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Published February 17, 2014, 10:01 AM

Changes possible in Mont. hail insurance program

The chairman of the Montana state hail insurance program says a summer-long battle with hail could lead to changes, including higher premiums and the use of reinsurance.

By: Jonathan Knutson, Agweek

The chairman of the Montana state hail insurance program says a summer-long battle with hail could lead to changes, including higher premiums and the use of reinsurance.

But Gary Gollehon, a Brady, Mont., farmer, tells Agweek the program will remain viable and beneficial for producers.

“Hail and drought are our two biggest concerns. We’re in this for the long run,” he says.

The Montana program, the only one of its kind in the nation, provides basic hail insurance coverage on any crop grown in the state. Last year, 2,082 policies were issued, with the hail board covering 1,046 losses totaling more than $14 million — or 186 percent of the premiums, according to information from the state hail board.

That’s the worst loss in the program’s 98-year history, reflecting how much damage hail did to crops in 2013, Gollehon says.

A strong reserve fund helped the program cover 2013 claims, but the five-member hail board decided not to offer refunds. Other board members are Commissioner of Insurance Monica Lindeen, Agriculture Department Director Ron de Yong and producers Trudy Lass Skari and Jim Schillinger.

Typically, producers receive an annual refund of 10 to 50 percent. The refund was 40 percent in 2012 and 25 percent in 2011, says Jayson O’Neill, information specialist with the state ag department.

Receiving refunds makes the program even more attractive to participants, but the record loss ruled out refunds for 2013, Gollehon says.

Reinsurance possible

A date hasn’t been set yet, but hail board members are expected to meet in March to discuss whether premiums will increase in 2014, Gollehon says.

Board members also will look further into the use of reinsurance for the state program.

Reinsurance sometimes is described as “insurance for insurance companies.” The practice allows an insurer, in exchange for a fee, to transfer some of its risk to other insurance companies, known as reinsurers. In effect, the insurer itself is taking out insurance.

The Montana state hail board is learning more about reinsurance, including its potential cost, Gollehon says.

“We have to see what their rate would be before we set our rates (for premiums),” Gollehon says.

“Our track record has been good up until this year,” which should help hold down the cost of reinsurance, he says.

A reinsurance invitation for bid has been posted and is open until Feb. 18, according to information from O’Neill.

Coverage cap raised

Another issue facing the state board: The Montana State Legislature in 2013 raised the coverage limit under the program from $50 to $75 per acre for dryland crops and from $75 to $114 per acre on irrigated crops.

Gollehon says that, as a farmer, he supports the higher limit.

“Producers need more protection,” he says.

But the hail board needs to increase the cap prudently to avoid exposing the program to too much risk immediately, he says.

The self-funded insurance program receives no state assistance, he notes.

“There are no taxpayer monies at all,” he says.

The state hail board will know more after its March meeting and will communicate what it learns to farmers, Gollehon says.

Montana farmers have until Aug. 15 to sign up for the program.