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Last week's freezing temperatures are projected to cost California's agricultural industry nearly $1 billion--significantly more than the record $700 million hit that the industry took as a result of 1998's cold snap.
The Federal Crop Insurance Program should reimburse farmers for at least half, and, in some cases, up to 75% of the value of their lost crops, industry sources estimate. In addition, packing houses and distributors that purchased commercial business interruption coverage should recoup up to half of their lost revenues since those policies traditionally have a 50% deductible.
There are at least 16 crop insurance companies nationwide, 14 of which do business in California, said Rich Shanks, national managing director for agribusiness and the food system group at Aon Corp. in Kansas City, Kan.
The extent of the damage likely will not be known for several weeks until adjusters examine the condition of fruit, vegetables and other crops exposed to subfreezing temperatures for several consecutive nights, sources say. Damage in last week's big freeze has been estimated at as much as $1 billion.
"Our adjusters can't tell how much damage there is until we finally get some warm weather," said Larry Heitman, executive vp at Ramsey, Minn.-based NAU Country Insurance Co., one of California's largest crop insurers with $167.1 million in coverage in place.
"We know one thing. We've had so many nights of cold temperatures where it's stayed so many hours under 28 degrees that we know from past experience this is one of the worst ever," said Mr. Heitman, who has worked in the crop insurance industry for more than 20 years.
Crop insurance industry sources estimated that 75% to 80% of California farmers purchase multiperil crop insurance from participants in the Federal Crop Insurance Corp., and that as many as 80% bought the maximum limits of 75% of the value of their lost crops.
The FCIC's basic catastrophic insurance program, for which the federal government subsidizes 100% of farmers' premiums, pays up to 50% of the value of the lost crops. But farmers have the option of buying additional coverage for up to 75% of their crop values.
Because the federal government only reinsures up to 55% of the exposure, crop insurers such as NAU typically purchase reinsurance from the world reinsurance market, Mr. Heitman said. However, it is unlikely the California losses will trigger any of those treaties because that coverage is written on a nationwide basis.
"No company hits its reinsurance based on one state's losses," Mr. Heitman said.