Using Captive Insurance to Manage Risk in a Changing Agricultural Sector

Few industries contend with a broader and more complex risk landscape than agriculture.

Farmers and producers face constant threats from extreme weather events—such as floods, hail, frost, and severe convective storms—which remain among the most significant dangers. At their worst, these events can cause widespread property damage and total crop losses.

In addition to weather-related risks, the sector must navigate long-standing exposures tied to production, markets, finance, credit, regulatory compliance, technology, operations, and reputation.

Emerging challenges—including cyber attacks, digital vulnerabilities, supply chain disruptions, geopolitical instability, shifting regulatory frameworks, and biosecurity threats—are further reshaping agricultural risk management strategies.

"Many of the historical risks that agricultural producers have faced are the same risks they face today," said Aaron Hillebrandt, principal and consulting actuary at Pinnacle Actuarial Resources. "That includes losses from yield or weather-related risk from natural disasters such as wind, drought, flood, or hail. There is also a long history of farmers insuring against losses from pest- or disease-related damage.

"While none of those are emerging risks, climate change is often cited as an exacerbating and complicating contributor, worsening their impact and making their impact more acute for farmers."

Captive insurance offers a strategic solution.

Captives can offer agricultural businesses a strategic means to insure risks that are difficult to place in the commercial market—such as those involving regulatory complexity, weather volatility, or emerging technologies. While forming a captive requires up-front investment, it can ultimately lead to more efficient risk financing and improved long-term cost stability, particularly for risks where commercial capacity is limited or prohibitively priced.

"The flexibility of captive insurance makes it a good risk management strategy for farmers of all types and sizes," said Mr. Hillebrandt. "They look to captive insurance as an alternative to the commercial market in situations where the commercial market does not sufficiently cover emerging risks or where there are significant uninsured exposures, such as large retentions on federal multiperil crop insurance."

"Captive insurance can be a powerful risk management tool for the agricultural sector, providing tailored coverage, cost efficiency, and long-term strategic value," said Jeff Wilson, captive insurance director at the Iowa Department of Insurance and Financial Services. "In fact, these are many of the same reasons any business might consider forming a captive."

Key Risk Drivers in Modern Agriculture

Agricultural companies face a range of evolving risks. According to Anne Marie Towle, CEO of Global Risk and Captive Solutions at Hylant, these include economic pressures, environmental threats, policy instability, labor constraints, technological disruption, and changing market dynamics.

Economic pressures are intensifying. Input costs for fertilizer, seed, fuel, and equipment remain high, squeezing margins. Net farm income is expected to decline for the third consecutive year—especially in grain and oilseed sectors. At the same time, many producers are carrying high levels of debt, often tied to variable-rate loans vulnerable to interest rate swings.

Environmental challenges include persistent drought—particularly in the western United States—which is pushing farmers to reconsider water-intensive crops such as almonds and alfalfa. More frequent floods, storms, and heat waves are also disrupting planting and harvesting cycles.

Trade and policy uncertainty continue to complicate planning. Global tensions, particularly with China, are impacting key crop exports like soybeans and corn. Meanwhile, ambiguity around biofuel policy has made long-term investment decisions more difficult.

Labor shortages remain a persistent challenge, exacerbated by immigration policy changes and declining rural populations.

Technology-driven disruption poses both opportunity and risk. While tools like precision agriculture and artificial intelligence promise efficiency gains, high costs and uncertain returns are slowing adoption. At the same time, greater digitization introduces growing vulnerabilities to cyber attacks.

Consumer and market shifts are also changing the landscape. There is increasing demand for sustainable, organic practices. In addition, the rise of plant-based and lab-grown proteins may disrupt traditional livestock markets.

"Trade disruption and tariff volatility are among the more pressing and rapidly evolving risks facing the agricultural sector," said Mr. Hillebrandt. "Exports are vital to US agriculture, and uncertainty in trade policy creates significant exposure for farmers. While the full impact on property and casualty insurance is still emerging, captives are well positioned to respond—particularly through tools like parametric insurance."

