Protecting Equine Investment
- Mar 1, 2002
Equine insurance is not necessarily about how much the horse is worth, but how much the owner can afford to lose. Many horse owners in Kentucky, Ohio, and other states last year were struck by an unexpected, widespread loss of foals. Related health problems (pericarditis and uveitis) also were in the news, as were unrelated diseases such as West Nile virus.
Whether to insure or not is an individual decision: Can you afford to replace your horse if he dies? Can you handle major veterinary bills without straining or draining your financial resources? Even if your horse never gets sick, can you with stand a liability claim if your horse injures someone or damages his or her property? If not, then perhaps you should consider insuring your horse.
The foundation for equine insurance is mortality coverage. Explains Mary Ann Kean, director of mortality underwriting at Markel Insurance Company, "All-risk mortality covers the value of the horse as indicated in the policy should he die or have to be put down as a result of accident, illness, or injury. Mortality also covers theft."
Limited mortality, also known as specified perils, covers only particular, designated causes of death such as a transportation accident, lightning, or fire. The value of the horse is either an agreed-upon amount or the fair market value of the horse at the time of his death.
With mortality insurance, one can add on additional coverages or endorsements, the most common being medical/surgical. In addition, more highly specialized coverages can be obtained, such as infertility. Endorsements are only available in addition to mortality insurance; they cannot be purchased separately. Following are some of those additional coverages or endorsements.
Medical/surgical insurance generally covers the costs of critical health problems involving surgery, lameness, injury, or illnesses. It does not cover pre-existing conditions or routine check-ups, elective surgeries (such as castration), vaccinations, or other wellness procedures.
Surgical coverage is a cheaper option that covers surgical costs, but not non-surgical medical therapies. Colic coverage, as a standalone item, is offered by some companies because of the unfortunately high frequency of colic surgery.
Permanent disability insurance reimburses the owner for a portion of the horse's insured value if the horse is perma nently disabled and unable to perform for the use stated in the policy, says Kean. This is used primarily for show horses and is not available for racehorses. This is fairly "technical" coverage and a horse owner should carefully review the policy wording.
Stallion infertility insurance covers infertility in the stallion as a result of accident, sickness, or disease occurring during the policy and resulting in permanent infertility.
Prospective foal coverage insures the unborn foal in the event that he is not born alive or lives for less than a specified number of days. "This is usually utilized for Thoroughbred breeding stock and for known producers in the show ring," Kean says.
Guaranteed renewal is not as simple as it sounds. The age and health of your horse, as well as other restrictions and limitations set forth by the insurance company, might mean that you can't get insurance next year on a horse you insured this year. However, some companies might offer--sometimes for an additional fee--guaranteed renewal of your insurance. This should be discussed prior to obtaining insurance.
Liability insurance is a little different from insurance bought to cover medical and surgical costs or death of a horse. It protects against injury or damage the horse might cause to another person, horse, or property (i.e., the stablemate which gets bitten, the friend who is thrown, the automobile driver whose vehicle makes violent contact with him while he's running away).
Lance Allen, DVM, CIC (Certified Insurance Counselor), and the president of Agri-Risk Services, Inc., states, "Liability insurance protects when alleged negligence occurs, either by defending the insured owner or settling a claim that arises." Liability insurance is meant to protect an owner from losing their home or other assets due to a liability lawsuit.
Two types of liability insurance might be offered: Commercial (for professionals involved in training, instructing, breeding, clinics, etc.) and personal/private (for individuals using their own horses for their own, personal uses).
Costs for liability insurance depend on the horse's exposure to other people and their property and the annual limit. "Someone who instructs three people a week will have a lower premium than an instructor who teaches full-time," Allen states.
Commercial liability costs more than personal liability. "Costs for commercial coverage can be as low as $300 per year for a policy at lower limits and minimal business exposure. Most customers, however, want the best coverage with the highest limits available, meaning occurrence limits of $500,000 or $1 million with annual aggregate limits of $1 million to $2 million. The minimum premium for these limits generally begins at $500 to $750, respectively."
Mortality insurance carries with it certain obligations on behalf of the policyholder. For example, pre-existing conditions such as arthritis, navicular, colic, etc., must be disclosed prior to obtaining a mortality policy.
"Owners should be forthright when they complete their applications," says Allen. "They'll be asked if their horse had any injuries, illnesses, colic, or lameness in the last year or two. They should answer truthfully. If the company doesn't put an exclusion on--and often they don't--then when those problems come up again, the company is obligated to take care of them."
But if the policyholder does not disclose a pre-existing problem that recurs after the policy is issued, the problem might not be covered. "The insurance company always contacts the veterinarian when a problem is reported," Allen says. "If the veterinarian says he treated the horse for that problem in the past, because that particular problem turned out to be pre-existing and unreported, it would not be covered."
All mortality policies require immediate notice of illness or injury, says Kean. "Something that can seem very innocent can turn very serious, so if a horse owner waits before he/she reports the problem to the insurance company, they could void the coverage."
