You've certainly read the story about a hog barn where the electricity went out and there was no backup generator, leaving hundreds of hogs to suffocate. You can imagine the loss. Now, imagine the heartbreak if it happened to you and you discovered too late that your insurance policy doesn't cover that loss.
You need to understand that the facility and its contents, in this case the hogs, have different insurance needs and arrangements.
Insurance purchased as general livestock coverage is a basic policy. These policies cover animal loss from such causes as fire, lightning, windstorm, hail, explosion, smoke, theft, vandalism, collision, accidental shooting, drowning, electrocution and loading/unloading accidents. However, just like building coverage it's important to read the fine print. For example, drowning must be from external causes – like a flood – and pigs younger than 30 days are not covered.
When purchasing livestock insurance you have to work out the total value of the animals when the policy is being written. Look for a policy that doesn't have a per head limit, it should include a total livestock value based on the expected number of head in the building. Livestock coverage should be listed as a blanket value including multiple buildings on multiple sites.
According to Scott Michaletz, Kato Insurance, Mankato, Minn., a blanket limit is based on the value of each hog multiplied by the total number of hogs in the buildings. This does not, however, place a limit on per head value. In many cases, your lender may dictate the type and amount of coverage on the hogs in order to protect the loan exposure. Don't forget to get him or her involved in the process.
Determining livestock value "You need to know if the insurance pays on a scheduled amount or the animal's market value at the time of loss," stresses Deb Kennedy, DK Risk Management, Pipestone, Minn. The scheduled value is the purchase price of the livestock plus the cost of upkeep. In order to collect the full investment cost on this type of policy, you must be able to produce complete detailed records including feed costs, housing costs, veterinary costs and so forth.
A policy that pays on the market value may or may not be based on the contract value of the hogs. "If you have the hogs in the finishing barn contracted at $50 per hundredweight live, you have a starting point in determining the value of those hogs," said Michaletz. "Unfortunately hogs in a finishing barn will not all weigh 240 pounds when the building collapses from a tornado." You and the insurance company will have to negotiate the actual value of those animals. This can be complicated because a 190-pound hog carries nearly all the expenses of a 230-pound animal but has a steeply discounted market price.
Whether you choose a scheduled value or the market value, the insurance company must sign off or agree to the coverage value at the time you purchase the policy. In the event of a claim, work closely with your agent or a claims advocate to determine the exact documentation needed to process the claim quickly and effectively.
Don't overlook suffocation coverage
A comprehensive suffocation policy is important in swine confinement facilities and may cost as much to purchase as the general livestock coverage. Availability and cost of suffocation coverage is directly tied to the building's safety features. It also is important to note that an agent's approval on suffocation coverage is not binding and does not guarantee coverage. This may leave you without suffocation protection if you are switching policies or waiting for the company's representative to arrive for the inspection. Michaletz stresses that the insurance company's loss-control specialist must inspect the buildings before coverage is approved and certified.
You also must understand what's required to stay in compliance and to keep the coverage active. An alarm system and backup generator are standard for suffocation coverage, along with a monthly check of those systems. The type and efficiency of the alarm system will influence coverage costs.
The alarm and generator must be functioning for coverage to be active. Here's an example: You have the alarm system disconnected while you wire in a new feed delivery system. During the night the facilities experience an electrical failure and several hogs suffocate. Don't expect coverage because you knew the alarm system was not working and failed to correct the situation.
And there may be a distinction in the policy between suffocation and smothering, warns Kennedy, so ask your agent to explain the difference. If pigs pile up during a storm and smother, for example, your suffocation coverage may not apply.
The value of insurance isn't lost on Craig Christensen, a pork producer near Ogden, Iowa. "We had a power failure and lost 200 head to suffocation, but because we had an alarm system and backup generator our policy paid for those hogs."
It's important that the suffocation coverage include building electrical failure from both on-premise and off-premise sources, notes Kennedy. An example of on-premise electrical failure might be a direct lightning strike to the building. An off-premise failure could be a transformer malfunction several miles away. Either scenario interrupts electrical power to your facilities and may result in livestock suffocation. But the insurance policy could address them differently.
Demands of contract finishing
Hogs finished on contract have special needs.
Randy Spronk of Edgerton, Minn., learned this lesson the hard way. "About 50 finishing hogs suffocated in one of our contract facilities. The loss wasn't covered due to a 'custom farming' exclusion in the policy," notes Spronk. "We now take charge and cover contract arrangements with our expanded insurance coverage."
Alarm systems come into play here as well. For instance, your own facilities have alarm systems, but facilities that you're contracting with may not. Without an alarm and generator, suffocation insurance may not protect contract hogs.
If you lease facilities or contract finish, the facility may actually preempt suffocation insurance. "We looked into suffocation insurance for hogs that we finish out in leased facilities in Iowa," says Phil Howerton, Chilhowee, Mo., "but because the buildings didn't have generators we couldn't purchase the insurance."
Still, many producers finish hogs in facilities without alarms or generators, choosing to go without suffocation insurance and risk the loss.
In the end
The building often dictates the type and amount of coverage that you can purchase for the animals in those facilities. Contract finishing and specialized hog operations such as boar studs and gilt multipliers will require you to negotiate with the insurance company to determine appropriate animal values and coverage.
Finding the right agent and policy for your needs is critical. Ask neighbors and associates who their insurer is and whether they are satisfied with coverage and service. Take the time to check references and get sample policies from multiple agents to compare coverage and costs.
Editor's note: Natalie Knudsen is a freelance ag writer from Mankato, Minn.
Putting Up the Money
Read the fine print is the first rule in shopping for any insurance policy because the key is in the exclusions. When it comes to agricultural coverage, livestock is often left out. Here are some tips for buying a policy for livestock.
- Negotiate the value of the livestock when you are considering purchasing the policy.
- Understand the pay-out plan. Will it be scheduled, meaning the purchase value plus upkeep; or will it be market value, which is the contract value or current market price?
- Read and understand the coverage exclusions.
- Understand the requirements and restrictions on special policies such as suffocation coverage.
- Be prepared to list all safety features in the facilities to reduce costs.
- Remember, suffocation insurance is not certified until the company's loss-control specialist has inspected the facility.
- Without an alarm and a backup generator, there will be no suffocation coverage.
Putting a Value on Your Hogs
Your policy won't address the loss of animals unless you negotiate that with the insurance agent up front. The policy will need to spell out whether the payment will be based on a scheduled amount or the market value at time of loss.
The scheduled value is the animal's purchase price and the costs you've already put into it. This will require detailed records to determine expenses.
A policy that pays on the market value may or may not be based on the hogs' contract or market value. If you have a production contract or a marketing contract, you have a starting point. That doesn't, however, guarantee that is the price you will get for all the hogs in the claim.
Market-weight hogs present less of an issue, but the policy can make a big difference in lightweight hogs. Here's how the pay out on scheduled coverage and market coverage would unfold for a 190-pound hog, given the same input costs and provided the policy covered the cause of death.