Risk & Business Magazine McFarlan Rowlands Spring 2016 | Page 30

R
& Farm Insurance Today
B Should Farmers Be Worried?
BY: WESTERN GENERAL

W

ith all the barn fires reported
recently in the news, you may
have wondered if farmstead insurance
is a losing proposition for insurance
companies. You may have even heard of
some farmers having to deal with their
insurance being dropped altogether.
Should people be worried?

expenditures to ensure its long-term
success. They must also take into account
the need to have enough reserves in place
to cover all impending claims, including
catastrophic ones, for years to come.
After all, the promise that it will be there
for customers when they need help most
is an insurance company’s only real
“product.”

Let us share a bit…
The way insurance works is really quite
simple: The resources of many are
pooled to cover the otherwise financially
devastating losses of a few. While this
sounds straightforward, carrying out this
simple concept can be quite complex.
Like any business, an insurance company
must diligently manage its returns and

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Your policy — evidence of this promise
— is a detailed business contract between
the insurance company and you, setting
out the rules, rights, and responsibilities
of both parties. In exchange for payment
of your premiums, the insurance
company pledges to cover your losses
according to the terms and conditions
set out in the policy. For a claim to be
covered, the date of loss must fall within

the policy period (the specific starting and
ending dates specified in the contract).
Of course, by writing a large number
of policies, the insurer hopes to collect
enough premium dollars to cover the
cost of all claims, as well as the cost of
operating its business.
A secondary source of income for
insurance companies is investment
income. Accumulated earnings are
invested, mainly in interest-bearing
securities but also in the stock market.
As many people know, and probably
experienced, the investment market has
gone through some serious downturns
recently. Interest rates are low and returns
on many stocks have been negative. In
the past, many companies could lose