How agri insurance can help protect your business
Farmers need to consider third-party insurance to protect them from being liable for the damage to a neighbouring farmers’ crops, for example.
With the cost-price squeeze in agriculture being worse than ever, farmers need to watch every rand in order to make a reasonable profit. So, while one could probably insure anything for its true value by paying a high enough premium, doing so might not be wise. What, in your opinion, should a farmer be insuring?
It’s 100% correct to note that anything can be insured if you’re prepared to part with enough money. But as a farmer you need to take a step back and decide whether an insurance quote is a fair reflection of the risk and whether it makes sense for you and your farm.
No two farming businesses are alike. Mechanisation, seed, management, and input costs are just some of the things that vary greatly from one farm to another. As a result, there isn’t simply one insurance recipe that works for everybody.
To begin with, as a farmer you should know your business like the back of your hand. The better you can describe your farm and its underlying risk to an insurance broker, the better he or she will be able to advise you on how to incorporate a sensible risk strategy into your business plan.
Remember, too, that insurance should be integral to your business, and not merely an add-on.
So where do you start if you want to insure your farm?
The first step is to understand your own risk. A young, healthy person with no medical history of illness can get away with less health insurance coverage than a sickly, middle-aged person who needs to support a family.
Equally, you need to understand your farming risk. As a rule of thumb, you should insure anything that threatens the survival of your business.
This, of course, will differ from one business to another. Tractors and ploughs, for example, are ‘must-insure’ items for a grain farmer, as it would be nearly impossible to plough the lands by hand. For the average cattle farmer, however, a plough would be irrelevant, whereas insuring livestock animals and bakkies would be all-important.
A dairy farmer, in turn, would need to consider insuring his or her milking equipment.
In short, farmers need to know what they cannot farm without and what will merely cause an inconvenience. This is a key difference.
Another question to ask yourself is this: is the item something that I can buy again without taking out a loan or selling my inheritance? For example, if my tractor were to be stolen or destroyed in a veld fire, would I be able to buy another on the spot? If the answer is no, you should insure the tractor.
Should buildings be insured?
Only if you need to replace them. This would include your house and on-farm buildings that are in use. Don’t waste money insuring buildings that are not being used anymore and won’t be replaced, such as an old wool shed.
What about technology?
Years ago, farmers could ensure the cash that they used to pay workers. Today, however, loans are deposited directly into farmworkers’ bank accounts via electronic fund transfers. While this has decreased the physical risk of money transfers, it has increased the chances of cyberattacks.
The risk doesn’t end with your computer. Every piece of technology that’s plugged into your farm increases the cyber risk of the farm as it’s all interlinked.
In other words, how farmers could suffer a loss is changing. But the impact of the business on others might also change. Is there something such as third-party insurance in agriculture?
Definitely. A livestock farmer, for example, should keep in mind that his or her animals could damage a neighbour’s crops or property such as fences. If this happens, the farmer could be held accountable, so it’s important to assess this risk.
Similarly, should a breeze carry spray chemicals to a neighbour’s lands (for example, spray used on maize landing up on potatoes), the damage to the crop could be devastating. In addition, there could be other unintended consequences to such an incident.
A few years ago, a seed potato supplier, unaware that there was glyphosate residue left in a tank after a previous crop had been treated, filled up the tank with fresh chemical and sprayed it on his crop. The leftover glyphosate damaged the seed potatoes, but unaware of the problem, he delivered them to his potato farmer customers, who suffered a failed crop that year.
In addition to having to refund the farmers for the seed potatoes, he had to carry the cost of their failed harvests. And to make things worse, he had to destroy his entire crop, as he couldn’t say with certainty where the glyphosate damage had started and ended.
An incident of this scale and severity could financially cripple a farmer.
Are there any other risks of not being covered?
Various pieces of legislation could hold producers responsible for harm caused to others. Farmers need to be aware of two pieces of legislation in particular: The Consumer Protection Act (No. 68 of 1998) and the National Veld and Forest Fire Act (No. 101 of 1998).
The Consumer Protection Act (CPA) states that any entity, company, trust or individual can be held accountable for harm or loss suffered by the end user. In other words, if a consumer is harmed, and the cause of the harm is traced to the farmer, the latter will have to compensate the person(s) for the harm caused.
The CPA is on the consumer’s side. This is important to keep in mind considering how many farmers are diversifying and operating at various levels of the value chain. While this is an excellent strategy, it places greater responsibility on a farmer’s shoulders, as he or she is more exposed to risk.
For example, if a farmer owns a butchery and somebody contracts food poisoning after eating meat from the butchery, there’s a good chance this happened due to a mistake by the farmer. This is because the farmer had control over more steps within the value chain. In contrast, if a farmer raises weaners and then sells them to a feedlot, the risk is spread between more parties.
In terms of the National Veld and Forest Fire Act, landowners and tenants should be aware that they would be liable for the damage caused by any fire that started on their property.
In short, if there is any financial implication on your side, discuss insurance options with your broker.
Are all brokers or insurance companies equal?
Certainly not. Agriculture is unlike any other business, which means it’s important to make use of a knowledgeable broker and use products that are designed for agriculture.
At present, there are more than 20 companies selling insurance aimed at the agriculture sector. However, not all of these offer tailor-made insurance. Several companies have merely adapted a commercial insurance package to agriculture, which doesn’t make sense.
As a farmer, you should be aware of this, as these products will not necessarily give you sufficient coverage when you need it. This is where an independent agricultural risk specialist can make all the difference.
Such a person will usually advise a client to use products that have the maximum chance of paying out a claim. However, any insurance needs to be specific to a farming business’s unique situation and this is where the farm’s senior management will always understand the risk best.
* This article was originally published in Farmer’s Weekly SA, and features input from Andries Wiese, the national business development manager and head of agri insurance at Hollard.
