Sow farm National Pork Board

PRRS and PEDV insurance policy: How does that work?

The first of its kind animal health insurance policy for the hog industry is now available. We know you have questions, so National Hog Farmer dared to ask. Here is what we learned.

Porcine reproductive and respiratory syndrome and porcine epidemic diarrhea virus are costly for America’s pig farmers. There is no fool-proof way to keep a farm from breaking with PRRS or PEDV. But what if a there is a way to offset the economic losses from two of the major swine diseases?

Chris Moore, farm and agribusiness practice leader at ONI Risk Partners, tells National Hog Farmer that risk management tool now exists with the first PRRS and PEDV insurance policy, managed by James Allen Insurance and distributed by ONI Risk Partners.

The first of its kind animal health insurance policy for the hog industry is now available. We know you have questions, so, National Hog Farmer dared to ask. Here is what we learned.

NHF: What is the new protection coverage in a nutshell?

Moore: The product differs from any type of livestock insurance coverage because it is not based on mortality but production loss.  The two triggers are PRRS or PEDV. Once there is confirmed outbreak then the insurance policy is triggered. The purpose of an insurance policy is to indemnify the producer based on their loss of production as results of those two viruses.

NHF: Does any other company offer this to pig farmers?

Moore: No, it’s the first and only of its kind.

NHF: Does a similar insurance policy exist for other species?

Moore: Yes and no. My partner is James Allen Insurance — a managing general underwriter that puts together and creates specialty insurance programs that they administrate on behalf of insurance companies. Tim Craig, James Allen Insurance chief executive officer, and his team created an avian influenza policy. However, the policy does not work the same.

NHF: How did this insurance product come about?

Moore: Basically, the coverage originated because we work with farm and agribusiness enterprises all over the country. I have carved out a niche in the livestock industry. I was chatting with a couple of pork producers. They kept asking if there was an insurance product or something out there that could indemnify them for PRRS or PEDV. And the answer was “no, there wasn’t.”  Realizing there is demand, we created the product.

NHF: Who is underwriting the business?

Moore: Lloyds of London

NHF: What is covered?

Moore: The product is pretty simple. It is meant to cover the financial impact of losses. We allow the producer to set the level of insurance that they would like to cover. Generally speaking, producers tell me PRRS can cost you $100 per sow or $300 per sow. We work with the producer to customize and tailor the program. If you have 1,000-head sow herd and want coverage of $100 per sow, then the total coverage worth would be $100,000. By working with a producer, we can create a policy that is needed for their operation. For instance, a stop loss coverage can be developed for integrators.

NHF: Who qualifies for the coverage?

Moore: Every hog producer qualifies for coverage. There are no size requirements. We emphasize the product where certain segments of production systems are most vulnerable including boar stud units, gilt development units along with the sow herds.

NHF: What is asked during the application process?

Moore: Application process gathers the upfront information that we need. It goes through farm management practices. We consider things like biosecurity, pig density area, current outbreak status, herd health status, vaccination program and how often you test for diseases. We are not here to tell farmers how to farm. We are here to gather information on what they do every day in their operation.

NHF: Is the information provided by the producer kept confidentially?

Moore:  Yes.

NHF: How soon does the coverage kick-in?

Moore: There is a 30-day waiting period only in the first year. I encourage people to buy it in months like April versus October and get your waiting period over in less susceptible months.

NHF: If a herd breaks with PRRS or PEDV, how does the claim process work?

Moore: As soon as you have a positive test for PEDV or PRRS, you turn that into us, and that is when we begin the claim adjusting process. We base that off your production loss.

For example, a hog producer has a sow farm with no boar stud or gilt development unit. He has 1,000 sows, and he sells weaned pigs for a contract price of $40 per pig. He decides to cover his farm for $250 per sow or $250,000 worth of insurance. He goes through a period that he does not have wean pigs for five weeks to sell due to a PEDV outbreak. He sends a sample to the veterinary diagnostic laboratory. We get a positive test for PEDV, and we see that they have it. Looking at the financial records, we determine the average number of wean pigs sold in a week. Since the income is now zero, we pay $40 x the determined amount of pigs for five weeks of no production up to $250,000 minus the self-insured retention.

PRRS is no different in theory, but it has a longer tail than PEDV. We adjust it as business income policy. We just look at the past three years of production and compare it to your historical production records. We look at their financials to determine the economic loss.

NHF: What is the cost to producers?

Moore: We priced it fairly to fit well within people’s cost of production. We can turn no-obligation quote around in under 24 hours. Premiums start at $1,500 annually for a very base low price. From there the premium increases based on how the policy is customized for the coverage desired and the application.

The coverage and premium are also tailored and adjusted for boar stud management, gilt development units and specialty production practices such as organic or no-antibiotic ever. For example, in gilt development units, we would adjust the level of coverage per gilt and factor in the depopulation and repopulation.

We try to create this product and price appropriately where producers adopt this for their year-in and year-out risk management portfolio.

NHF: It sounds too good to be true. What is the catch?

Moore: There is no real catch. All the information provided upfront. Our primary goal is to let producers know that there is a product that exists, put all information in front of them and let them make an educated decision based on the facts we give them. There is a self-insured retention and 30-day waiting period for the first year only. (Self-insured retention is a dollar amount specified in a liability insurance policy that must be paid by the insured before the insurance policy will respond to a loss.)

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