THE CORN AND soybean fields of the Midwest are often better insured than the growers who plant and harvest them. But the tools are there for producers to change that and better protect their businesses, both through new insurance products — such as environmental or pollution coverage — and underused older insurance.

Environmental coverage

Most farmers are underinsured on environmental matters, says Purdue University economist Steven Lovejoy. Many farm insurance policies contain “pollution exclusions” that put farmers at risk in the event of pesticide runoff and lagoon spills, for example. Lovejoy states that “it's important for farmers to make certain that their umbrella policies do not exclude environmental disasters.”

Adds Iowa State University economist and legal expert Neil Harl: “Large confinement operations may want environmental coverage, as much for coverage of attorney fees as to pay judgments.”

Pesticide drift from spraying that kills your neighbor's soybeans may be covered under your farm policy, whereas runoff that kills fish in a lake or stream may not be, says Dave Van Meveren, a State Farm Insurance agent in Slayton, MN. “It's becoming a larger issue,” he says.

A $1 million farm pollution insurance policy underwritten by Lloyd's of London was introduced several years ago, but the policy will not be available after January 1, 2006, due to lack of farmer interest, says Jim Hundley, an agent for Boone Mutual Agency, Lebanon, IN. In its place, Boone Mutual will offer a pollution endorsement of up to $150,000, which, Hundley admits, is “not much” coverage in the event of a serious environmental problem, but better than no coverage at all. Meveren says State Farm offers a pollution endorsement for up to $100,000. The cost of these endorsements depends on a variety of risk factors, these agents say.

Yield insurance

A new pilot program allows farmers who follow university fertilizer recommendations in selected states to be protected against yield losses if their yields end up being less than those realized with their former fertility programs, says Tom Buman, vice president of Agflex, Carroll, IA, which offers the program. Agflex, through a grant from the American Farmland Trust, is able to offer policies to farmers at a cost of $4.50 to $5.00/acre.

Participating farmers will have a test plot to compare former fertility programs against those that use university recommendations, and if the university-recommended fields have lower yields, the farmers will be paid the difference, Buman says. States in which the program will be available in 2006 are Iowa, Minnesota, Wisconsin, Illinois and Ohio.

The company is offering a similar program for corn rootworm scouting at a cost of $2.00/acre. If fields are scouted and the recommendation is for no rootworm insecticide to be applied and the farmer follows that recommendation, the grower will be paid the difference between yields on a test plot on which rootworm insecticides were applied and the yields on the rest of the fields enrolled in the program should a rootworm infestation occur and yields are cut.

Disability and life insurance

Farmers tend to be underinsured in disability insurance and life insurance, which could prove devastating to a farm business, Harl notes. He says that without disability insurance, an injured family member “is a drain on the family's finances and may be contributing little.”

Farmers may be able to cut insurance in areas where they may be over-insured, Harl says, such as property coverage where there “may be excess coverage of old, obsolete buildings or other structures.” But at the same time, the most productive assets may not be adequately insured. He notes that an umbrella liability policy “makes a great deal of sense and is not too costly.”

Health care plans

With almost one in three farmers nationwide lacking any health insurance at all and the risks posed to the farm business if a family member develops a long-term illness, it's not an exaggeration to say there is a farm health care crisis. Indeed, annual surveys conducted by the Iowa Farm Bureau Federation show that farmers rank health insurance along with farm income and taxes as their top three concerns.

New plans, both private and public, are seeking to make health insurance coverage to farmers more accessible and affordable.

The Iowa Farm Bureau Federation has teamed up with Blue Cross and Blue Shield to offer health plans as a nonprofit organization, with profits pumped back into the program to reduce member costs, says David Lyons, head of the Farm Bureau's insurance program and former Iowa insurance commissioner. In addition, he says, the plan offers two new health innovations to members each year, and those that are successful are incorporated into the program. Two years ago, a plan to reduce prescription drug costs was incorporated. Another new benefit is a free flu shot. Lyons says the rates for the plan are “competitive.”

Lyons estimates that 11 to 12% of farmers in his state are without health insurance, “fairly low.” The percentage is far higher in Wisconsin, according to a 2002 survey of dairy farmers conducted by Jeremy Foltz, economist at the University of Wisconsin. His study found that 18% of Wisconsin dairy producers did not have health insurance coverage, compared to 4 to 8% in the general population. The study also found that four out of five Wisconsin dairy farm families have no preventive care. The reason for the high noncoverage rate of dairy farmers, Foltz says, is that rates for individual coverage are three to four times higher than group rates.

In response, both the Wisconsin and Minnesota Federation of Cooperatives are developing pilot programs with the help of federal and state grants that would allow members of participating cooperatives to be part of health insurance pools. Details are still being worked out. Officials say it's not necessarily true that rates would go down for all producers, but coverage would definitely increase. For more information, visit www.wfcmac.coop and click on either “Minnesota” or “Wisconsin.”

One problem with many farm health insurance plans is that they do not cover injuries sustained while working on the farm. “Because the exclusion is often buried in the fine print of insurance policies, most people are unaware of the provision until an accident occurs,” says Wisconsin Federation of Cooperatives President and CEO Bill Oemichen. He urges farmers to check their health care policies for this exclusion, even if the insurance is obtained through a spouse's place of employment.

Coverage for employees

Another huge issue for farmers is coverage for employees, says the Farm Bureau's Lyons. Large farm operations with 10 or more employees may find it easier to put together a group insurance plan, he notes.

One idea being explored in Iowa is the development of a Professional Employer Organization, or PEI. Under a PEI, employees would actually be hired by the professional organization and leased out to farms. This would allow employees on a farm to be part of a large insurance group, Lyons says, thus making their insurance more affordable. As far as farm injuries are concerned, employees are covered by workmen's compensation, he says.

One piece of good news on rising health insurance premiums is that more of them are tax deductible. The Health Reform Act of 1996 gradually increases the deductibility of health insurance premiums over a 10-year period. Because this deduction is not subject to an income test, it is accessible to a greater proportion of self-employed farmers. The deduction increased to 45% for tax years 1998 through 2002, 50% in 2003, and will increase 10% each year afterward until it reaches 80%.

5 QUESTIONS TO ASK ABOUT YOUR INSURANCE

Do I have an umbrella policy and is it big enough? Some accident claims can be as large as $10 million. Iowa State University economist Neil Harl notes that a “farm” policy covers the risks associated with the farm, while an “umbrella” policy covers all risks above the minimum coverage required for vehicles, business liability coverage and the residence. Harl suggests that one way you could reduce your liability would be to get rid of the old structures on your farm.

Do I need a pollution endorsement on my farm policy? The combination of tougher environmental rules and litigation resulting from violating them could put a farm operation at risk. For example, if a lagoon were to overflow and livestock waste flowed into a stream and killed all the fish, the producer could be liable to clean it up and restock, and that would be very costly.

Do I have disability insurance on myself and key members of my farm operation? The most important asset a farm has is the people who own and run it. In many cases, a grower's crops have better insurance coverage than the grower and his family do. The lack of disability insurance puts the farm operation at risk.

Do I have sufficient health insurance coverage, or any at all? As many as 30% of farmers nationwide have no health insurance, according to one estimate, which puts their farm businesses at great risk in the event of serious illness.

Do I have too much insurance coverage in some areas? Because insurance coverage often tracks property values, you may have too much coverage on some older buildings. At the same time, your coverage on stored corn, soybeans, wheat and other commodities may be inadequate.