Coverage Needs and Captive Insurance Applications in Agriculture

Agricultural operations typically require a range of insurance coverages to protect against operational and external risks. Common coverage lines include workers compensation, business interruption, crop insurance (particularly for climate and environmental perils), general liability, and product recall insurance.

Captive insurance is especially valuable for supplementing or replacing crop insurance—either where federal programs fall short or where additional, customized layers of coverage are needed.

"From an agricultural standpoint, the three most common lines placed in captives are property, workers compensation, and auto liability," said Rob Humphries, partner at Honigman LLP. "These coverages are increasingly written through captives in today's hard market—where commercial options may be unavailable, unaffordable, or where retaining a specific layer of risk makes financial sense."

Captive Structures and Considerations for Agricultural Organizations

Agricultural businesses can access captive insurance through several types of structures, including single-parent, group, and cell captives. The best option depends on the organization's size, risk profile, and strategic objectives.

Single-parent captives—also called "pure captives"—are typically formed by larger organizations with sufficient premium volume and long-term risk financing goals. These offer the greatest control but require a substantial commitment of resources.

Group captives and cell captives (including sponsored cell programs) are often more accessible to midsize or smaller agricultural operations that want the benefits of captive participation without bearing the full cost of stand-alone ownership. Group captives are formed by multiple organizations with shared risk characteristics, while cell captives allow entities to operate within a protected structure hosted by a sponsor.

"As with any industry, establishing a single-parent captive requires a certain critical mass," said Mr. Hillebrandt. "Smaller organizations may instead participate through a group captive or a sponsored cell structure. For example, a large agricultural company growing avocados and other produce in California's Central Valley might form a pure captive, while a network of soybean producers in Illinois and Indiana may find a group or cell arrangement more appropriate. Ultimately, the choice depends on the type of risk, the organization's risk appetite, and its overall insurance strategy."

"In agriculture, two primary captive structures are commonly used: group captives and sponsored cell programs," said Mr. Humphries. "These are typically formed by homogeneous groups of businesses that collaborate with service providers and brokers who understand the sector's unique risks and operations. Because these organizations often face similar challenges, they benefit from shared solutions in coverage and risk management."

While there is no formal ranking of top captive domiciles by agricultural captive volume, a number of US jurisdictions—such as Delaware, Missouri, North Carolina, South Carolina, Iowa, Vermont, Utah, and Tennessee—offer regulatory frameworks that are well suited for group, cell, and single-parent captive structures, which may align with the needs of agricultural organizations. Domicile selection ultimately depends on factors such as captive type, risk appetite, formation costs, and access to experienced service providers. Offshore jurisdictions like Bermuda and the Cayman Islands are also commonly used, especially for companies with international exposures.

Strategic Advantages of Captive Insurance for Agricultural Organizations

Captive insurance offers several strategic advantages for agricultural businesses navigating climate volatility, market disruptions, and industry-specific coverage gaps. These include the following.

• Stabilizing costs in unpredictable cycles: Farmers face volatile input prices and climate-related losses. Captives help smooth premium fluctuations over time, especially when commercial rates spike in response to natural disasters or market uncertainty.
• Customizing coverage for difficult-to-insure risks: Traditional insurers may exclude or heavily surcharge for exposures such as pest infestation, disease outbreaks, or extreme weather events. Captives enable agribusinesses to design tailored policies that address these specialized risks—particularly those considered uninsurable or inefficiently priced in the commercial market.
• Filling gaps in federal and index-based programs: Captives can complement multiperil crop insurance or parametric (index-based) solutions backed by the US Department of Agriculture by covering deductibles, excluded perils, or retained layers—ensuring a more complete risk financing strategy.
• Controlling claims management and service providers: Through a captive, organizations can take a more hands-on role in claims handling, legal services, and loss control—especially valuable for cooperatives or vertically integrated operations.
• Accessing reinsurance to manage catastrophic layers: Captives can open the door to the global reinsurance market, allowing agriculture businesses to retain predictable, frequent losses while reinsuring high-severity events such as wildfire, drought, or extreme weather clusters.

