CHAPTER XVIII

THE INSURANCE OF AGRICULTURAL COMMODITIES

It is not the purpose of this chapter to describe property insurance as an industry, but rather to outline the purposes and extent to which the agricultural crops are protected by insurance throughout their passage from farmer to consumer. The fire and other property insurance business as such-its organization, manner of quoting rates, etc.-and the insurance of buildings, vessels and other trade facilities, are but indirectly related to the trade in farm products and have been fully described elsewhere.1 The insurance of farm commodities, however, holds a direct and highly important position in commercial organization, the discussion of which may be classified into (1) rural crop insurance, (2) insurance as the basis of commodity loans, (3) the insurance of stored commodities, (4) the insurance of commodities in mills, factories and mercantile establishments, (5) the insurance of commodities en route, and (6) insurance as the basis of financial settlement.

RURAL CROP INSURANCE

Scope. There is great lack of uniformity among farmers with reference to the forms and extent of insurance carried by them. It is a common practice for them to insure their home, farm buildings, farm animals and machinery against loss by fire and lightning, but many neglect the insurance of their crops. Indeed there are many risks, such as grain pests, frosts and drought, which are seldom covered by insurance in the United States because of the great severity of such calamities

1 See S. S. Huebner, Property Insurance and the bibliography con tained therein; also Marine Insurance.

whenever they occur, and the relative absence of concerns which underwrite such risks.

The most common form of crop insurance is the insurance against loss by fire and lightning of grain, cotton, hay and other products after they have been harvested and stored on the farmer's premises or in other local storage places. Many farmers, particularly the small cotton growers, at times fail to protect themselves in this way, but the growers of large crops as well as some of less importance regularly protect their harvested crops until they finally dispose of them.

In regions subject to heavy storms farmers in some cases protect their buildings as well as the crops stored in them by purchasing tornado, cyclone, and windstorm insurance.2 Similarly in the western grain states, farmers sometimes protect their crops against loss from hailstorms by taking out hail insurance policies. In 1919 $559,000,000 of hail risks were insured in 41 mutual companies, 43 joint-stock companies and 4 state hail insurance departments. Fifty one per cent of the total hail risks in force were insured in Kansas, North Dakota and Iowa. Not only has the total volume of hail insurance increased rapidly during the past decade, but the amount of hail insurance per acre written by the companies increased during the period of advancing prices and resulting enhanced value of farm crops.

Some farmers also protect their growing crops against fire. This form of crop insurance is most common in sections of the west where large fields of grain are not harvested until thoroughly ripe and are then cut and thrashed in a single process. "The insurance takes effect on the grain in the field and as a rule follows it until it is sold or stored in a commercial elevator or warehouse." 994

Crops may, however, suffer severely from perils other than

2 F. L. Hoffman, "Windstorm and Tornado Insurance," Spectator, Vol. LXVII, p. 272; A. T. Linnby, "Tornado Insurance," Chap. 65 in H. P. Dunham: The Business of Insurance. G. H. Powell, Coöperation in Agriculture, Chap. 12; U. S. Department of Agriculture, Bulletin No. 786, May 28, 1919; Bulletin No. 1043, Jan. 23, 1922.

3 U. S. Department of Agriculture, Bulletin No. 912, p. 11. 4 U. S. Department of Agriculture, Bulletin No. 1043, p. 16.

hail, windstorm or fire. Heavy damage is at times sustained from drought or excessive moisture, from floods, frost, hot winds, winter-kill and other climatic conditions, and from plant diseases, insect and animal pests, defective seed, and other causes. Efforts have therefore been made to provide

a more general form of crop insurance.

The first attempts at general crop insurance were made by three joint-stock fire insurance companies operating in the Dakotas and Montana. The severe drought which occurred in large parts of these states coupled with inadequate safeguards by the companies in insuring risks after severe damage had taken place caused them to repudiate their contracts in part, to plead inability to settle in full and in some cases to tentatively settle claims by a return of premiums.5

Several years later a few of the larger fire insurance companies began to write contracts designed to provide general crop insurance. In several instances they insured crop damage resulting from causes other than fire, hail, wind, tornado, failure of seed to germinate or failure on the part of the farmer to properly plant, cultivate or harvest his crop, and they specifically included in their contracts loss or damage resulting from frost, draughts, flood, winter kill, insects or plant disease. Comparatively little, however, has thus far been accomplished in the field of general crop insurance and the entire problem is under consideration by a committee of Congress.

