The drought may have reignited the discussion about multi-peril crop insurance, but this discussion needs to be about more than just the drought.
This is a risk management tool that can work along side the farm management deposits, low interest loans and the farm innovation fund.
It is also an opportunity to be talking about how multi-peril insurance policies can be better designed to encourage improved farm management that can reduce risk for the farm business, its bank, and the insurer.
Farmers have had trouble justifying the cost of premiums, but this is where a tax off-set, for a limited period such as five years, could help a few more people dip their toe in the water and allow the industry to get a better proof of concept.
When the government is searching for ways to transition farmers away from drought subsidies and into preparedness, it seems crazy it hasn’t already given this option a more serious look.
Especially when there is very little out there in the way of drought support for cropping operations.
The businesses in town that supply those farmers are also effected, so if this option could help build in resilience at the farm level, it will pay back, and, unlike direct drought subsidies, the government will get more tax back sooner.
Some areas that might still need looking into are whether the insurers have the right talent on board when setting the policy, especially in making sure the farmer is demonstrating best practice and innovation.
One other area is in the claims trigger process. Are on-farm weather systems that help verify details such as soil moisture at planting, or the severity of a localised frost event trustworthy?
Technology should help fill this gap, and is needed to help build trust into the system for the insurer, and confidence for the farmer, so if they have a genuine claim, it will be honoured.
This type of insurance is certainty around a minimum level of income for the farmer and creates a starting point for planning.
Longer term this has benefits for re-investing in the farm and creates a platform for improved farm practices.
It is in everybody’s interest to harvest a successful crop, so if we can make sure the policies can be structured correctly, then a tax off-set is a good idea.