Technology Risks

Agribusiness Goes High Tech

Farmers and ranchers are using sophisticated technology to increase productivity and reduce injuries.
By: | August 3, 2016 • 5 min read

Farmers and ranchers are using sophisticated technology to increase productivity and reduce injuries.

The use of sophisticated technology boosted agricultural productivity and reduced worker injuries, but it brought new exposures for farmers and ranchers.

Advertisement




Drones, robots, RFID tags and precision farming are just some of increasingly sophisticated technologies used in agribusiness.

Mike Williams, senior product director for Travelers’ agribusiness division in Hartford, Conn., said drones are broadly used in agribusiness, not only for determining topography, the moisture content of the soil and the health of crops, but also to collect data — and even locate animals.

“A rancher who has miles of pasture fencing is using drones, instead of driving a truck or ATV all that way, to make sure the fence is not broken or damaged so cattle won’t wander,” Williams said.

“If a cow has wandered from the herd, they can use a drone to help locate that animal, especially if there is bad weather and the rancher doesn’t want to risk sending employees out because they could get injured.”

But there are risks: Drones could run into wind turbines, collide with helicopters spraying chemicals on crops, or start wildfires if they fall in brushy or grassy areas, he said.

The Federal Aviation Administration now requires licensed pilots to operate drones for commercial purposes, and the drones must be within the operator’s line of sight.

 Glenn Drees, managing director, food and agribusiness, Arthur J. Gallagher & Co.

Glenn Drees, managing director, food and agribusiness, Arthur J. Gallagher & Co.

Farmers and ranchers are also using tracking and sensors, such as RFID tags, on cattle to track their location, their weight and what they are being fed, so that they can more efficiently manage their herds, said Glenn Drees, managing director, food and agribusiness at Arthur J. Gallagher & Co. in Cincinnati.

Agricultural robots are used to harvest, irrigate and weed fields.

Then there is precision farming, which uses GPS technology and satellites to gather soil information and weather data. Farmers and ranchers can analyze the information and respond, based on identified conditions, such as providing chemicals to just certain portions of a field, Drees said.

That not only boosts productivity, but also lessens the use of pesticides — a concern in consumers’ minds right now, said Tami Griffin, national practice leader for Aon’s food system, agribusiness and beverage practice in Kansas City, Mo.

Cyber Security Concerns

But as technology use increases, so does concern about cyber security.

“There is a lot of information going onto a data platform, such as seed traits, chemical usage and soil conditions,” Griffin said. “There are concerns about how that data may be used — especially in the wrong hands.”

In March, the FBI warned farmers about the risk of data breaches, including whether agricultural data could be used to manipulate the market and cause economic harm. There is also fear that an anti-GMO activist could hack into a system, gain access to the location of GMO crops and sabotage the yield.

Advertisement




Farmers should review their contracts with the companies that provide precision farming data services for them to determine who owns the data, and what the company does to protect the data, Griffin said.

Farmers should also know whether the firms follow best practices such as having two-factor authentication measures, how they are monitoring their systems, and how they are making sure there is no unauthorized access to that data.

Typical general liability policies would have gaps in coverage for technology risks and a stand-alone cyber policy would be needed to cover data breaches, Drees said.

“Small to mid-sized farmers may not need these policies, but they should make sure any third-party firm providing precision farming data services on the cloud has a cyber policy,” he said, adding that farmers also need to ask such firms how they safeguard information.

Farmers who have sensitive machinery embedded in their tractors and equipment should make sure they are storing it properly, protecting it from the dust or hay particles constantly moving around, Williams said.

Farmers also need a well-thought-out contingency plan if something happens to the smart equipment and they don’t have access to the data that they’ve been using to improve efficiency, he said. Business continuity insurance could come into play, depending on the type of loss.

“Certainly something such as a fire or severe weather that could damage the smart equipment could trigger coverage, but not just a temporary loss of connectivity,” Williams said.

Many agribusinesses now use solar panels to provide energy to farms, methane digesters for dairies or confinements that capture manure and convert methane gas into energy to run farms or sell back to the grid, said Julie K. Barnhil, divisional vice president at Great American Insurance Group in Cincinnati.

Jeffrey Cruey, the carrier’s divisional president, added that one of the biggest exposures from newer technologies is from mechanical breakdowns and electrical disturbances.

Failures of equipment such as tractors are not covered under a typical farm policy — which is typically covered under a vehicle policy — but separate equipment breakdown coverage will cover the failure of a GPS attached to a tractor, as well as loss of farm income.

‘Agritainment’ Venues

 Kevin Poll, director of product development for personal property and commercial farm, ISO

Kevin Poll, director of product development for personal property and commercial farm, ISO

There’s also emerging technology pertaining to “agritainment” — when farmers and ranchers provide entertainment venues, such as concerts, pick-your-own-fruit excursions, hayrides or haunted houses, said Kevin Poll, director of product development for personal property and commercial farm at ISO, a Verisk Analytics business in Jersey City, N.J., that drafts policy language that carriers can adopt for their own products.

Using drones with these activities might require separate coverage not currently provided under a typical farm policy, Poll said.

At year end, ISO will introduce policy language for a variety of endorsements that provide coverage options for farmers that engage in agritainment, and in the following year, it will look at developing language for the use of drones on farms.

“Vertical farms are a hot topic now — there could potentially be skyscrapers built that are devoted to farming in urban environments,” he said. “We’re looking at what kinds of coverage such a farm would need.”

Advertisement




With all of the new exposures, however, Steve Simmons, associate vice president of agribusiness risk management at Nationwide Mutual Insurance Co. in Des Moines, Iowa, emphasized that smart technologies in farming and commercial agribusiness are reducing, rather than increasing losses.

“These new technologies save lives, reduce damages and costs to property. We need to encourage farmers to make an effort to use them because they’re very good for the industry,” he said.

Technology also has a great opportunity to more efficiently use freshwater supply, which is very important in raising crops especially in drought areas, Drees said.

By 2050, the world population is expected to reach 9.6 billion — “which means that farmers will have to increase food production to feed that many people,” he said. &

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

Advertisement




“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

Advertisement




“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

Advertisement




“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.