For pork producers concerned about insuring their business if African swine fever or foot-and-mouth disease crosses the border into the United States, James Allen Insurance has a new policy designed for this purpose.
“With the expense reimbursement model, it will only pay if African swine fever enters the country,” said Chris Moore, who represents James Allen Insurance and ONI Risk Partners. “If it’s found in a wild boar in Southwest Texas and I have a sow farm in Minnesota, I may have certain expenses – some of my fixed costs that I have – the insurance policy may reimburse me for these fixed costs.
Previously, the policy was called the business interruption policy or the market value policy and compensated on the basis of value per hundredweight; However, Moore says there weren’t many insurance and reinsurance companies that understood the drop in quintal production or quintal value. They understood the expense reimbursement model.
While pig producers with finishing units prefer to use their risk management through hedges and options, the expense reimbursement policy has attracted interest from producers raising weaned pigs, genetic multipliers and boars.
“They are more limited in what they can do from a risk management perspective in terms of options and what they can do on the Chicago Mercantile Exchange, so these people buy that option a lot,” explains Moore.
In the event that ASF or FMD enters the United States, a claim will be triggered with this policy. Once a claim is triggered, the insured will suffer the first two months of the benefit period without reimbursement of expenses. After that, the insurance policy will reimburse the producer for the expenses incurred or the monthly allowance for these expenses.
Moore gives the example of a 3,000 sow breeder-wean operation, with monthly expenses of $ 208,000. The expenses are then broken down into categories, such as food costs, drugs, payroll, waste removal services, etc. The policy would provide a gross annual coverage limit of $ 2,496,000 and net annual coverage of $ 2,080,000. The difference between gross and net is two months.
“The goal of this product is to alleviate the expense of hog producers during a catastrophic event for the hog industry,” said Moore. “Our hope is that in the event of an ASF outbreak, producers who purchase this insurance will be able to maintain their equity in their operations.”
The new expense reimbursement policy was announced two weeks ago and JAI has drafted the first set of policies that will go into effect on April 1. So far, 10 farms representing 50,000 sows have subscribed to the new insurance program.
For growers more concerned about the direct impact an epidemic on their farm or in their region would have on their business, JAI also still has a mortality policy for ASF and foot-and-mouth disease. The policy can be purchased on its own or as part of a comprehensive farm mortality policy, but the producer can decide how much value they want per animal, rather than the current market value.
“Not only are we able to give them assurance on the true value of the sow from a market point of view, but we are also allowed to include the income component of the business, ”said Moore. “We are able to give them insurance against the lack of production value that the sow would ultimately have throughout her life, rather than what she is worth in the market today. “
The mortality policy will pay off if that farm breaks with ASF or foot-and-mouth disease, if the farm is in an area the government considers a compulsory slaughter zone, and if the producer has to transport pigs across borders. regional or state and that there is a stop of movement in place.
Moore says the policies essentially concern two segments within the industry.
“If someone is worried about the impact of ASF and not necessarily their approach to the farm, but worries about entering the country, they are more inclined to buy the expense reimbursement model,” Moore explains. “If the school of thought is that I am worried about the arrival of African swine fever on my farm or because of a major stopping movement problem, I am worried about the availability to move the pigs. , they will buy the mortality policy. Some people buy both.