AM Best Information Services

SEPTEMBER 23, 2020 08:29 AM (EDT)

Best’s Market Segment Report: More Hurdles for Crop Insurers in 2020 Following Poor 2019

 Maxwell Gilberg
Associate Analyst
+1 908 439-2200 ext. 5684

Connor Brach, FRM
Financial Analyst
+1 908 439 2200, ext. 5573

David Blades, CPCU
Associate Director, Industry
Research and Analytics
+1 908 439 2200, ext. 5422

Christopher Sharkey
Manager, Public Relations
+1 908 439 2200, ext. 5159

Jim Peavy
Director, Public Relations
+1 908 439 2200, ext. 5644


OLDWICK - SEPTEMBER 23, 2020 08:29 AM (EDT)
Following 2019, when underwriters of crop insurers saw their worst results in a decade, the COVID-19 pandemic and weather events so far in 2020 have globally disrupted the supply chain of agricultural goods and further damaged crop yields, according to a new AM Best market segment report.

The Best’s Market Segment Report, titled, “More Hurdles for Crop Insurers in 2020 Following Poor 2019,” states that the U.S. agricultural industry was already facing considerable challenges before the onset of the pandemic. Trade wars with other countries, particularly China, along with problems due to heavy rainfall and historic flooding across the Corn Belt, commodity price volatility and labor shortages, were among the challenges in which farmers and multi-peril crop insurers had to contend. Additionally, the United States-China trade war in 2018-2019 showed just how vulnerable farmers and their livelihoods are to external factors. All these factors contributed to the worst year in a decade for multi-peril crop insurers, which reported an aggregate combined ratio of 108.9 in 2019, a substantial deterioration from the combined ratio of 85.0 recorded in 2018.

At the beginning of the COVID-19 outbreak, demand increased as consumers rushed to stores to purchase products, which led to shortages and temporarily raised the price of those products. In contrast, the decrease in demand from restaurants, hotels and universities was dramatic. Furthermore, because driving has declined in 2020, the demand for ethanol, of which 38% of the corn produced in the United States is used for, also has dropped, resulting in less demand for corn. Cotton demand has fallen as well, according to the report, due to a 79% decrease in retail clothing sales; the cotton market may not stabilize until 2021.

There is an oversupply for many different food products with no room for storage, as demand has fallen due to COVID-19. When schools and restaurants began to shut down, dairy farmers around the country had to dispose of thousands of gallons of milk, with many farmers spilling out 15,000 gallons of milk a day. About 60% of crops such as potatoes go to the food service industry, and the closure of many restaurants has resulted in storage problems; a massive oversupply of potatoes is expected in the fall. Many farmers are also throwing away flowers as demand has dropped so drastically that prices were 22% lower in May 2020 than in May 2019.

Recent catastrophic weather activity complicates AM Best’s outlook for multi-peril crop insurers in 2020. August saw a powerful derecho pass through Iowa, causing extensive damage in the region, as well as Hurricane Laura, which was followed by Hurricane Sally in September, all of which will impact yields. Wildfires in the western United States also may impact crop insurers negatively as well.

To access the full copy of the market segment report, please visit .

For a video discussion on this report with David Blades, associate director, industry research and analytics, and Connor Brach, financial analyst, both of AM Best, please go to .

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.