Sooner Better Than Later For Hail Insurance

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“It doesn’t save any money to wait a few weeks. You pay the same amount for hail insurance whether you start coverage in June, July or August.”

As crops begin to grow and another hail season approaches, many farmers across the province will be casting a nervous eye at the sky, hoping their fields are spared from hail damage this summer. For the past two years, Alberta producers have suffered record levels of crop damage due to severe hailstorms.

“Last year was the worst we’ve seen in our 71 years as a public hail insurer. We paid out $73.5 million in claims through our Straight Hail program – almost doubling the record $40 million the year before,” says Gilbert Goudreau, provincial adjusting manager with Agriculture Financial Services Corporation (AFSC), the provincial Crown Corporation that provides the majority of hail insurance in Alberta.

While Environment Canada reported 66 severe hailstorms last year, down from a record 89 the year before, many storms last summer were more intense and widespread as they tracked across the province, says Goudreau. “We had 563 different areas of the province report hail, compared to about 300 areas in a normal year.”

The hardest-hit regions were southern Alberta, and a corridor along the Queen Elizabeth II Highway between Edmonton and Calgary.

It’s impossible to predict what will happen this summer, says Dan Kulak, an Environment Canada meteorologist in Edmonton. “It’s been a very dry spring across most of Alberta, but June is a critical month that often sets up the summer for hail depending on how much rain falls. If we get some real soakers, it can fuel hailstorms in July, which is typically when we see the most hail activity.”

EARLY HAILSTORMS CATCH FARMERS OFF GUARD

May and June have also been busy months for hail in the last two years, with a number of early storms catching farmers off guard, says Goudreau. “We’re urging producers to make their hail insurance decisions as early as possible this year. The number of producers calling us to buy hail insurance after their crops have already been hit has doubled. It’s unfortunate because we have to reject them for coverage if the damage on uninsured crops exceeds 25 per cent, or if the damage is too difficult to accurately assess at such an early stage of plant growth.”

“In some cases, we can defer assessment of the crop until mid-July when it’s more mature. But in the meantime, if more hail rolls through and does 25 per cent damage or more, they’re stuck without coverage for the whole season.” He adds crops with less than 25 per cent damage can be insured, but they’re charged a deductible to cover the previous hail damage.

Farmers play a risky game by waiting too long to buy their hail insurance, says Goudreau. “If they’re thinking about insuring their crops, we recommend doing it as soon as the plants emerge. It doesn’t save any money to wait a few weeks. You pay the same amount for hail insurance whether you start coverage in June, July or August.”

HAIL RATE INCREASES LIMITED

Despite back-to-back years of record hail claims in Alberta, producers across the province won’t see their hail rates increase by more than two percentage points this year, says Avery Cook, Manager of actuarial services and program readiness at AFSC. “We limit base rate increases to two percentage points every year to keep them stable and minimize the impact of heavy hail years like the ones we’ve seen lately,” he explains.

“We’re able to do this because we take a long-term approach to managing rates,” says Cook. “AFSC has been in the hail insurance business for 71 years, so we’re able to calculate rates using 25 years of hail data – one of the longest time frames in the industry – instead of the more common 10-to-15-year models.”

Cook says that longer time period spreads the impact of record losses over several years of premiums. “So producers aren’t paying it all back the next year, and it’s easier to deal with. If we used a 10-or 15-year model and removed our limit on rate increases, producers would be paying much higher rates this year.”

Hail rates are set at a township level, based primarily on the hail experience of each township and the surrounding eight townships. Less than 10 per cent of Alberta’s 4,140 townships will see a base rate increase of two percentage points. About 70 per cent will see an increase of one percentage point. More than 20 per cent will actually see their hail rates fall by one percentage point or stay the same, notes Cook.

“So if your rate is five per cent, your hail insurance will cost $5 for every $100 of coverage,” he explains, adding an adjustment is made for crops like canola that are more prone to hail damage.

“The Straight Hail program is funded entirely by premiums. As a Crown Corporation, we set hail rates to cover crop losses, and to break even. There’s no profit factored in,” he adds.

Producers can access Straight Hail coverage at any time but it doesn’t come into effect until noon the following day. For more information, producers can contact their local AFSC hail agent or insurance office, or the AFSC Call Centre at 1-888-786-7475.

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