Effectively Mitigating Risk in Agribusiness: Understand Risk Exposures and Work with the Right Insurance Partner

The global agribusiness market size reached $3.3 trillion in 2023 and is projected to reach $4.3 trillion by 2032, according to market research firm Claight Corporation.

Today, as risk exposures such as natural disasters and wildfires increase, many insurers have pulled back from the agribusiness sector, creating an especially hard insurance market for those in the industry. A hard insurance market is characterized by increased premium costs for insureds, less capacity (the supply of insurance available to meet demand), increasingly stringent underwriting criteria, and more restrictive terms of coverage.

It is not just the farmers growing crops who are affected by these exposures. There are many businesses that may be one or two steps removed from the growing of food but are still vital to the agribusiness industry.

Growers, retailers, packers, shippers, distributors, importers, processors, and more, are all part of the process of bringing food from farm to fork, and the risk exposures facing every segment of this industry are varied and complex.

In addition to rising insurance premiums, these key players continue to grapple with increasing production costs. In this environment, it is critical for agribusinesses to work with an insurance partner who understands their unique risk profile and can work with them to create a strong risk management plan that eliminates any coverage gaps and gets rid of costly, unnecessary coverage.

Common Risks

Agribusinesses must navigate a wide range of risk exposures that can threaten their livelihoods. From natural disasters to cyberattacks to product contamination, there is no shortage of risk in the industry unfortunately.

Some of the most common risks facing the industry include:

Natural disasters

Natural disasters like hurricanes, tornadoes, floods, and fires lead to catastrophic losses that pose obstacles for agricultural production every year, according to the EPA.

The American Farm Bureau Federation estimated that “major disasters and severe weather” led to more than $21 billion in crop losses last year. Losses are a major contributing factor to insurers leaving the market or limiting coverage.

Cyber 

“Growing digitization of the agriculture and food security sector increases the number of cyber threats and risks, such as ransomware,” according to the United States Agency for International Development.

While agribusiness may not seem to be a prime target for hackers, the reality is this sector is increasingly being victimized by ransomware attacks. Ransomware locks a user’s devices, systems or files, rendering them unusable until the attacker receives some form of payment.

In a recent report on ransomware incidents in the food and agriculture industry, The Food and Agriculture – Information Sharing and Analysis Center found that, of 2,905 ransomware incidents reviewed last year, 167 of these incidents occurred in the agribusiness sector. This represents 5.5% of all attacks, making organizations in the industry the 7th most targeted.

Pollution

Pollution and environmental exposures such as accidental chemical spills, overspray, or water contamination can damage property, harm livestock, and impact customers and neighboring businesses and communities. When pollution incidents like these happen, agribusinesses could be on the hook for fines, legal fees, settlements, and cleanup costs.

Supply chain disruptions

Supply chain disruptions are another risk exposure in agribusiness. Every link in the agribusiness supply chain can bring the risk of delays in production and distribution, potentially leading to food spoilage and damage.

Product contamination and recall

Product contamination and recall are major risk exposures for farmers, producers, and distributors. Product recalls can be triggered by bacteria or parasites like salmonella or foreign objects like glass shards found in food. A U.S. Public Interest Research Group (U.S. PIRG) Education Fund Food for Thought 2024 report found that more than 300 food products were recalled in 2023, and more than a quarter of these recalls stemmed from dangerous bacteria.

Bodily injury

Bodily injury in agribusiness can be caused by operating heavy machinery, managing livestock, and working for hours in the heat. Bodily injuries occurring in this sector can result in legal fees, medical expenses, and potential settlements costs.

Auto fleet

Agribusiness owners often have fleets of commercial trucks, tractors, and trailers that present risk to their businesses. Commercial vehicles are not covered under personal auto insurance policies, making commercial auto insurance a necessity for covering losses if these vehicles are involved in an accident.

Working with the right insurance partner to mitigate risk

To effectively mitigate these and other threats, agribusiness owners should work with an insurance partner who understands the industry, can expertly evaluate their current and emerging exposures, and tailor policies to protect them from losses stemming from these unique risks.

Agents with industry expertise can help agribusiness owners better understand their exposures and develop risk management solutions that provide the coverage owners truly need. Many agribusinesses are over-insured in some areas and under-insured in others. Specialized agents can design risk transfer strategies to help eliminate unnecessary coverage and/or add coverage where there are gaps.

These agents also can educate agribusiness owners on emerging areas of risk, like cybersecurity, and help them understand the need for coverage designed to protect their businesses.

In an environment where threats ranging from natural disasters to product recalls are increasing, it is more important than ever for business owners to take steps to mitigate risk. Understanding these unique challenges and working with an experienced agent who can help secure the right insurance solutions is the most effective step agribusiness owners can take to protect their property and set themselves up for long-term success.