Friday, March 03, 2006

Insurance companies give poultry farmers the bird

If any business could use insurance these days, it's poultry farmers. Too bad. Because the insurance companies don't want to be a client of anyone who needs them (to paraphrase Groucho). They gladly issued policies as long as it looked like they wouldn't have to cash them in. In the UK, for example, a government program would compensate farmers for healthy birds that were destroyed by a culling order, but not diseased birds, so some insurance companies were writing policies that would have made an additional payment equivalent to 25% of the official compensation for flocks kept indoors if avian flu struck them. No more.

The Financial Times reports from the UK:
There had been moderate interest in such policies over the last few years because “up until recently the fear factor was not there”.

“The underwriters are taking a pause underwriting new risks while they review the current situation,” [ Bill White, an insurance broker specialising in livestock risks at Heath Lambert] said. “There is a lot of confusion in the information being published in the press and in the industry.”

The NFU Mutual, which insures about two thirds of the UK’s farmers, said it did not provide cover against avian flu. While poultry farmers insured their birds against potential loss from fire, when it came to disease, they would tend to rely on preventative measures rather than insurance cover.

David Foreman, chief underwriting officer at Wellington, a Lloyd’s insurer, said that for new livestock policies or renewal of cover, avian flu had been specifically excluded from the conditions under which insurers would pay claims since January 1 [2006].

Peter Jackson, consumer product sector leader at Aon in London, said it was also unlikely that farmers would be able to claim for loss of business under policies which reimbursed them in the event of their not being able to trade, because avian flu was regarded as an “extreme outside of the norm” event. (Financial Times)
Outside the UK insurance companies aren't taking any chances either (isn't that insurance companies are supposed to do? take chances for money?). Financial Times also reports that in the US insurance is usually just for especially valuable animals. Farmers expect the federal government to pick up the tab. Good luck. Some governments in Europe are covering many costs. In France the government pays for such losses, a policy established after the mad cow scare of the 1990s. Germany also covers replacement of dead livestock (with what?), wear and tear on equipment and chemical disinfectants but won't cover required new shelters or lost profits, although product recalls were covered.

It's clear the poultry business is already taking a big hit, and if there is mass culling, it will be worse yet. The insurance companies, whose alleged social function is to provide risk coverage, are showing their true character. Insurance companies are investment banks that use policy holders' premiums to make money. Covering someone else's losses is secondary.

So it's natural they would give the poultry industry the bird (for those not familiar with quaint US folk customs, "giving the bird" is an obscene hand gesture involving the middle finger).