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Economic Impact of Private Hail Insurance

SMHI is the responsibility of the rural municipal governments and is governed by the Municipal Hail Insurance Act. All other companies are governed by the Insurance Act of Saskatchewan and pay a 3 per cent premium tax. For 2005, the premium tax was over $2 million.

With the exceptions of SMHI and Cooperative Hail Insurance, the companies also pay income tax.

For all hail insurers, except SMHI, which has a separate arrangement with rural municipalities, a 10 to 11 per cent sales commission is paid to agents scattered across rural Saskatchewan. In 2005, this was an injection of about $7.5 million to the provincial economy.

Hail insurance policies are sold by licensed hail only agents and insurance brokers. It’s an important source of income for many rural residents and businesses.

All of the companies incur about the same cost for the adjustment of losses -in the range of 4.25 per cent of written premiums. For 2005 in Saskatchewan this was about $5 million, which went to adjuster salaries, hotel and travel costs, etc.

Cost to Reinstate Spot-Loss Hail

As previously stated, Saskatchewan producers paid 40 per cent of the premium for spot-loss hail when it was last offered in 2001. This was approximately $23.3 million. The provincial and federal governments each paid 30 per cent, which was approximately $17.5 million.

If the province decided to reinstate spot-loss hail, it would not receive the same cost-sharing arrangement with the federal government. Under the Agriculture Policy Framework implemented in 2003, spot-loss hail now falls into what is considered High Cost coverage.

Federal officials say the maximum federal support for spot-loss hail would be 20 per cent. The balance of the cost would have to be split between the province and producers. Overall, federal / provincial sharing is maintained on a 60:40 basis. With the federal government paying 20 per cent of the cost of spot-loss hail, the normal provincial share would be 13.3 per cent with producers paying 66.6 percent.

It would be possible for the province to pick up a higher percentage of the cost, but adjustments might have to be made elsewhere in farm safety net programming to achieve the 60:40 split overall.

It should also be noted that the federal government does not contribute where there is double compensation for the same loss (double dipping). In the case of the subsidized Alberta spot-loss hail program, the portion that is not offsetting between hail and yield loss receives no federal compensation.

Most farm safety net programming, including the multi-peril portion of Crop Insurance falls under the Comprehensive Coverage category. The federal government pays 36 per cent, while the province pays 24 per cent (a 60:40 split) and producers are left to pay 40 per cent.

Duplication of Services

If Saskatchewan Crop Insurance reinstates spot-loss hail coverage, it will need to hire and train many hail adjusters prior to the growing season. In a year with heavy claims from drought as well as heavy hail claims, the workload will be magnified.

In many cases, a producer with a spot-loss hail claim will also have a yield shortfall. This will mean two trips to visit a producer, even though the claims could be offsetting.

A return to spot-loss hail coverage would no doubt mean a drop in private hail insurance sales. However, private hail insurance still performed a function in the years when spot-loss hail was available and that would again be true.

Therefore, adding a subsidized player to the marketplace would likely mean more layering of insurance policies with an increase in the number of adjusters visiting an individual claimant.