Dave Dybdahl, whose company American Risk Management Resources (ARMR) is pioneering pollution coverage for farmers, said the business is new, with fewer than 100 policies in force, but that it is coverage that farmers want—when they understand it.
Currently, he said ARMR is evaluating the effectiveness of Right-to-farm laws in various states, looking at litigation hotspots around the country and evaluating what states they want to provide coverage in.
“Our experience is that once farmers understand what the risk is, what is at stake, they end up buying more insurance than we proposed, which is where agents are making mistakes. We propose $1M and the farmer asks for $5 million, and the agent was worried about the premium on a million. The key is that the farmer has to understand what the risk is. If an agent says ‘here is some pollution insurance. You don’t want to buy it do you?’ Well, they never buy it.
“What is critical is that the agent has to be able to explain what the pollution exclusion does in a standard liability policy, what the risks involved with farms are, how the exclusion affects those risks, and then find insurance, if it is available, and recommend they purchase it in order to avoid professional liability.”
Dybdahl said most agents tell farmers there is an exclusion, but few can explain its effects, especially in regard to a growing wave of litigation related to federal environmental protection laws “ If you were an insurance agent working in farms you didn’t know about these laws, the whole sector did not know and did not need to know until recently,” he said.
He said insurance—through rate structures—can reward farming practices that reduce or eliminate the likelihood of polluted run-off. “One big advantage of insurance from a regulatory standpoint, is that insurance is a financial mechanism and is the only thing that can reward good behavior and penalize bad. Regulators can punish bad behavior, but they can’t reward good behavior. Insurance can actually reward good behavior.”
He said ARMR requires that farmers implement state-of-the-art nutrient management plans prepared by certified crop advisors, which dictates how much fertilizer a farmer can use. He said that while some farmers are certified crop advisors themselves, his company requires them to get independent plans, created by a third party.
“That is one of the keys to underwriting: We reward state-of-the-art nutrient management. By doing that, we can issue insurance that costs one third of traditional pollution insurance, based on that plan. Regulators can’t force that. We can’t force it either, but they all do it because we reward it.”