"Captives can serve as a flexible tool for farmers, helping to address coverage gaps left by traditional insurance or to manage complex, evolving risks," said Jeremy Colombik, managing partner at Management Services International. "They can also be used in combination with index-based, parametric coverages—enabling farmers to self-insure more predictable losses while securing reinsurance for catastrophic events."

Structuring Risk Management for Agricultural Captives

In agriculture, risk management must address a wide range of variable exposures—from catastrophic weather and pest outbreaks to volatile commodity pricing and shifting regulatory conditions.

For organizations utilizing captives, risk management is not only about mitigation but also directly informs how coverage is structured, layers are financed, and capital is allocated for long-term resilience.

Captive insurance encourages a more tailored and data-driven approach to risk quantification and prioritization. This typically begins with identifying operational vulnerabilities across the agricultural value chain—such as climate-sensitive production cycles, seasonal labor needs, biosecurity controls, and regional regulatory variation. From there, captive owners and advisers can develop layered programs that reflect organizational risk appetite, loss experience, and available reinsurance capacity.

For example, a multistate produce cooperative may use a single-parent captive to retain predictable losses from equipment breakdowns and pest-related crop damage while purchasing reinsurance for catastrophic weather events. This structure allows the cooperative to stabilize premiums, invest in risk mitigation technologies like precision spraying, and ensure funding is available for rapid recovery after adverse events.

"Effective risk management begins with a clear understanding of the enterprise, its exposures, and how the organization approaches those risks," said Mr. Hillebrandt. "Cannabis growers, for example, face distinct regulatory challenges alongside traditional agricultural exposures. As a result, they require carefully tailored solutions. These factors help shape the initial coverage design—determining which risks to retain, which to insure, and how the program should evolve over time.

"Reinsurance is also a critical pillar of agricultural risk management, particularly in the context of multiperil crop insurance and other catastrophic exposures," Mr. Hillebrandt added. "The interconnected nature of climate, supply chains, and geopolitical risk underscores the need for a disciplined approach—and reinsurance often plays a central role in building financial resilience."

Emerging Trends Shaping the Future of Agricultural Captives

As agricultural risks grow more climate-dependent and volatile, captives are increasingly integrating parametric insurance into their programs. These solutions trigger payouts based on objective measures—such as rainfall shortfalls, wind speed, or temperature thresholds—rather than waiting for traditional claims adjustments.

Captives often retain the more frequent, lower-severity layers of risk and use parametric coverage to respond quickly to catastrophic losses. This blended approach improves liquidity, speeds recovery, and enables more strategic use of reinsurance for hard-to-place exposures like drought or severe convective storms.

"Parametric coverage doesn't price policies in the same manner as traditional insurance, so we're starting to see a new trend in how captives are structured," said Mr. Colombik. "With the hardening market driving up costs and reducing coverage availability, captives can help manage premium increases and provide difference-in-conditions coverage to fill gaps left by the commercial insurance market."

Beyond pricing flexibility, captives are also playing a broader role in enabling innovation. "Captive insurance is an enabler of innovation—in agriculture and across industries," said Mr. Hillebrandt. "Captives help cover novel risks that the commercial market isn't yet positioned to underwrite, offering tailored, flexible protection. Because innovation is often driven by start-ups and entrepreneurs, cost control and financial flexibility are key reasons they turn to captives as a risk management strategy."

Mr. Hillebrandt also pointed to climate and environmental risks as a growing area of focus. "We've already seen significant interest in coverage for weather volatility, pollution liability, overspray liability, and pesticide-resistant pests. These exposures affect not only the producers on the front lines but also the broader supply chain and agricultural economies at both local and global levels."

As agricultural businesses adapt to growing complexity and climate risk, captive insurance continues to offer a flexible, cost-effective solution. By enabling innovation, tailoring coverage, and improving access to reinsurance, captives are becoming an essential tool in modern agricultural risk management.