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Understanding hail insurance

After a bad experience last year, Mark and Bobbie Bratrud have developed four new guidelines for buying insurance on their farm

Hail insurance is an important piece of the risk management puzzle on most farms. We generally insure the crop we have, meaning that we calculate the value of the crop that is coming and insure that amount.

Thankfully we generally don’t collect hail insurance. But 2011 brought us the hail insurance claim from hell.

By fumbling through the complicated system of hail insurance claims, we learned more last year than we had in the last decade. The lessons we came away with will change the way we purchase hail insurance coverage.

Competition

First, let’s talk about competition. We try to buy insurance from multiple companies. This helps to mitigate our risk, as much as the hail insurance adjusters deny this.

Last year, the hail adjusters assessing storm damage on our farm were definitely taking the impact on their companies into consideration. Companies will deny this but in at least three instances, adjusters working for large line companies mentioned the cost to their company, and the fact that this was a large claim.

Last year we purchased hail insurance from two different companies, but carried a larger portion of the policy with one company. Our agent suggested purchasing largely from one company, as many of the companies that they deal with are actually owned by one umbrella company. This surprised us, as they appear to be separate companies competing for business. When the smoke cleared, we had insured our canola and lentil acres at $50 per acre with Company A and $300 per acre with Company B.

In Weyburn, last year was a difficult spring to say the least. We worked very hard to get 50 per cent of our crop in the ground — most was sown between the end of May and the first week of June.

On July 29, a hail storm did damage to approximately 75 per cent of our farm. We immediately sent in our claim, estimating damage at moderate to heavy. On August 6, another hail storm basically finished up what was left after the first storm. At the time of the second storm our lentils were about one week away from swathing, and some of our barley was hit hard as well.

Company A came out to adjust the damage about 10 days after the storm. They adjusted the canola at 25 to 30 per cent, the barley at 50 to 90 per cent, and the lentils at 30 to 70 per cent damage, depending on the field.

Company B came out 30 days after the storm (within one day of how long their contract specifies that they can delay.) Company B adjusted the canola, which was swathed by then, similarly to Company A, but their assessment of our lentils was very different (we hadn’t insured the barley with Company B).

Our experience

Company B adjusted one field of red lentils at six per cent damaged — Company A had called that field 70 per cent damaged. We had harvested the field, leaving representative check areas, and in the best areas of the field our lentils ran only seven bushels per acre.

We were quite confused as to how these two companies could have such different assessments. The adjuster that came out for Company B admitted that he did not have much experience with lentils. We refused to sign off on his adjustment and about a week later the head adjuster for this company came out to take a look at our field.

By this time, five weeks following the storm, much of the evidence of losses had disappeared, making the adjustment more difficult. Company B now adjusted at 29 per cent damage, but the adjuster said he would offer us 40 per cent damage to get us to sign off on the claim.

I watched him pretend to count the number of lentils on the ground in comparison to the lentils still on the plant. When we asked him to count out loud so we could follow his process, he couldn’t. It was very clear that he was guessing, and just trying to settle the claim. We discussed the 40 per cent damage he was offering, as well as the fact that Company A had adjusted the same field at 70 per cent. The difference in the two adjustments worked out to $17,000. The head adjuster from Company B told us that there wasn’t much of a crop in the field anyway and that we should take the settlement, since if it went to the next stage, the umpire stage, we would be sure to lose.

By then frustration and stubbornness were setting in and we decided to go to the umpire stage. We knew that we were likely in an Agristability claim position, and that any payment from the hail insurance would just be deducted from that. So we decided to make a case of our field and fight for a true and reasonable adjustment. We didn’t agree with how the damage was calculated, and couldn’t understand how two companies using the same procedures could be that far apart.

We started to prepare for the umpire stage. We learned that both the hail insurance company and the farmer have to appoint a “hail adjuster” to act on their behalf from this point on. A farmer cannot represent himself, which seemed absolutely ridiculous to us, as who else knows or understands the field as well as we do? The appointed “hail adjuster” that is, appointed for both sides, is to be from the Hail Insurance Council, an organization sponsored by all of the hail insurance companies in Western Canada. This is when we really had our eyes opened to this self-regulated system. All of the rules and procedures from this point onward were tilted in the hail insurance companies favour.

After each party has appointed someone to represent them, those two adjusters go out to the field and look at the crop and try to negotiate a settlement. If they can’t agree, an umpire is appointed out of the self-regulated pool of adjusters.

We chose an agrologist and successful farmer to represent us. We made a strong case for this, feeling that an agrologist would be able to make a better case, as the protocol the adjusters were using was flawed, especially as the time from the storm increased.

Our representative and the hail company representative went to the field to assess the damage. This was now six weeks after the storm Our representative said they clearly not trying to find a true level of loss. Our representative was finding a 30 to 40 per cent loss, depending on which part of the field he was in, while the other side was finding losses in the teens. It became very obvious where this was going… to the umpire stage.

One week later, seven full weeks after the storm, the umpire and both representatives went out to the field. By this time you can hardly tell what was on the field, let alone compare the amount of seeds lying on the ground to those on the plant (of which most have shattered and been lost). Any evidence that was present immediately after the storm had slowly disappeared, making this truly unfair.

The umpire process

All three, the umpire and both representatives, go to the field to come up with a level of loss. The representative who chooses a number closest to the level of loss that the umpire comes up with wins; the settlement is based on the winning representative’s number.

In our case, the hail insurance representative came up with a 22 per cent loss, our representative came up with 34 per cent loss, and the umpire came up with 22.5 per cent. So, the decision went to the hail insurance company and we were forced to settle at 22 per cent — 18 per cent less than Company B had offered earlier and 48 per cent less Company A had settled at six weeks earlier.

No doubt some will say we should have taken the 40 per cent loss offer. Our answer to this is that we spend between $40 and 60,000 on hail insurance premiums every year to protect us against loss, not give us the right to negotiate settlements.

The lessons we learned have changed how we look at hail insurance. We’ve come up with the following guidelines for our farm.

1. Hold no more than 30 per cent of your policy with one entity. Not with one company. Make sure the companies you choose are not affiliated with each other. For example Palliser Insurance Company Ltd. owns many companies, like Henderson Hail and Butler Buyers. These companies appear to be separate companies competing against each other for your business.

2. After a storm occurs, push the hail company to send out adjusters in a timely manner. Most contracts have a time limit of 30 days. For crops like lentils with a growing season that could be as short as 90 to 100 days, this could mean not assessing damage for a third of the growing season. The longer adjustment is left, the higher the chance of the evidence disappearing, leaving more gray-ness in the process.

3. Find out as much as you can about how crops are adjusted. Adjusters have a manual and a protocol to follow, but farmers are not privy to this information! Follow your adjuster around in the fields to learn how they are counting, to determine if you are getting a fair adjustment. Lentils, for example, are a “guess,” as we were told by an adjuster that was unrelated to this claim. Looking back, we may have considered insuring the barley that was seeded in the field beside our lentils a little heavier, and not insured the lentils at all.

4. When it comes to the appeal process, just hope that you don’t get there. In most cases, the process is tilted in the insurer’s favour simply because of the timing and length of the process. The odds are definitely stacked against the farmer and it would be nearly impossible to come out ahead.

This is not intended to be a rant about our negative experience, but to raise awareness for other farmers. Know and understand what you’re buying. Read your contract and make sure that you understand that the appeal process does not allow for third party intervention, and is completely self-regulated by the hail companies. †

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