PF&M at a Glance
AAIS Agricultural Output Program
The family farm that at one time dominated the rural landscape and represented much of what America was all about has, in large part, given way to giant agribusiness operations.
As sophisticated machinery and equipment increased productivity, many farms consolidated and became more like manufacturing operations. While family farms still exist, more and more are engaged in processing agricultural products, from production to processing to wholesale distribution. “Agribusiness” is a broad term now in common usage that includes the wide range of activities in the agricultural sector.
Insurance programs that address the needs of the traditional farm and ranch are ill-suited to address the coverage needs of these large and multi-faceted operations. Recognizing this, the American Association of Insurance Services (AAIS) developed the Agricultural Output Program (AgOP) to address the property exposures of these large agricultural operations. It is available to more than 80 eligible agribusiness classes, including mills, warehouses, processors and growers.
The AgOP targets the ever-growing number of vertically integrated agricultural operations involved in cultivating, processing and distributing food, livestock, fiber, lumber and related products. Eligible risks include those that buy, sell, store or process agricultural products or that manufacture a variety of goods from them. It also includes sales of goods or services to agricultural or agribusiness customers, as well as farming operations that produce or supply agricultural commodities for manufacturing or processing.
Modeled in part after the AAIS Commercial Output Program (COP), the AgOP provides broad property and inland marine coverages in one coverage form. It covers buildings, buildings under construction, computers, mobile equipment, personal property, specifically scheduled property and stock.
Coverage can be written on a blanket or scheduled basis or a combination of the two.
Four time element options are included in the basic form, and a separate crime coverage part can be added. The form includes nine additional coverages, nine coverage extensions and 19 supplemental coverages. It also offers four income extensions, two income additional coverages and five income supplemental coverages.
In addition, it contains the conditions, definitions and other elements that make up a complete coverage form. It is an effectively and efficiently organized alternative to traditional commercial property forms for risks that do not fit standard classifications. It also has a unique and flexible judgment-oriented deficiency point rating approach that recognizes and responds to agribusiness operations and exposures.
Combining commercial property and inland marine coverages into a single coverage form reduces the potential for gaps in coverage that inevitably arise when property forms and inland marine floaters are written separately.
The AgOP also makes structuring agribusiness property coverages much simpler because it was developed to apply specifically to such risks. Coverages provided for computers, mobile equipment and other inland marine exposures are nearly identical to the coverages provided under free-standing inland marine floaters and include earthquake and flood coverage.
Coverage applies on an “open perils” or risks not excluded basis. In other words, it covers risks of direct physical loss or damage unless the loss is limited or caused by an excluded peril. The AgOP exclusions are similar to those in standard commercial property and inland marine coverage forms; however, many have exceptions, which means that limited coverage applies. Others exempt certain types of property from the exclusion.
While a number of types of property are specifically identified as not covered, coverage for some of them is provided under a supplemental coverage, coverage extension, endorsement, provision or by specifically adding it. Computers, mobile equipment and certain supplementary coverages are not subject to some of the exclusions. In addition, a number of coverage endorsements specifically developed for this program are available to round out and complete the coverage provided.
AAIS recently introduced the Agricultural General Liability (AgGL) Program. Its immediate purpose is to allow insurance companies that use the AgOP to issue package policies combining property and liability coverages. Since the AgGL can also be issued on a stand-alone basis, it is the first standardized general liability program specifically designed for both farms and agribusinesses. As a result, it may rewrite the way liability coverage is offered to all kinds of agribusinesses.
This is only a brief overview of the coverages available. The PF&M Analysis from The Rough Notes Company, Inc., contains broader and more thorough discussions of this subject. Producer Online subscribers can refer to PF&M Section 196.4-2, AAIS Agricultural Output Program Agribusiness Property And Income Coverage Part Analysis for a detailed analysis and additional information on this and related subjects. *