Steve Field, Risk Specialist with farm insurer Achmea
Farmers in WA can’t afford to underinsure their farm businesses. With the values of most hay and grains in WA up by more than 30% in 2018 compared to the previous year, what is often overlooked is updating the insurance cover to take these higher than expected values into account.
A drier than average three months from February through to April is predicted for most of western and southern Australia, according to the Bureau of Meteorology’s latest climate outlook .
Good growth from late spring and winter rain has left us with large bodies of dry fuel, which is predicted to further increase the bushfire risk in certain parts of the state .
Farmers understand and regularly reflect on the financial risk of fire in the paddock, including crops and livestock. However, fire also poses significant financial risks through loss of stubble, pasture, farm buildings and infrastructure.
Underinsured farmers face risks
With cost savings top of mind particularly for farmers facing cashflow reductions, many are currently reconsidering areas of expenditure, including insurance.
There are several options available to farmers to reduce their premiums to provide short-term financial relief. To lower premiums, it’s not uncommon for farmers to consider reducing their Sums Insured. However, this is one of the biggest risks a farmer could take.
While some short-term cost savings are achieved, farmers can be left underinsured and financially exposed, with damages often much greater than what they are able to bear alone.
Farmers can’t afford to underinsure their farm businesses
As an Achmea Risk Specialist, I partner with farmers across WA to conduct an ‘on-farm’ risk review to help identify hazards to avoid losses before they occur. Reducing risks is key to building resilience, and mitigating risks often means keeping repair bills and premiums down.
A farmer’s business changes over time, as do their priorities, their risks and their insurance. Regularly updating the values of your most important assets will help to ensure adequate cover.
Particularly during the intensified bushfire season, I urge farmers in WA to set a Sum Insured based on an up-to-date analysis of the value of the items they wish to insure.
If the Sum Insured has not been updated for several years, it most likely will not reflect the accurate value, which means farmers may be underinsured. What farmers often don’t realise is that when a building is underinsured, in the event of a partial loss, the farmer may run the risk of only receiving a portion of their Sums Insured.
Put simply, if you’re only partially insured, your insurer may only pay part of your claim.
While some short-term cost savings are achieved with reduced premiums, in the event of a claim, a farmer could run the risk of not being able to rebuild their assets. There are other ways to reduce premiums without exposing a farming enterprise to business continuity risks.
Greater resilience and financial security through a higher excess
While farmers must be financially secure to meet their excess after an insured event, taking out a higher excess could substantially reduce premiums. The financial impact of a higher excess often is significantly lower than having a reduced Sum Insured, as the latter could leave farmers unable to continue their business.
By opting for a higher excess, it’s possible to lower premiums and also protect against the risk of underinsurance. This helps support greater resilience and security so the continuity of the farm is safeguarded, whilst relieving some of the immediate financial pressure. Not only does underinsurance have potential negative impacts on individual farming businesses, but underinsurance can also significantly affect economic resilience in our regional communities.
Farm insurance: not a one-size-fits all approach
Wherever we farm and whatever our industry, local agricultural knowledge needs to go hand in hand with insurance expertise to ensure even the most profitable farmers are adequately protected from unexpected loss.
According to our associate Rabobank, the 2018 WA harvest was forecast to produce 3% more grain than 2017 . Furthermore, the values of most hay and grains in WA were up by more than 30% in 2018 compared to the previous year, meaning it’s timely to review cover for these assets that may be stored on farm.
Again, what is often overlooked is updating the insurance cover to take these higher than expected values into account. The cover a farmer in WA had five or even just two years ago most likely needs to be reviewed and updated to reflect current values year on year.
Asking the tough questions to keep farmers farming.
As a Risk Specialist with Achmea farm insurance based in WA, I have witnessed first-hand the widespread damage bushfires can cause. With another bushfire season underway, warmer than average conditions and a new season upon us, now is the time to review and update your policy.
The impact of a loss is wide-reaching and not limited to loss of income alone. As highlighted by Beyond Blue, when the elements are unforgiving relationships can also be severely impacted .
I urge farmers to ask the tough questions of their insurers to ensure they update their insurance needs based on their unique farming situations. Insurance for valuable farm buildings should never be a set and forget approach.
To continue to strengthen the resilience of agricultural communities, we all need to work together to minimise the impact of disasters by managing risks and avoiding the risk of underinsurance to keep our farmers farming.