Rain, frosts, mice, drought – time for better crop insurance strategy

A cruel mix of cropping season setbacks across Australia this year may turn out to be the sort of bad news farmers needed to stir up support for multi-peril insurance.

Although the fledgling multi-peril crop insurance (MPCI) sector could face a hefty payout burden when the 2017-18 harvest eventually winds up, insurers say they are already getting inquiries about coverage for next season following a frustrating year of climatic challenges, and pests.

After starting 2017 with optimistic expectations and generally good soil moisture conditions, croppers have been hit with everything from searing autumn heatwaves and spring temperature spikes to savage frost events, late cold shocks, poor in-crop rainfall and then way too much rain, plus hail, in some areas where harvest has been soaked in southern Australia.

A mouse plague added to southern croppers’ costs.

“It’s frustrating so many perils have been an issue this season, with devastating impact on some farmers, but it highlights why we want more people talking and thinking about  multi-peril insurance as a real risk management and revenue protection option,” said SureSeason Australia director, Darryl McCrae.

“I think this year will see a reasonably large payout by insurers in four states, but until harvest is completed we won’t know the numbers.

“What we do know is payouts prove multi-peril insurance does work and this season could inspire much more interest from farmers, farm organisations and governments.”

Other insurers are also closely monitoring the mood and assessing how and when they might extend their traditional crop coverage for hail, flood or fire events to provide a broader MPCI safety net to protect growers’ investment costs throughout the season.

Payouts prove multi-peril insurance does work and this season could inspire much more interest from farmers, farm organisations and governments.”

Darryl McCarae, SureSeason

New MPCI entrant, Farmers First, has just launched in Queensland promising broadacre grower income protection, scaling up to as much as 80 per cent of their expected revenue as the 2018 season progresses.

Given less than five per cent of croppers are currently protecting their income with multi-peril cover, the federal government is also under pressure to be more helpful.

Farmer groups and insurers have long lobbied for Canberra to foster a more supportive environment for MPCI, possibly via tax rebates for growers adopting better risk management protection against climatic perils, particularly as a drought preparedness tool.

Input cost safety net

MPCI advocates argue a far more robust culture of seasonal income insurance to at least safeguard farmers’ input costs would give farmers and lenders extra confidence to invest in more consistent production strategies, flowing through as income for farm service providers and rural communities.

Some state governments are being proactive – 10pc stamp duty exemptions apply on MPCI policies in Victoria and start in NSW from January.

Farmer body, GrainGrowers, is talking with major insurers about adequate farm risk management options, too.

A GrainGrowers’ member survey earlier this year showed a lack of information about, and understanding of, available insurance policies and companies was contributing to a low uptake of MPCI policies among grain farmers.

Farmers were also wary about the cost of premiums.

Victorian-based SureSeason is one of about six entrants offering different forms of MPCI coverage in the past four years.

Underwritten by insurer Lloyds of London, it launched in 2016 after scoping the crop sector’s needs and options for eight years.

Based on a farm’s five-year crop production and weather history, SureSeason gives revenue protection for up to 70pc of the value of almost any broadacre crop, including hay.

It even adjusts coverage mid-season if cereal crops are frosted and cut for hay.  

Mr McCrae said to date most farmers had sought to cover up to 55pc of a crop’s potential revenue – roughly similar to their input costs, including their insurance.

There’s still plenty of incentive for us to keep growing our coverage

Darryl McCrae, SureSeason

Hypothetically a $25,000 premium provides about $500,000 of income protection coverage.

He agreed MCPI policies cost serious money, but that coverage was comprehensive, the payout significant, and growers recovered at least their input costs, giving them funds to prepare for the next season.

Growing MPCI inquiry

SureSeason expected to more than treble its coverage again next year given the volume of inquiry and policies already being prepared for 2018.

“This year has served up quite a few perils, but there’s still plenty of incentive for us to keep growing our coverage, albeit from a small base,” he said.

The same observation comes from Latevo International chief executive, Andrew Trotter, who reported a surge of “income protection” inquiry from farmers and insurance brokers, after a this year’s promising season turned tough for farmers in Victoria, South Australia and NSW.

Latevo intends to be back in the MPCI market for 2018 after being unable to lock in a strong enough underwriter commitment in 2017.

Latevo International chief executive, Andrew Trotter.

Latevo International chief executive, Andrew Trotter.

Mr Trotter said the wider insurance sector, including broking groups, was “getting its head around” how to service cropping industry income protection needs.

“We shouldn’t be surprised if it takes a couple more years to really build momentum, but it’s value, particularly for family farmers, can’t be ignored – especially in a year like this,” he said.

“I’d argue there’s a strong case for the federal government to offer the sort of tax incentives to farmers taking out MPCI it has paid for minimum tillage gear purchases or research and development investment.

“It would help educate the farm sector and provide a confidence kick-start.

“Every other G20 nation in the world has government-backed multi-peril initiatives of some sort.”

Farmers First representatives Rowell Walton and Rodney Hamilton and John Francis,

Farmers First representatives Rowell Walton and Rodney Hamilton and John Francis,

Farmers First, which involves former Queensland grain growers, Rowell Walton and Rodney Hamilton and trader, John Francis, is still to release full details of its coverage, but Mr Walton said it would include multi-year contracts servicing farmers in dryland broadacre grain belt Australia-wide.

Mr Walton, who lost his own Darling Downs family farming business when debts blew out after a run of bad seasons, has long advocated multi-peril insurance.

“Had this cover been available when my family operated, we would have survived the (wet harvest) wipe-out of 2010 and gone on to prosper,” he said.

“This will allow farmers to sleep at night and those who lend money to farmers will too, as they will know their bills will get paid,” said Mr Francis.