds.

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When an insurance company becomes insolvent, a state guaranty fund steps in and pays the claims of policyholders. The National Conference of Insurance Guaranty funds, a support group for state guaranty funds, is one of the chief drivers for the legislative change.

The group wants to see more liquid options for the backing of large workers’ comp programs, particularly if the carriers is a monoline workers’ comp carrier.

“They are supposed to be collateralized, in case they can’t reimburse the carrier — but that’s where it falls apart,” said Barbara Cox,  a senior vice president of legal and regulatory affairs for the NCIGF.

“Sometimes insurance companies comingle the collateral with other collateral, or it is in illiquid form, or another entity controls it.”

It is up to the insurance company what it accepts as collateral and whether the insurance company controls it, or allows it to be in the hands of a third party, she said.

State statutory provisions make sure large deductible programs are adequately collateralized, but now legislation has been enacted in Illinois to make sure the collateral is kept in liquid form and not comingled with other funds.

If in any of these cases, if the collateral is not available, the carrier becomes insolvent and guaranty funds are obligated to pay claims on dollar one, she said.

Those funds then have to be replenished by tax offsets or some other means. Guaranty funds therefore try to get as much money as possible from the remaining assets of the insurance company.

“But because of the collateralized arrangements, or undercollateralized arrangements, the funds are not available and guaranty funds are left holding the bag – that is not what anyone had intended,” Cox said.

“We are concerned about that because of the ultimate costs to the public.”

State statutory provisions make sure large deductible programs are adequately collateralized, but now legislation has been enacted in Illinois to make sure the collateral is kept in liquid form and not comingled with other funds.

Other states may propose similar legislation in 2017, she said.

Illinois is currently in the process of adopting a rule pertaining to that legislation, Senate Bill 1805, which was signed into law by Gov. Bruce Rauner last August.

Under the proposed rule, workers’ comp insurers with an A.M. Best Company rating below “A-” and less than $200 million in surplus would be required to limit the size of their policyholder’s obligations under a large deductible agreement to no greater than 20 percent of the total net worth of the policyholder at each policy inception.

The rule also requires full collateralization of those outstanding obligations owed under a large deductible agreement by surety bond, letter of credit or cash/securities held in trust.

“I would certainly encourage support of legislation of that nature,” Cox said.

“These are very complicated collateral arrangements, particularly with large deductible programs, and such legislation can only help make the transition to liquidation easier for everyone.”

The Illinois law also states that smaller insurers have to put up a certain amount of capital to play in the space, according to staff at the National Association of Insurance Commissioners in Kansas City, Mo.

Many of the carriers suffering insolvencies are workers’ compensation-only companies that can’t fall back on the profits they make from other P/C divisions.

In its summer issue of its biannual Insolvency Trends 2016 white paper, NCIGF highlighted several recent high-profile insolvencies. Affirmative Insurance Co. was ordered into liquidation in March.

While the Illinois carrier’s primary line of business was substandard auto, it also wrote a small number of workers’ comp policies. As such, about 14 guaranty associations were triggered as a result of Affirmative’s liquidation.

Many of the carriers that have been involved in insolvencies are workers’ compensation-only companies that can’t fall back on the profits they make from other P/C divisions.

Then in May, Lumbermen’s Underwriting Alliance, which wrote mainly workers’ comp policies along with a small book of liability and property coverage, was ordered into liquidation.

A court appointed Missouri insurance regulator John M. Huff and his successors in office, as the statutory receivers of Lumbermen’s U.S. Epperson Underwriting Co.

Several states enacted liquidation act amendments to deal with this issue, according to the white paper.

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Indiana and Missouri state lawmakers passed bills to codify the treatment of these programs in an insurance liquidation context, but Missouri’s bill was vetoed by the governor.

The Missouri legislature is expected to take the matter up again in its September veto session.

Florida may also be considering similar legislation in 2017.

Another bill is pending in Illinois. That bill would revise the priority of distribution of remaining assets from an insolvent estate, according to NCIGF.

If enacted, the bill would call for property & casualty administrative expense claims to be paid after the receivers’ administrative expenses.

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]
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Protest Insurance

Cleveland Insures Against Protesters

The city quintupled its initial policy coverage to $50 million for the GOP Convention.
By: | July 12, 2016 • 2 min read
Downtown Cleveland Ohio rises above the Cuyahoga River at Heritage Park in morning light

The City of Cleveland will pay $9.5 million to purchase $50 million of protest insurance coverage ahead of the four-day Republican National Convention that begins July 18.

The city quintupled its original proposed coverage amount, which would have had the city pay $1.5 million for a $10 million policy.

“The $1.5 million for $10 million coverage was always just a placeholder,” City spokesman Dan Williams told Risk & Insurance®. “We felt it was the best level of coverage for what we needed.”

Protest insurance coverage is required for any event that has been deemed by the U.S. Secret Service as a “National Special Security Event.”

The protest policy is liability insurance that includes incident insurance to cover potential lawsuits, private property insurance to cover any damage to property, and vehicles and equipment insurance to cover others coming to the convention with their own vehicles and equipment, Williams wrote.

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The policy is required for any event that has been deemed by the U.S. Secret Service as a “National Special Security Event,” which also includes the Democratic National Convention, visits by the Catholic pope and G8 summits, among other events.

The city’s Board of Control increased the insurance coverage on the recommendation of its broker, Aon Risk Services Northeast, which polled 40 insurance providers, according to Sharon Dumas, the city’s finance director.

“They analyzed the national trend of conflicts and the risks associated with the convention, and we concurred,” Dumas said to Cleveland.com.

The Secret Service, FBI, Cleveland and Ohio State Police, the National Guard, and thousands of police officers from around the country will work together over the course of the week to ensure peaceful demonstrations — both for and against Trump, according to reports.

The groups scheduled to travel to Cleveland for the convention include anti-Trump demonstrators, a white nationalist group and the anti-gay Westboro Baptist Church.

Calvin Williams, police chief, City of Cleveland

Calvin Williams, police chief, City of Cleveland

Preparing for potentially violent demonstrations, the city’s police department has partnered with law enforcement agencies throughout the country “to ensure that we have an adequate number of law enforcement officers to staff the needs of the convention,” Cleveland Police Chief Calvin Williams wrote on the department’s website as well as its Facebook page. \

However, after shootings in Dallas and Baton Rouge led to the deaths of eight officers, some law enforcement agencies have rescinded offers to send officers to help at the convention.

But Williams remains confident. “Our officers have trained with many partnering agencies at the local, state and federal level to ensure that the highest safety standards are maintained,” he wrote.

“Throughout the course of planning for the RNC, our officers have undergone hours of training relative to many subjects. Although not all training can be discussed or demonstrated as law enforcement tactics are sensitive, the training has been both comprehensive and valuable.”

However, he did say the department purchased 300 bicycles outfitted specifically for “law enforcement purposes,” to be used by police officers who became certified riders after training through the Law Enforcement Bicycle Association.

Williams ended his letter on an optimistic note: “This is an exciting time for our great city. This is an historic event and we are not likely to see anything like this within the footprint of Cleveland again soon. I am looking forward to a safe event and I thank you for your support.”

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]
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