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Preparing Your Dairy Operation for a Hard Insurance Market

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Dairy Revenue Protection can help dairy farmers withstand market fluctuations.

Like the economy itself, the insurance market is cyclical and swings like a pendulum fluctuating between highs and lows. In industry terms, the insurance market fluctuates between hard and soft. Varying factors for each insurance sector can contribute to its hard market causing significant increases in premiums.

Due to several factors, we’re currently experiencing a hard market in these sectors that directly impact dairy producers:

  • Commercial Auto
  • General Liability
  • Umbrella and Excess
  • Commercial Property

Understanding the hard market can help you proactively work with your insurance agent to navigate market conditions and the impact on business operations and finances.


What causes a hard market?

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Insurance carriers typically operate on narrow margins. Effectively managing their underwriting portfolio, the customers they choose to cover, is necessary for them to be competitive and sustainable. In a hard market when profit margins are especially tight and the risks increasingly difficult to manage, they try to improve profitability by re-evaluating industry risks and individual customer risks by raising premiums and lowering limits. They may also restrict coverage through exclusions, non-renewing customers or leaving an industry sector altogether.

Several factors are triggering the hard market in commercial lines including the surge in frequency and severity of natural catastrophes (e.g., wildfires, floods, hurricanes, etc.) across the world, the increase in property damage losses and the rise in liability losses of all types attributed to “social inflation.”

Social inflation is a term used increasingly in the insurance industry to describe the rising cost and frequency of insurance claims resulting from increased litigation, more plaintiff-friendly legal decisions, juror desensitization to large verdict dollar amounts, and a general anti-corporate sentiment.

As the size and frequency of verdicts and settlements rise in liability cases, insurance carriers are paying higher claims — reducing their profit margins and directly contributing to premium inflation.

The market has been hardening regardless of COVID-19, but the long-term effects of the pandemic are yet to be determined.


Planning for premium inflation

Depending on your loss ratio, the ratio of losses to premiums earned, and your current carrier, dairy producers are likely to see increases in premiums from 20 – 40% when it comes time for renewal this year — a premium hike that has not been seen since the late 1980s. This kind of drastic jump in premiums can blindside an operation that is not prepared for the financial impact.

Even if you are several months out from renewal, it’s a good idea to start talking with your insurance agent about anticipated premium increases and discussing strategies to potentially trim your premium increase through possible risk management tactics, changes to deductibles, changes in carriers or other strategies.

An insurance broker can also help make sure your carrier is offering competitive pricing and may offer other carrier options to reduce your premium impact. Starting early and working with a broker who specializes in the industry and advocates for customers when buying coverage (and during a potential claim) can help dairy producers get the best available pricing. An early start also gives you additional time to manage the financial impact.

Tyson Baker is a risk manager and insurance broker at PayneWest Insurance. He is a featured speaker and specialist on the Dairy Revenue Protection Program and works with dairies across the northwest. Learn more at Contact Tyson at or 509.853.4206

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