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Agricultural Insurance
Monday, November 1, 2010
Specialist needs, need special advice

Farmers face myriad risks to their business including the deadly combination of rising input costs and flat commodity prices. This means that now more than ever it is essential they don’t overlook the importance of having the correct insurance cover in place in the event of a disaster.

According to Seamus Casserly, President of the Financial Intermediaries Association of Southern Africa (FIA) agricultural businesses require tailor-made risk management solutions such as specialised asset insurance and crop insurance. “Insuring such a business is complex in that it requires the services of a specialist broker and insurer to advise on all the potential risks that should be managed.
“Ensuring you have the correct insurance in place is even more important in the current environment with farmers facing severe financial pressure,” Casserly points out.
The Department of Agriculture, Forestry and Fisheries, in its Annual Report to Parliament, notes a significant 10.4% increase in farming debt and a 2.3% decrease in gross farming income, as a result of a decline in production and falling commodity prices. He adds that events such as the introduction of a new processing plant on a farm or the decision to export produce rather than market it locally can have substantial consequences on the risk profile of the business.
“A farmer who does not employ the services of a specialist broker and insurer runs the risk of simply not being aware of all the potential risks to his business and the relevant cover required.
“Another risk of failing to use a specialist broker or insurer can occur at the time of a claims assessment. The money saved on premiums is likely to be completely overshadowed in the event of a disaster such as a crop or irrigation system failure, if the damage assessment is done incorrectly.”
Casserly warns that those who seek to cut costs by taking out cover with a direct insurer rather than a specialised insurer are also putting their businesses at risk. “A direct insurer has to present a one-size-fits-all solution to achieve economies of scale, which might not be appropriate for a particular farmer.
He advises that if farmers need to cut the cost of their insurance then it may be wiser to look at increasing the excess that needs to be paid or lowering the insured value of the equipment. However, he says it is a good idea to evaluate all the risks and decide what one is able to absorb in a balance sheet in the event of something unforeseen happening.
Casserly cautions that while it may be important for agricultural companies to minimise their cost base, correct insurance actually becomes increasingly important when a company’s margins are small, as they may find it even more difficult to recover from a disaster for which they are inadequately insured.
 

Copyright © Insurance Times and Investments® Vol:23.11 1st November, 2010
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