Insurance remains a riddle for many farmers

Peter MilneCountryman
Growers cannot wait until they finish seeding before applying for protection of their crop.
Camera IconGrowers cannot wait until they finish seeding before applying for protection of their crop.

Despite the constant threat of drought, wind, frost or disease slashing their income, only 13 per cent of grain growers are considering multi-peril crop insurance.

GrainGrowers chief executive David McKeon said surveys of his members showed that a lack of understanding of the available policies and their perceived high cost contributed to a low uptake among grain farmers.

Multi-peril crop insurance covered a range of perils in a single policy, including ones excluded from named peril insurance, including drought, excess rainfall, wind and wildlife damage.

Only one per cent of NSW winter crop producers took up multi-peril crop insurance, but about 75 per cent were covered by named peril insurance, according to a Deloitte report. The high cost was the key reason for the low uptake of MCPI.

Deloitte stated that premiums were typically in the range of 5 to 10 per cent of the crop value compared to 0.55 to 3.5 per cent for named peril insurance. Pricing for MPCI products varied depending on location, level of cover and the amount of risk understanding the underwriter had. The tendency for farmers with the most risk to seek MCPI more was a barrier to more widespread use of MCPE, according to Deloitte. The GrainGrowers’ review of MPCI products for cropping operations put the cost at between $10 and $60 a hectare.

The GrainGrowers review, produced by the Kondinin Group, compared the product type, perils and crops covered, cover level and the information required by the insurer for nine MPCI products.

The different products offered recovery of the cost of production, the topping up of farm income to a proportion of historical returns, payments to match an agreed yield or cover for a particular weather event.

The GrainGrowers report recommended that farmers also consider the cost of the time required to compile the farm records and historical data for an MCPI application.

Growers cannot wait until they finish seeding before applying for protection of their crop. Most insurers closed their offering before seeding was finished.

Mr McKeon said MPCI was just one tool to manage the risk of crop losses and GrainGrowers did not advocate for any particular tool.

A study by consultants Farmanco for the Grains Research and Development Corporation released in February stated that MCPI was not the “silver bullet” to protect a poor-performing business.

The GRDC report concluded that a profitable farm business with low debt offered the best long-term insurance. A highly profitable farm with higher debt could afford to forsake profit to reduce risk with products such as MCPI. To encourage uptake of MCPI products, Mr McKeon called on the State Government to abolish the 10 per cent stamp duty on the product to bring WA in line with Victoria, South Australia and NSW.

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