'Tis the season for looking both behind and ahead as we evaluate how 2023 business plans panned out and make a game plan for the coming year. Many of your farming and ranching clients will be doing the same thing when the fall harvest season ends. This is the perfect time to reach out to your farmers for an account review.

It's also a good time to take a fresh look at your account review procedures within the context of our current economic conditions. In the past few years, there have been drastic changes in the values of commodities, machinery and buildings. The way you advise your clients on building coverage and personal property limits may need to change. On the farm, this includes specialized farming equipment that may be more difficult to obtain and replace than ever before.

Approach each account review with the mindset that many building coverage and farm personal property limits could be underinsured. If these limits have not been reviewed and adjusted in the past two years, there's a good chance they need to be increased. In addition to supplier setbacks and lack of new inventory, the demand for used farm equipment increased in recent years, taking the costs to buy or rent used equipment along for the ride.

The widespread impact of inflation means taking a harder look at not only dwelling and outbuilding valuations but also equipment values to ensure adequate coverage and avoid coinsurance penalties in the event of a loss. The potential impact on your clients' insurance means your account reviews are more important than ever. 

Higher Risk of Coinsurance Penalty  

It may be that your client has not changed their equipment at all in the past year. In this case, your client may find it difficult to accept that their insurance needs to change when their inventory hasn't. Yet the spike in prices for used equipment is likely to have already increased the value of your client's inventory—meaning your clients may be at risk of a coinsurance penalty if they have a loss. Failing to monitor and revise equipment values could be costly to your client. And of course, it's up to you to explain this risk.

A discussion about increasing insurance can be tricky when clients are facing financial pressures from all directions already. Talking about equipment values and how the insurance policy responds is important, but insurance agents are well aware of the common misunderstanding of coinsurance and building or equipment valuations. Help your clients understand the impact of inflation on their existing farm equipment in addition to the elevated costs of any new equipment they've bought or rented this year.

New Realities of Replacing Equipment

Imagine it's the middle of harvest and your client's combine harvester breaks down after ingesting a rock. Your farmer doesn't have time to wait for a repair, so they'll need to rent a combine to finish the harvest in time. They call their equipment dealer, only to learn they won't have another rental available for weeks.

Supplier setbacks and higher manufacturing costs led to a shortage of new farming equipment in recent years, putting pressure on the used equipment market. As a result, it's been increasingly difficult to find new or used equipment, especially in a pinch, and used prices continued to skyrocket from 2021 into 2022. The good news is farmers are seeing some relief in 2023—prices have started to plateau and even decrease slightly in some parts of the country.

Yet even as suppliers catch up and the machinery market softens, prices have not gone back to where they were several years ago. If your client's values and coverage—such as extra expense—haven't been adjusted in two years, they need to be reviewed now.

In addition to reviewing limits and suggesting changes to coverage, your account review process can include pointing out how your clients' existing coverage will be even more helpful in the event of a loss. For example, remind clients that extra expense coverage can help with the increased cost of renting equipment if their own is damaged by a covered loss at a critical time. 

Your agency is positioned to be a source of valuable information for your clients. Making a few adjustments to update your annual account review process can make all the difference for your farm clients when they need it most.