Buying business insurance is among the best ways to prepare for the unexpected. Insurance is available for nearly any business risk. Considering the multitude of available options, business owners must carefully weigh whether the cost of insurance premiums justify protection against certain risks.
This section provides an overview of several forms of business and crop insurance. It includes excerpts from the Small Business Administration (SBA) Program Office guide on insurance and the United States Department of Agriculture (USDA) Risk Management Agency’s (RMA) crop insurance policy guide.
Why is this important?
Without proper protection, misfortunes such as the death of a partner or key employee, embezzlement, lawsuits, or natural disasters, could spell the end of a thriving operation.
Business Insurance
Insurance coverage is available for the many risks your business might face. The following describes common types of insurance that you might consider. To find an insurance agent or broker, ask other business owners for referrals. Your agent or broker who handles your other types of insurance (life, homeowners, disability, etc.) might be a candidate. You can also obtain a list of licensed insurance companies and agents at the Hawaiʻi Insurance Division site: http://insurance.ehawaii.gov/ils/app .
General Liability Insurance – Many business owners buy general liability or umbrella liability insurance to cover legal problems due to claims of negligence. These help protect against payments as the result of bodily injury or property damage, medical expenses, the cost of defending lawsuits, and settlement bonds or judgments required during an appeal procedure. In Hawaii this starts at about $500 annually for small farms and can go up from there. Many landowners (such as KSBE) require their leaseholders to have general liability insurance and list the landowner as additional insured.
Product Liability Insurance – Every product has the potential to cause personal injury or property damage. Companies that manufacture, wholesale, distribute, and retail a product may be liable for its safety. Product liability insurance protects a food supplier against claims stemming from injuries or illnesses from a food product. Additionally, every service rendered has the potential to cause personal injury or property damage. Businesses are considered liable for negligence, breach of an express or implied warranty, defective products, and defective warnings or instructions.
Workers’ Compensation Insurance – Workers’ Compensation (WC) provides employees with medical care and partial wage loss replacement for work-related injuries/illnesses. Any employer having one or more workers, full-time or part-time, permanent or temporary, is required to provide WC coverage.
WC coverage can be purchased from an insurance carrier authorized to provide WC insurance in Hawaii. The employer must pay the full cost of the premium. Employees cannot be assessed for any portion of an employer’s WC insurance premium.
The employer must post signage in the workplace and file specific forms when an injury is reported. See the Hawaiʻi State Department of Labor and Industrial Relations Labor Law Requirements for New Employers guide for additional information.
Criminal Insurance – No matter how tight security is in your workplace, theft and malicious damage are always possibilities. While the dangers associated with hacking, vandalism, and general theft are well recognized, employee embezzlement is more common than most business owners realize. Criminal insurance and employee bonds can provide protection against losses in most criminal areas.
Business Interruption Insurance – Some businesses may wish to acquire insurance that covers losses during natural disasters, fires, and other catastrophes that could cause the operation to shut down for a significant period of time.
Key Person Insurance – In addition to a business continuation plan that outlines how the company will maintain operations if a key person dies, falls ill, or leaves, some companies may wish to buy key person insurance. This type of coverage is usually life insurance that names the corporation as a beneficiary if an essential person dies or is disabled.
Crop Insurance
Buying crop insurance is a risk management measure. Producers should always carefully consider how a policy will work in conjunction with their other risk management strategies. Crop insurance agents and other agribusiness specialists can assist farmers in developing a sound management plan.
Crop insurance provides two important benefits: It ensures a reliable level of cash flow and allows more flexibility in the marketing plan. With some level of production insured, the crop could be forward-priced with greater certainty, creating a more predictable stream of revenue.
The federal government subsidizes the premiums for most crop insurance policies. Subsidies tend to benefit, most, those producers who invest in higher levels of coverage. Crop insurance is available only through private crop insurance agents. Coverage for a crop must be arranged before its sales closing date.
Features of crop insurance include the following:
- Crop insurance covers the value/yield of damaged crop
- Each crop is insured separately
- Coverage must be purchased before damage occurs
- Higher coverage costs typically correlate with higher premiums
- You must file claim to collect an indemnity
Insurable crops in Hawaiʻi include the following: Macadamia Trees, Macadamia Nuts, Bananas, Papayas, Coffee, Nursery (All others can be covered under FSA Crop Disaster Assistance Program.)
These include plants in-ground and in containers.
(Source: State of Hawaiʻi Department of Agriculture website http://hawaii.gov/hdoa/add/risk-management#18)
Amount of Insurance:
The amount of insurance is (Number of insurable trees x tree reference price) x Coverage Level
The tree reference price is set to take into account planting and maintenance costs to return the tree to production.
