The 2019/20 winter cropping plans are a hot topic in broadacre areas at the moment and with the mid-range weather still uncertain, many are deciding what to plant, if to plant and what type of insurance they should take out to ensure they're covered this season.
With this in mind, we're going to take a look into different forms of crop insurance available in 2019. The good news is that farmers have more options than ever before to protect crop investments. Some insurance products are simple and easily available, while others are relatively new.
2019 sees a significant drop in the number of companies offering Multi-Peril Crop Insurance (MPCI), with at least three major insurers withdrawing products and those remaining likely to face capacity restrictions. This is largely due to the expense, poor uptake by the farming community and unfavourable claims results over the past four years.
Single Peril weather products have recently been introduced to fill this void. This offers increased flexibility to farmers and agricultural businesses wishing to offset specific risks vital to their own situation.
While the concept of covering all perils is certainly desirable, many perils are already being treated by everyday farming techniques; the use of chemicals, fungicides and top up fertilisers. The overwhelming perils affecting yields are lack of rain, frosts, fire and hail.
Fire and hail insurance are still readily available and reasonably priced. This generally leaves two key perils that need to be covered; rain and frost. Often severe frost and drought conditions go hand in hand where the lack of moisture permeates into below zero temperatures.
Many family farms can produce their own rain records for 50 plus years. A quick review of these years matching rain against frost events might allow a strong degree of correlation allowing you to pick a point where the single peril cover of rain will give you the broadest cover at the lowest cost per hectare.
A major advantage of the single-peril products is the flexibility in when you take them out and the periods of risk you can cover. Unlike MPCI covers which need to be bound around mid-April, single peril products can be taken out up to 30 days prior to the risk period.
Let's look at some of the options:
Fire and Hail Insurance
This is commonly available in Australia and generally the cheapest perils to cover.
- Covers your crop for specified perils, usually fire and hail, but also includes some other benefits such as transit insurance (following harvest), some storage cover and damage caused by straying livestock.
- Covers your loss of yield following a loss caused by an insured peril.
- You can insure for an agreed value per tonne.
- You may have to declare an estimated yield and this will be used to calculate the premium, as well as set a ceiling for the maximum amount payable in the event of a claim.
- Some products let you adjust that yield periodically as the crop develops while others allow you to declare the actual crop harvested and calculate your premium accordingly.
Multi-Peril Crop Insurance (MPCI)
MPCI generally covers farmers for the loss of yield and/or farm revenue loss caused by a multitude of insured perils. Peril risks can include lack of rainfall, too much rainfall, frost, heat, wind stress, revenue shortfall and a number of others depending on the product. Hence, premiums can be expensive. In addition, there are set up costs to consider as historical farm financials are generally required. This data might be time consuming for farmers to obtain.
- Farm income protection
- Agreed minimum yield
- Parametric or weather indexation
Single Peril Weather Insurance
This is a new product suitable for farmers with specific concerns. Currently, it is one of the simplest products to obtain.
A product is tailored for specific weather events that are important to your farm. You set the parameters (e.g. below average rainfall over a three-month period - either the sowing period or prior to harvest). Premiums are calculated according to the parameters set.
Commonly farmers will want protection against:
- Lack of rain (specify the period)
- Frost (specify the period)
- Too much rain (specify the period)
- Wind (or cyclone activity)
These products rely on objective, independent, meteorological data so there is no need for loss adjustment or claims negotiation. Revenue reductions or expense enlargements are compensated for within days of contract conclusion.
Protection is tailored to your precise location, exposure and financial requirements. Unlike more commoditised risk transfer policies, weather contracts are bespoke to each farmer's needs.
The only limitations are a third-party data reference provider is used and cover usually needs to be bound at least one month out from the inception date.
Cost of Insurance
A problem many farmers encounter is the cost of insurance. It's priceless when you need it, but expensive when you don't. There isn't really a one size fits all insurance premium as it is heavily tailored to you and your business and sometimes the cover you want is cost prohibitive. Agfarm believe the inclusion of crop insurance is prudent in broadacre farming. For this reason, we have included crop insurance as an approved input that can be paid with Agfarm Accelerate, our input finance program. For more information on Agfarm Accelerate and how it an assist you this season, visit www.agfarm.com.au/finance or call your Agfarm Regional Manager on the details below.
- QLD/NSW - Anthony Hall 0400 873 777
- VIC - James Ryssenbeek 0447 743 556
- SA - Kate Phillips 0438 128 472
- WA - Reid Seaby 0439 625 853
Which type of insurance is best for your farm or agricultural business?
A locally based insurance broker can help you sort through all the current options available in the marketplace and advise the way forward. For more information and to speak with your local Ausure insurance adviser, call Michael Cullinan on 0447 528 116 or visit www.ausure.com.au.