I know I’ve probably lost a few readers just from the mention of insurance, but for the greater good I will persist. This season we saw optimism in the harvest spread far and wide until mother nature unleashed a series of abnormal weather events. We’ve all heard the stories of those that are uninsured. The devastation from hopes for a good year to a near wipe out so close to harvest have been felt widely.
Yet in Australia the uptake of multi-peril crop insurance is less than expected. The perception of high premiums and a general lack of understanding of the available policies is most definitely to blame.
However, its times like these when growers who may have previously dismissed the idea of insurance or balked at the price are reconsidering its value. In this article, we take a broad look at the types of products for multiperil crop insurance and how they work.
Multiperil crop insurance (MPCI) safeguards returns against unexpected events above and beyond the standard hail and fire. Policies available can now cover a range of crops, oilseeds and legumes against perils such as weather, pests, plant disease and livestock damage.
MPCI products on the markets differ in structure, and can be categorized as follows:
Business income protection
Revenue protection insurance protects a growers equity by protecting cash flow. This product is designed to maintain cash flow by guaranteeing revenue and thus ensures access to additional working capital. The income based structure takes into account price as well as production, so requires production and income audit information, as well as farm plans and projections for assessment.
Payouts are triggered by the effects of a peril and claims are calculated on the difference between the farm’s actual income and the insured income level. The banded structure of this product means that growers can select more or less cover up to the limit determined by their average income.
It is expected that after a hiatus in 2017 that Latevo will offer a business income protection insurance in 2018.
Maintained revenue proportion
Coverage options for this product are calculated on accrued average of a grower’s farm business performance and cropping history. A grower’s options for coverage are a percentage of their average revenue so the protection options are flexible. Payouts are the difference between the coverage amount and the actual revenue if caused by a peril.
Sure Season are an Australian company that offer this type of MPCI. Their product has an upfront, fixed but one-off cost for risk assessment and quote, which is deducted in half if a policy is taken out. The initial cost of assessment is for life, so even if you don’t take out a policy, they will reassess your farm at a later year at no additional cost.
Agreed minimum yield
This product type insures the production of the crop rather than any income or revenue levels. Again, there are a range of percentage coverage levels for growers to choose from which are based on the approved yield. Assessments are thus based on cropping history and can be a simpler process than other forms of MPCI. The payouts for claims are the difference between the ‘guaranteed production’ (insured amount) and the actual production yield.
Cropsure, Primeguard and for the first time Landmark are expected to offer products based on agreed minimum yields in 2018.
The Federal Government is offering a once only rebate for advice and assessments to help growers apply for a new insurance policy. The rebates are for half of the cost incurred by the business, to a maximum of $2,500.
The key benefit of insurance is to provide protection against adverse elements, and reduce production risk on farm. An insurance policy will only be beneficial if the premiums do not exceed the value of self insuring.
From a different point of view, being covered from the production loss, is also an investment in your own mental health.