The amount of insurance can also be expressed as:
(Number of insurable trees x tree reference price) – Deductible
(Source: State of Hawaiʻi Department of Agriculture website http://hawaii.gov/hdoa/add/risk-management#21)
Covered Losses: Adverse Weather, Diseases, Insects, Wildfire, Earthquake, Volcano
Additionally, coverage for nurseries can include:
Value reduction due to delay in marketability
Failure of irrigation water supply
Loss that results from neglect or failure to follow good farming practices are not covered. To receive a claim, the tree must be dead (100% damaged or destroyed) due to the following:
- Insurable cause of loss, or
- Authorized destruction to contain the spread of plant disease
When the damage for the unit exceeds 80%, the unit is considered a 100% loss.
(Source: State of Hawaiʻi Department of Agriculture website http://hawaii.gov/hdoa/add/risk-management#22)
Whole Farm Revenue Protection Program
The federal government has also instituted (on a pilot basis) and subsidizes a Whole Farm Revenue Protection Program (WFRP).
The WFRP insures all commodities on the farm under one umbrella policy provided the farm generates under $8.5 million in revenue. The amount insured and paid out are determined based on your IRS Schedule F tax forms (previous 5 years for existing farmers or 3 years for beginning farmers).
This program is tailored for farms that:
- Produce specialty crops;
- Are highly diversified;
- Are under 20 acres;
- Tend to grow for specialty or organic markets; or
- Sell to farmer’s markets, farm-identify preserved markets, etc.
The WFRP covers losses caused by:
- Adverse Weather Conditions
- Earthquake
- Failure of Irrigation Water Supply (must be due to insured causes)
- Fire
- Insects (sufficient and proper control measures must be taken)
- Plant Disease (sufficient and proper control measures must be taken)
- Volcanic Eruption
- Wildlife
- Decline in market price during the insurance year
You can find more information on this program at: https://www.rma.usda.gov/en/RMA-Insurance/General-Policies/Whole-Farm-Revenue-Protection
Federal disaster assistance programs for agriculture
The USDA Farm Service Agency (FSA) assists farmers and ranchers that are affected by drought and other natural disasters. Assistance is provided after an affected area is declared a disaster zone. The Noninsured Crop Disaster Assistance Program provides financial help to producers of non-insurable crops affected by natural disasters.
Noninsured Crop Disaster Assistance Program Eligible Crops include:
- Crops that are grown for food or fiber that cannot be insured (in Hawaiʻi, everything EXCEPT Macadamia Trees, Macadamia Nuts, Bananas, Papayas, Coffee, Nursery)
- Forage and grazing
- Aquaculture
- Floriculture
- Ornamental nursery
- Christmas trees
- Honey/Maple sap
- Sod
Eligible losses must be due to damaging weather or natural disaster, including the following:
- Drought
- Hail
- Excessive heat
- Excessive moisture
- Freeze
- Tornado
- Hurricane
- Excessive wind
- Volcano
- Flood
- Earthquake
- Insect damage
- Disease
Coverage:
Losses in excess of 50% or prevented planting losses
55% payment rate
Cost:
Service Fee: $250 per crop per county
Not to exceed $750 per county
Not to exceed $1875 per producer
Cost Waiver:
May be waived for a limited resource producer
Limited Resource Producer – Direct or indirect gross farm sales not more than $100,000 in each of the previous two years (increasing, starting in fiscal year 2004, to adjust for inflation using Prices Paid by Farmer Index as compiled by National Agricultural Statistical Service (NASS)); and a total household income at or below the national poverty level for a family of four, or less than 50 percent of county median household income in each of the previous two years (to be determined annually using Commerce Department data).
Application: Must apply by the application closing dates
Producers must annually report:
- Loss within 15 days
- Acreage
- Production
Grazed Forage Loss based on:
- County determined loss percentage for each pasture/range
- Acreage report
Payment:
- No quality provisions
- Payments limited to $100,000
- Producers are subject to Average Gross Income (AGI) limitations
(Source: Farm Service Agency)
There are five additional FSA administered disaster assistance programs collectively referred to as Supplemental Disaster Assistance Programs:
- Emergency Assistance for Livestock, Honey Bees, and Farm-Raised Fish (ELAP)
- Livestock Forage Disaster Program (LFP)
- Livestock Indemnity Program (LIP)
- Supplemental Revenue Assistance Payments (SURE) Program
- Tree Assistance Program (TAP)
Fact Sheets on all of the USDA programs can be found at: https://www.fsa.usda.gov/news-room/fact-sheets/index
Next Steps and Resources
Deciding on the form of insurance that best suits your business should be given careful thought. Use your key advisors to assist you in the process.
The following links provide additional information related to insurance for your business.
Hawaiʻi State Department of Labor and Industrial Relations Labor Law Requirements for New Employers guide: http://labor.hawaii.gov/wp-content/uploads/2013/03/New-Employer-Packet-3-14-13.pdf
State of Hawaiʻi Department of Agriculture: http://hdoa.hawaii.gov/add/md/risk-management/
Contact the USDA Farm Service Agency for more information on FSA Crop Insurance Programs:
U.S. Department of Agriculture, Honolulu County Farm Service Agency
99-193 Aiea Heights Drive, Suite #114
Aiea, Hawaii, 96701
(808) 483-8600