Insurance Loss Estimates from Florida Freeze Still Weeks Away

It will still be weeks, into March and April, before the full extent of crop damage and insurance payments from Florida’s recent extended freeze will be known.

While Florida’s citrus industry has been hard hit, the state’s nursery plants and shrubs industry could actually end up reporting higher losses. Growers of tomatoes and other vegetables in the southern counties are also reporting damage.

The state’s farmers battled freezing temperatures for nearly two straight weeks through January 14.

Florida Agriculture Commissioner Charles Bronson has said total crop losses could be in the range of hundreds of millions of dollars but a more exact number can’t be calculated until farmers are done harvesting as much as they can. Also, some damage takes time to reveal itself.

Gov. Charlie Crist sought a federal disaster declaration for all of the state’s 67 counties. “No sector of agriculture appears to have been spared. Citrus, sugar cane, nursery crops, tropical fish, sweet corn, tomatoes, snap beans, strawberries, blueberries, peppers, avocados, mangoes and oats are some of the crops that appear to have sustained significant damage,” Crist wrote to U.S. Agriculture Secretary Tom Vilsack.

This week, the U.S. Department of Agriculture agreed to designate 60 of Florida’s 67 counties as primary natural disaster areas as a result of the freezing conditions. This means qualified farm operators will be eligible for low interest emergency loans to help cover part of their actual losses.

The government disaster aid is important because while most farmers have crop insurance (to be eligible for federal disaster relief, they must have insurance), insurance coverage is not triggered right away. In many cases farmers have to absorb as much as one-third of their losses on their own before insurance pays anything.

The U.S. government in cooperation with 15 private insurers provides crop insurance under a program managed by the Risk Management Agency (RMA). Private crop insurers and their agents are obliged to take all farmers who ask for coverage. The federal government backs up the private carriers so that no single carrier is disproportionately hit by a catastrophe like the Florida freeze.

Mike Moore is a southeast district director for the RMA out of its Atlanta office, where he oversees Florida contracts. An RMA veteran, he has witnessed other freezes.

“We’ve had freezes before. We had some areas with freeze damage last year. I suspect that it’s worst than last year, but maybe not the worst we’ve seen,” Moore told Insurance Journal.

Statewide, there is about $3 billion in federal crop insurance in force and, out of that, about $416 million covers citrus. However, given that some (about $60 million) oranges were already harvested by the time the freeze hit, only about $350 million citrus exposure remains, according to RMA.

“You have eight different citrus types that we’re insuring within the state. So those early season oranges that were harvested, the insurance exposure is, of course, gone on those. Now, the late oranges, very little of the late oranges would have been harvested at the point of the freeze. That would be predominantly where our insurance exposure,” Moore said.

Moore said farmers are focused on saving whatever crops they can. The citrus froze in some areas but it might still be usable for juice. So growers are in the field harvesting as fast as they can before too much spoils.

There are just too many variables to be able to know yet how high losses will be, according to Moore.

“We wouldn’t even begin to put a number on it at this point in time. In addition to the fruit, we also have the trees insured. We know that we had some tree damage, particularly in the northern areas of the state, but it’s very difficult to put a number on that at this point in time. The damage doesn’t show up for some time after,” Moore said.

While citrus is a big crop for Florida, the crop insurance program’s bigger liability in the state is actually nurseries. There is $831 million of nursery coverage in force in Florida.

“You have a container nursery that may be in a protected shade house– it wouldn’t be subject to the freeze. But you have others that are field-grown out there that were subject to the freeze,” Moore said. “You’ve got all kinds of variations on the theme as far as nursery is concerned down there, which is even the bigger liability.”

Finally, vegetables grown in the southern part of the state — Miami-Dade, Collier County, Hendry, Lee, Palm Beach County — were also affected by the freeze.

“We know tomatoes and peppers were substantially impacted. Potatoes were substantially impacted. Some sweet corn was substantially impacted. Cabbage may not have been so bad. But we had a team down there a few days ago, and you could see tomatoes that were completely killed, and three miles down the road they were not killed,” said Moore.

As with citrus damage, total nursery and vegetable losses are not going to be known for weeks, Moore said.

Representatives for private insurers like AgRisk Management Technologies, or ARMtech, the crop insurance subsidiary of Endurance Specialty Insurance Ltd., are in the fields reviewing individual claims.

According to David Cash, chief underwriting officer for Endurance, financial markets like to speculate what the losses in an event like this will be but determining how much crop value has been lost and what insurance covers takes time.

“While we have some early indications that we will incur losses, we are not in position to quantify them at this point as we have not received all claims nor has our claims team been able to review the individual claims in the field to put initial loss estimates on the individual notices we have received from customers,” Cash said.

He said it will likely be the end of February before Endurance and other crop insurers have loss estimates. He anticipates the losses to be manageable.

Endurance wrote about $700 million in crop insurance premium under the federal crop insurance program in 2009, or about 7 percent of the overall market. About 1 percent of Endurance’s crop insurance premium was associated with Florida citrus.

Much of the loss is borne by the farmers themselves before insurance steps in.

Currently Endurance insures citrus crops in Florida with a total value to the farmers of between $300 million and $400 million but the insured limits that Endurance provides amount to only about $200 million. The $100 million to $200 million difference between the two numbers represents first loss risk positions that farmers have retained.

Crop protection is triggered at various points from 50 to 85 percent of expected crop yield. Cash said that about half of Endurance’s insured farmers buy protection that doesn’t begin until 35 percent or more of their crop is lost. Crop insurers reimburse a farmer for the lost value only after the farmer experiences crop damage in excess of this retained loss position.

“Different farmers have different strategies for how much insurance they buy. Mostly, they’re trying to make sure they have enough insurance so that in an extreme loss event, they’re able to cover their core operating costs and any financing costs they may be carrying,” Cash said.

Cash thinks – and hopes—the damage in Florida will end up being less than feared.

“Just about every crop turns out to be hardier than you and I would imagine,” he said. “The crops have been bred over a long time, and they’re grown sort of as if it were in-season. And so, be it corn or soy or citrus, most of these crops can survive some kind of weather events.”