The growing market for hemp crop insurance
Hemp is on a high.
Total sales for hemp-based products were $1.1 billion in 2018 – and that amount is expected to double by 2022. Fueling this growth is demand for CBD products, which are marketed as a remedy for multiple ailments, including chronic pain, anxiety, and insomnia. (To clarify, CBD will not get you high, unlike its cousin, THC.) Hemp also can be used for fibers, clothing, rope, building materials, and other everyday applications. Farmers everywhere are rushing to plant more of this profitable crop. Indeed, the number of acres devoted to hemp production quadrupled in just the past year.
The U.S. government added legitimacy to the budding industry by recently removing hemp from its controlled-drug category. The USDA followed with an announcement that licensed hemp producers are now eligible to participate in two government-backed agricultural insurance programs – the Multi-Peril Crop Insurance program and the Noninsured Crop Disaster Assistance Program.
With states continuing to legalize production and ever-higher demand for products, hemp is becoming big business. And risk management practices will have to catch up quickly. To date, there has not been an established market for risk management products to help hemp producers offset the risks facing this agricultural sub-industry. Now that hemp is afforded some of the same government protections as traditional crops, that could be about to change. Here’s how:
Private-sector insurance. If the government’s program proves profitable, the private sector could soon follow with new insurance programs, specialized MGAs (managing general agents), and perhaps more involvement by InsurTech. And that’s big news. The last major new coverage category created was for cyber-risk insurance a decade ago. Hemp coverage could spur similar growth in the agricultural insurance market.
A growing need for technology. As large-scale producers emerge, they will need systems to manage, maintain, and standardize processes around their risk management data. Producers will need a flexible tool like a RMIS to evaluate and manage the complexities around agricultural risks that are typically insured. Equally important for hemp producers, however, will be the ability to stay on top of the GRC side of risk management – compliance in particular. Hemp production and byproducts are highly regulated, a fact that is not likely to change in the foreseeable future. Keeping up with all applicable local laws and regulations will take sophisticated compliance technology to make sure nothing critical falls through the cracks.
Requirements for the future. With demand for hemp and its byproducts booming, the industry will increasingly need tools to manage growing exposure to operational risks, including third-party suppliers, supply chain, and those relating to humans. Thousands of new agricultural workers will be needed to farm this labor-intensive crop, and more workers will be needed to process the raw materials and manufacture that into products. Along the way, the industry will need support from accountants, lawyers, compliance officers, IT specialists, insurance experts, and more – all of whom bring in risks that must be measured, tracked, and managed.
The success or failure of hemp as a business will rest on the ability of the operator to successfully manage risk. The bigger the business, the bigger the risks – and the bigger the possibility of reward. There’s no telling how high those rewards could go for the hemp industry.
For more information on purchasing a RMIS, check out our RMIS Software Guide