HORSE SENSE: INSURING EQUINE-RELATED RISKS

From ranches to racehorses, from crops to cattle, Fredricksen Insurance has markets and know-how

By Elisabeth Boone, CPCU

Mark D. Fredricksen, president of Fredricksen Insurance Services, visits a client's horse farm.

A long-time client calls to tell you she's bought a weekend "hobby farm," and that she plans to keep several quarter horses for adults to ride, as well as a couple of ponies for the kids.

You see an article in the local paper about a valued client who's just purchased a 10% stake in a young Thoroughbred that has the potential to be a Triple Crown contender. The next day your client stops by and asks you to arrange insurance for his interest in the horse.

Via referral, you're approached by a prospective client who owns a large peach orchard with a packing and shipping facility on the premises. The account represents annual premium of about $80,000, and you're eager to land it.

If these aren't the kinds of risks that usually cross your desk, you'll probably want some expert guidance in locating markets and arranging coverages. One place to start is Fredricksen Insurance Services, a managing general agency that specializes in equine-related risks as well as exposures involving farmowners, ranchers, commercial growers and packers, and similar risks. Based in Hemet, California, about 100 miles east of Los Angeles, the agency was established in 1986 by Mark Fredricksen and his wife.

"At that time it was just my wife and I," Fredricksen says. "We now have five underwriters and 8 support employees, and we're licensed in virtually all states for the majority of coverages we provide." Of the agency's total premium volume, farm business is about 40%, animal mortality 40%, and homeowners 20%. "A lot of what we write on the farm side is really glorified homeowners coverage for 'gentlemen farmer' accounts that traditional homeowners underwriters don't want because of either the property or liability exposures," Fredricksen explains. "For example, some underwriters will provide traditional homeowners coverage to a hobby farm with four horses; but once the owner has six horses, or takes them off the property to a show, the underwriters start to get a little nervous. In that case we offer the client a farmowners policy."

Coverages and carriers

Acting as a general agent for several carriers, Fredricksen Insurance provides a wide range of coverages in its specialized niche markets:

* Farm and ranch packages, including farm auto, excess, and umbrella

* Private horseowner liability

* Animal mortality: livestock insurance for horses, cattle, exotics, zoo animals, and preserves; bloodstock and livestock mortality; theft; agreed value; livestock surgical, major medical, and loss of use

* Bovine and equine import/export

* Riding instruction, riding clubs and associations; horse shows and events

* Care, custody, or control

* Commercial growers and packers

* Homeowners

* Residential earthquake

Through Great American Insurance Company. and American Reliable Ins. Company, Fredricksen offers a program for owner-occupied farms that are actively engaged in the production of food or fiber or the care or raising of livestock, as well as equine operations. Another key market is American Equine Insurance Group, which writes farm and estate coverages, commercial equine liability, personal horse coverage, riding clubs and associations, and horse shows and events. For homeowners business, Fredricksen represents American Reliable Insurance Company and First American Specialty Insurance Company; residential earthquake risks are placed with Pacific Select Property Insurance Company and Geovera Insurance Company.

Market challenges

What do market conditions look like for the kinds of risks Fredricksen Insurance Services writes? "In the state of California, the homeowners market is extremely tight," Fredricksen responds. "One of our carriers has decided it's not going to write any more business in California for the rest of the year. Any risk that is located in or near brush and has a high value is being reunderwritten." On the farm side, he continues, "the companies are really looking for quality risks, and we're getting a wide variety of submissions. At this point, pricing seems to be everybody's motivation because a number of farm insurers have taken pretty dramatic rate increases."

Are those increases based on adverse loss experience on farm business, or are premiums rising because of hardening in the market overall? "I'd say it's both of those issues," Fredricksen replies. "Over time, the market for farm insurance has been very soft. A number of smaller mutual companies across the United States specialize in the farm business in a particular two- or three-state area, and once the pricing starts to escalate in those areas, whether because of capacity problems or rate inadequacy, people start shopping. I don't believe that capacity is an issue at all in today's farm insurance market. For the right reasons, we can get larger risks engineered by the carrier."

His agency also can help identify desirable farm risks by taking advantage of technology, Fredricksen points out. "The Internet is becoming an underwriting tool. Just as retail producers can get information about our agency on our Web site, we're able to go online and find out what a producer might have forgotten to tell us about an insured."

On the homeowners and earthquake side, we asked Fredricksen how the products his agency offers on a wholesale basis might differ from those available to retail agents direct from an insurer. "There aren't really any differences," he replies, "because we've aligned ourselves with carriers that offer above-average products.

