The stats provide a small glimpse into the enormity of agriculture and the ever-growing demand for produce, meats, dairy, and other agricultural goods: 40% of today’s global population works in agriculture, making it the single largest employer in the world. In fact, the agricultural industry generates a whopping $338 billion in annual revenue in the U.S. alone.
But risk is still a concern among large and small operations alike and losses stemming from these risks can stall operations and ultimately, thwart profits.
Most agricultural businesses are family-owned, closely-held farms, who are at risk for business interruption due to severe weather, regulatory changes, supply chain disruption, and many other risks.
Forming a captive insurance company can help mid-market business owners get ahead of these exposures with custom-built coverages that fill insurance gaps. Additionally, writing supplemental coverage can eliminate high out-of-pocket costs in the case of a loss event. Forming a captive under IRC 831(b) may offer powerful financial benefits, such as a 0% Federal income tax rate on the captive’s underwriting profits.
Learn more about how captive insurance companies can help mitigate risk and promote better financial efficiency in this animated video:
Watch the video:
Have questions? Call Capstone at 1.800.500.3190, or submit your information via the form. One of our experts will be in touch. We’ll discuss how we can help you or your client form a captive insurance company to insure the risks of your agricultural business.
Fund Losses, Fight Agricultural Risks
Production risk is one of the biggest concerns among agriculture-related businesses—weather and other factors can affect the quantity and quality of goods.
As recent as 1988 and 2012, severe droughts slashed corn, soybean, and other crop production across large portions of the central United States. In 7 of the 10 years between 2000 and 2009, drought caused on average more than $4.7 billion in agricultural losses annually across portions of the United States (NOAA National Centers for Environmental Information, 2014).
By forming a captive insurance company, business owners in the agricultural industry can write comprehensive coverages that can keep their businesses resilient.
Here’s a sample of various other coverages that may be written through a captive insurance company:
- Special risk – Weather-related Business Interruption
- Regulatory Changes
- Supply Chain Disruption
- Loss of a Customer
- Loss of a Major B2B Relationship
- Loss of a Major Supplier
- Equipment Breakdown and Engine Repair
- Pollution Liability
- Employment Practices Liability
So here’s how it works:
Agricultural companies pay premiums to the captive insurance company, just as they would to a commercial insurance company. Funds accumulate inside the captive and can fund losses in the case of a loss event. IRC 831(b) captives offer a 0% Federal income tax paid on the captive’s underwriting profits.
Moreover, if there is undistributed earned surplus, i.e. there are no claims made, the funds can be distributed as a dividend or as a secured loan back to the operating company. Premium costs are lower, because in the commercial markets, “special” coverages tend to be more expensive. These coverages may not be available at all commercially. Business owners have better control over their risk management efforts, more comprehensive coverages, and a more advantageous planning solution.
Bottom line: Captive insurance for agricultural companies is a powerful alternative to commercial insurance alone. Savvy business owners in agricultural who form their own captive insurance company can count on a new level of risk management, as they combat risk in such a competitive industry.
Attorney-led Captive Planning for Agricultural Businesses
Capstone is the most integrated and largest outsourced provider of captive insurance services for the U.S. middle market. In association with The Feldman Law Firm LLP, Capstone offers platinum level attorney-led captive planning and administers property & casualty captive insurance companies that provide alternative risk financing services throughout the U.S.
Now in its CAP_YEARS_SUPER year, Capstone provides turnkey services usually under a joint engagement with The Feldman Law Firm LLP, to businesses in the agricultural industry, and many others.
Unlike most other captive management companies, Capstone’s turnkey service providers do not disclaim tax and legal support. The company has an award-winning track record for standing with clients in the design, implementation, ongoing management, and defense of their property & casualty captive insurance programs. Capstone has successfully administered and successfully managed over CAPTIVE_FORMATIONS captives since 1998. The Feldman Law Firm LLP has experience in more than TAX_CONTROVERSIES captive tax matters.
Capstone's staff of insurance professionals includes Chartered Property & Casualty Underwriters, Associates in Risk Management, accountants and administrators, in addition to the affiliated The Feldman Law Firm LLP's tax, corporate, financing and regulatory lawyers, and outside CPAs, risk managers, property & casualty professionals, and actuaries.
Together, this team offers middle market companies the most comprehensive risk planning solution available.
Learn More About Captive Insurance
- Get the basics. "Captive Insurance Explained in Plain English" provides a simple overview of how captives work without the industry jargon.
- Want a little more depth on captives? Check out our Captive Insurance page for more information.
- See captives in action with "7 Ways Businesses are Using Captive Insurance."