A New Jersey insurance company has drawn the ire of drought-suffering farmers and state regulators who say the insurer appears to be backing off an offer to provide drought insurance.
Insurance officials in at least three states--Minnesota, Indiana and Ohio--are looking into the policies offered during a six-week period in May and June by Federal Insurance Co., a subsidiary of Chubb Group Insurance Cos. of Warren, N.J.
"People are in a panic out here," Keith Kendall, an administrative officer for the Indiana Insurance Department, said Monday. "They were lined up around the block to buy this stuff."
The company is offering to return premiums to farmers, saying sales of the policies exceeded its coverage capacity. But officials in Minnesota and Indiana warned that Chubb could possibly lose its license to do business in those states if it did not provide the coverage.
Essentially, the policy offers coverage for crop damage caused by below-average rainfall. Depending on the policy, the less rain that falls, the more money is paid.
Chubb said the policy is a variation on the type of coverage offered to outdoor event promoters insuring against a rain-out.
Chubb said Monday that only about 40 policies actually had been issued out of thousands of applications filed from May 1 to June 17. The company said Federal's insurance agent, Good Weather International, which developed the policy, was authorized to provide only up to $22.5 million in coverage in the Farm Belt states.
Shortly before the enrollment period expired, news stories about the drought and Good Weather's marketing brought on a flood of applications, Chubb spokeswoman Mary Lu Korkuch said. About 8,000 to 9,000 applications had come in since June 17, she said.
"We are still seeking to determine the magnitude of coverage requested above the capacity limit which we are committed to, and we are working to develop a proposal to state insurance commissioners about how to best manage the situation," she said.