Policyholders are required to provide adequate, reasonable veterinary care to keep the policy in force. Explains Allen, "If, for example, your veterinarian says your horse has colic and needs surgery and you wish to keep your mortality coverage intact, you don't have the option of declining surgery and opting for euthanasia. The mortality policy requires that if your veterinarian says the horse has a reasonable chance of recovery, you need to do that."
If euthanasia is being considered, the insurance company should be advised and given the opportunity to be involved in that decision.
Companies often have a minimum premium per policy ($150-$250). This usually covers animal values in the $2,500-$3,000 range for mortality and might include medical or surgical coverage.
Breed, age, and use determine base premium rates: Ages that are more vulnerable to health problems, breeds, and sports that carry more risks necessitate higher premiums.
For example, Alan Hutchison, equine mortality underwriter for American Live Stock Insurance Company, says of his company's rates, "Foals through age six months tend to have a higher premium charge. After age 12 years, premiums increase because of older age. The premium charge for a racehorse is greater than for a pleasure horse."
At Markel, base rates cover horses from 91 days old through 15 years, excluding racehorses and a few particular breeds.
At Agri-Risk, rates start to inch up after a horse becomes 15 years old, until they get high enough where most owners cease to insure the horse, Allen says. "Typically, the company will not insure any horse over 19 or 20 years of age."
Rates are similar industry-wide. "For most show and performance horses from 91 days to 15 years, mortality rates range from 3-3.18% per year of the horse's value, up to a $30,000 value," says Markel's Kean. Horses which race or partake in higher-risk sports, and those older or younger than the base rate age bracket are charged a higher percentage. There is no deductible for mortality unless they are part of a large and highly-valued group.
Medical/surgical coverage carries a per-incident deductible based on the maximum allowable yearly coverage.
"The typical deductible is $200 on a $5,000 policy, $250 for $7,500, and $300 for $10,000," says Allen. Other companies also offer a co-pay option: For $8,000 maximum yearly coverage, the policy owner pays a $165 yearly premium, a $500 per claim deductible, and a 25% co-pay on the first $2,000.
The Right Stuff
It's best to place your insurance with an agent and company that specialize in equine insurance. "The agency should be knowledgeable of both equine and insurance professions," says Hutchison. "The ability to smoothly interact in both worlds is necessary. The agent should be a thorough, reliable business person, easy to contact, and someone you are comfortable with."
Says Kean, "It's difficult for your typical independent agent to understand the different breeds, uses, and physical problems. You're better off dealing with a horse person. Look for a company or agent affiliated with your breed or discipline, that advertises to and supports your breed and/or discipline."
Seek recommendations from horse-owning friends, trainers, or your veteri narian, Allen suggests. "Ask your friends about their insurance companies and their responses to their claims. How did the company respond when the horse had colic at 11 at night? Were the claims people available to talk to? Were they available to speak to the veterinarian?"
The insurance company should be licensed and admitted (authorized to write insurance by the state insurance department) in your state and have an A rating by A.M. Best Financial Rating--the higher the rating, the better the company's past performance. (You can obtain those ratings from the agent or by visiting the A.M. Best web site at www.ambest.com.) "If you're not dealing with an admitted, licensed carrier in your state, you have no protection if the company has a problem," Kean says.
Before signing on the dotted line, read the policy and ask questions about anything you don't understand. "If there are questions, the agent should be able to assist in the review," says Hutchison. "Always read the exclusions section very carefully. Make special note of any items the insured must adhere to." Make sure you know what risks are covered and your policy's limits so that you're providing the most appropriate coverage that you can for your horse.
By being a smart consumer, you can offer your horse medical protection while at the same time protecting your own financial investment.
INSURANCE IN A POST-WTC WORLD
"The entire insurance world, including the equine mortality end, is undergoing substantial changes," says Duncan Alexander, president of the American Live Stock Insurance Company. "Many of these changes were beginning to take place even before the events of Sept. 11, 2001, and have now been pushed along faster and further. Rates in most areas of insurance are going up, and availability of coverage is decreasing substantially. It is my guess that these changes will continue on into 2002 and will probably not stabilize for some time."
Mary Ann Kean, senior mortality underwriter at Markel Insurance Company, says, "The attacks on the World Trade Center will affect all insurances because it was a major loss for the insurance industry.
"Most insurance companies only retain a portion of the total sum insured. If you have a $1-million racehorse, for example, the company may not retain all of that within its company, but may be reinsuring a portion of that with a reinsurance company. With the World Trade Center attacks, reinsurers took most of the loss, but will pass along a price increase to help cover those losses."--Marcia King
About the Author
Marcia King is an award-winning freelance writer based in Ohio who specializes in equine, canine, and feline veterinary topics. She's schooled in hunt seat, dressage, and Western pleasure.
POLL: Enriching Your Horse's Environment