Insurance Industry Faces Major Losses

Insurance companies across the country are facing the possibility of massive losses as a result of the ongoing drought and the damage that extreme weather has done to the agricultural sector.

With over 80 percent of the country experiencing at least abnormally dry conditions, and with 62 percent experiencing at least moderate drought, the recent weather conditions are on track to be one of the worst natural disasters in American history. Rough estimates place potential agricultural losses at billions of dollars and predict that 85 percent of the nation’s corn crop has been or will be affected.

The severe agricultural losses will likely lead to even more serious losses in the insurance industry. Given the increasing number of farmers protecting their livelihood with crop insurance policies, the massive crop losses will largely be covered. While this situation will benefit farmers (who will see the worst of their losses reimbursed), it will likely come as a major blow to private insurers who stand to lose billions of dollars.

Agricultural experts at the University of Illinois estimate that the drought will cause an underwriting loss of about $18 billion, with $14 billion of that being covered by the federal government. Insurance analysts at Morgan Stanley have stated that the 2012 drought will represent the largest insurance crop loss in history.

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Written by: Justin Ellison / Farm Plus Staff Writer