Weathering the Storm: Evaluating Captive Insurance for Iowa Cooperatives in Crisis

Abstract

Iowa agricultural cooperatives are facing a crisis in obtaining affordable and comprehensive property and casualty insurance due to the withdrawal of major carriers and significant increases in premiums and deductibles. The regulatory requirements for property and casualty insurance and its importance for securing commercial loans make this crisis particularly concerning. This paper examines captive insurance as an alternative for Iowa cooperatives, outlining the benefits and challenges of a self-insurance model. While captive insurance offers customization, potential cost savings, tax incentives, and risk management benefits, cooperatives must consider high start-up costs, limited risk pooling, and selective admission. The paper also discusses strategies for overcoming these challenges, such as purchasing reinsurance and diversifying captive membership. The issue will be further explored at an upcoming cooperative CFO conference in June 2023.