Farm animals are frequently insured against loss from fire and lightning in many parts of the United States, but in those regions where live stock constitutes an important source of farm income live stock is also at times insured against loss from disease and accident. In case of the slaughter by federal or state veterinary inspectors of animals infected with contagious disease, the owners are compensated jointly by the federal and state governments, but such compensation does not overcome the need for insurance, because it is based upon the animal's value for meat or other commercial purposes and not upon the real U. S. Department of Agriculture, Bulletin 1043, p. 17.

value of blooded stock. Much live stock, moreover, is lost otherwise than by order of public veterinary inspectors, and in the absence of insurance constitutes a complete loss to the owner. Live-stock insurance in the United States-that is, insurance covering disease and accident-is provided mainly by special mutual or regularly incorporated live-stock insurance companies, and has not been developed on a large scale. The policies issued usually protect the owner against loss by death from accident, disease, fire, lightning and cyclone, including accidents such as a "broken leg when found necessary by attending veterinary to destroy the animal's life." Some policies, however, specifically exempt the insurance company in case of loss resulting from certain causes such as fire, flood, inundation, snowstorm or blizzard unless otherwise agreed in a special policy clause and additional premiums are paid. The policies, moreover, generally limit the insured value or amount recoverable to one-half or two-thirds of the actual value of the animals insured or to fixed maximum valuations, and prescribe a maximum age limit which varies with the kind of animal insured and the length of time during which protection is granted. In many instances the companies refuse to insure any live stock not kept in fenced-in pastures or other inclosures, thus eliminating range cattle. In spite of these precautions, the risks of live-stock insurance have proved so great that the premium rates charged have deterred the owners of common live stock from generally protecting themselves with insurance.

Live-stock insurance in the United States has thus far been confined mainly to the insurance of horses and valuable blooded cattle. The number of outstanding policies on common dairy or beef cattle has always been small, and common sheep and hogs are seldom insured against loss from disease or accident. Growers of "common stuff" even in case of fenced-in stock, have depended mainly upon such protection as it afforded by the regular fire and lightning insurance which they may carry, but relatively few insuring such stock against the greater risk of loss resulting from other accidents or from disease.

Sources of Rural Insurance.-Three groups of concerns provide most of the rural insurance.

1. At a recent date there were 1,950 farmers' mutual fire insurance companies in the United States, a large proportion of which are local coöperative farmers' associations. From these local mutuals as well as from local mutuals whose risks do not consist entirely or largely of farm property, large amounts of fire and lightning insurance are obtained in farming districts. Some of the farmers' tornado, cyclone, windstorm, hail and live-stock insurance is also obtained through local mutuals, which may depend primarily upon fire or fire and lightning insurance but provide other forms of protection to some extent, or which may specialize in insuring particular agricultural risks. The usual plan is to require a small cash premium, and in case their losses exceed their income to obtain the excess through a system of assessment. Although many local mutuals have failed, others have been successful in spite of the restricted volume of their business, lack of assets, and assessments, because the restricted area of their operation and personal acquaintance of their members tends to prevent overvaluation and to eliminate much of the moral hazard incident to property insurance.

2. Various state mutuals have from time to time been organized for rural insurance. They cover an entire state, portions of several states or larger areas, and have the advantage of coming more nearly within the law of average. They have, however, been less successful than the local mutuals, because their operation over wider areas increases the moral hazard, incurs greater competition with established old line companies, inferior supervision over the selection of risks, and, when many assessments are called, widespread withdrawal of policyholders.

3. Farm risks, particularly fire and lightning, but to some extent also hail, windstorm, live-stock and other forms of rural risks, are also insured in regularly incorporated joint-stock insurance companies. Many of these companies do an extensive business both in cities and country districts and operate throughout wide areas.