Perhaps more than ever, what 2019 holds for agricultural insurance premiums is uncertain. Following the recent drought, the government are still being lobbied to subsidise the costs of multi-peril crop insurance (MPCI) to enable a higher uptake. Such a subsidy could substantially decrease costs for farmers. However, without the government's support insurance companies may feel they no choice but to raise or at least maintain current premium rates.
Historically MPCI hasn't been especially popular with Australian farmers, with many of them feeling it is out of their budget for something that may not prove useful. However, for insurance companies, they need as many farmers as possible paying their premiums during times of high productivity in order to maintain similar pricing structures. Conditions like the recent drought could mean that insurance providers are paying out more than they are receiving.
Premiums are further inflated by Australia's high-risk farming climate, as well as the possibility that those with policies may be less likely to manage risk and therefore more likely to need to claim.
So far the government has been predominantly reactive in dealing with issues faced by farmers.
Why is the subsidy such a hot topic?
With 2018's season of drought throughout much of eastern and southern Australia, the conversation about whether or not the federal government should provide subsidies has been centre stage.
Without crop cover, farmers face huge losses when problems such as drought hit their land. They lose both their investment and their income, leaving them with hard decisions about future investment plans and how to approach their financial loss.
So far, some critics feel that the government has been predominantly reactive in dealing with issues faced by farmers, which critics argue provides little incentive for farmers to change their management practices and try to reduce risk where possible. It's also not a long-term sustainable solution to what could be an ongoing challenge for Australia's farmers.
Most other developed nations already have some form of support arrangement in place – with their government either providing subsidies or agreeing a guarantee on losses incurred by insurance companies. The US Government provides both levels of support.
The future for agricultural insurance premiums
As yet, the government hasn't agreed to any long-term support for insurance premiums. They have been active in offering cash-back for certain costs such as transportation, and cheap loans for certain types of farm renovations to help farmers manage short-term issues. However, there seems little in the way of commitment to any further measures of support.
Alongside this uncertainty, the future also holds variables we cannot yet fully understand. Many industry experts say that climate change is currently a difficult factor to manage in terms of predicting what kind of perils farmers may face going forward. Alongside potential weather changes are technological advances that are changing the way farmers manage their farms and therefore their risks.
Managing agricultural insurance uptake
Until we know more about the government's long term intentions, we must provide our farmers with a solution that works for them. Agricultural insurance products vary according to the kind of hazards they cover and it's crucial that each farmer has protection from the perils they are most likely to suffer.
Brokers must educate farmers about the products available, and help them to understand the choices available to them when it comes to agricultural insurance. It's crucial that farmers know just how much an insurance policy can provide, in terms of financial loss and peace of mind.
By keeping up to date with how the farming landscape is changing, brokers can be a part of the solution – offering farmers a real and relevant lifeline that works with their individual practices and circumstances.
At Primacy, our products are designed to meet the needs of Australian farmers. To find out more about what we offer, and why we can help your farmers, contact the team at Primacy Underwriting Management today.