Our philosophy is that the only reason we're going to lose a client is that he or she sells the insured property, not because of a claim that wasn't covered. We can do all the advertising we want, but it isn't worth much when a loss isn't covered because the correct policy form wasn't in place."

When it comes to protecting its insureds, Fredricksen Insurance Services leaves nothing to chance. "We require that every house and all its contents have replacement cost coverage," Fredricksen says. "On our farm business, we have the same requirement for the qualifying barns and equipment. In our experience, most insureds think replacement cost insurance is what they're buying, and we want to make sure that's what they get." What's more, he adds, "We suggest optional coverages that are available through our farm programs. Brokers who are unfamiliar with farm and ranch operations may be unaware of these options and of their clients' need for the options."

Working with retailers

How many retail agents does Fredricksen Insurance work with, and how can the agency help retailers produce profitable equine-related business? "We have several hundred retail agents across the United States, and we ask the agent to complete a short application," Fredricksen says. "We have a contractual relationship with our agents, but we don't have a minimum premium volume requirement. A great deal of the business we write is larger accounts that are key to an agency, where the agent may not have any specific knowledge with regard to animal mortality or farmowners coverages. We help the agent understand the risk and complete the application correctly."

What are some important things a retail agent should know about farm and ranch risks and animal mortality? "Animal mortality coverage can be written on a single animal or an entire herd," Fredricksen explains. "We insure everything from an ordinary horse used for casual family riding to a Triple Crown contender, from a small dairy herd to a prize bull. Some of our insureds spend $150 a year, which is the minimum premium, to insure a $500 animal. We provide coverage limits of $200,000 on animals valued at $2 million if the client prefers to self-insure most of the risk." Racehorses that have won big purses, or are considered likely prospects, often are owned by a number of individuals, each of whom may hold, say, a 10% stake. Fredricksen can arrange coverage for the interests of one or more owners.

In terms of coverage, Fredricksen says, "Animal mortality is basically annual renewable term life insurance. It's really not that difficult, especially for a producer who has written conventional life coverage. We provide the policy forms and applications, as well as supplemental materials the agent might need; these are also available on our Web site." On the farmowners side, he says, "the application might seem intimidating because of its length--not many commercial applications are 14 to 19 pages long, with supplements. To simplify the process, we've developed a hybrid application specifically for horse farms. The retailer can give us a call and talk to an underwriter about the risk, and the underwriter can tell the agent which parts of the application are specific to that risk."

For agents who aren't experts in farm and ranch risks, Fredricksen has good news: "We don't require an application every year. We may need a liability supplement on an annual basis, but so long as there haven't been multiple changes during the policy period, we may ask for an application only once every two or three years. This is something that's unique to the farmowners business."

Standing out in the market

How does Fredricksen Insurance Services differentiate itself from competitors in the market for equine-related risks and farm and ranch coverages? "I would match our underwriting staff against that of any insurance company," Fredricksen says. "Most of our people own or have owned horses and have an extensive background in animal mortality. In the farm department, most of our employees have been with us for a long time and have insurance company experience as well. The depth of our knowledge gives us the flexibility to be a valuable resource to retail agents, from a producer who's filling out the farmowners application for the first time to a seasoned professional who has a book of business that may not fit into his or her current markets. We can review the book and assess its intrinsic value, then determine how to move the business forward in a way that makes everyone happy."

The carriers Fredricksen Insurance Services represents are solid and strong, Fredricksen says. What's more, he notes, "We're always looking for additional markets that might be able to provide a product or a service in a particular part of the country where other markets don't. I think that's one of the benefits of being nimble, as we are. We look at where we believe the marketplace is headed and make certain we have carriers that are dedicated and financially secure."

What's ahead?

How does Fredricksen view both the challenges and opportunities his agency faces in today's marketplace? "A firm like ours does well in a hard market, because so much more business flows to us for quotations," he responds. "Our challenge is to make certain that, while we're extremely busy, we maintain our underwriting guidelines so we can continue to be profitable for our carriers and provide a viable market for retail agents. At the same time we need to maintain our standards for policy issuance and turnaround time on quotes, because those issues are very important to us and to our retail agents. Once you've submitted all the information, you shouldn't have to wait a month to get a quote, and you shouldn't have to wait 60 days to get a policy. Customer service continues to be the key to our success."

With its solid carriers, specialized expertise, and high underwriting standards, Fredricksen Insurance Services clearly is well positioned as a go-to market for agents whose clients need equine- and farm-related coverages and supporting services. *