Do I Really Need to Insure My Crops?

By John Bowman    June 24, 2019

As a grain producer, you don’t expect to suffer a major event such as a total harvest loss due to hail or other factors. However, the threat is ever present and few farmers can afford to sustain such a major loss. For this reason, broad acre crop insurance represents an integral part of any grain grower’s risk management program.

This is further exemplified by the trend towards fixed tonnage contracts for cereal grains, legumes and oilseeds, whereby losses due to fire and hail may result in the grower having to purchase grain to fill the contract in addition to losing their own production.

The majority of crop insurance available is based on broad acre winter crops and cover is offered for all cereal, legume, oilseed and small seed crops. Insurance cover for broad acre crops in Australia is mainly limited to loss of yield due to fire or the impact of hailstones on growing plants.

Up till when can I purchase Crop Insurance?

Crop insurance may be purchased at any time during the growing season, subject to a 48 hour waiting period. This clause means that cover is not activated until 48 hours after acceptance of cover by the insurer. It is meant to reduce the chance of growers, faced with pending fire or hail, deciding to insure as the storm or fire is in sight.

What are the pitfalls of under-insurance?
There are two under-insurance traps growers need to avoid. Most winter crop policies have a cut-off date from which sums insured can not be reduced. The traps are before and after this date:

  • Before the cut-off date, the potential yield is uncertain and can change from week to week depending on growing conditions. Prior to the cut-off date, most policies do not apply the 48 hour waiting period, nor does the estimated yield have to be accurate. If a grower suffers a hail strike early in the growing season, most policies will pay the potential yield the crop would have achieved even if your sum insured is too low, thus avoiding one of the under-insurance traps.
  • After the cut-off date, the potential yield of a crop can be determined with some degree of accuracy. Growers are advised to review their policies at the cut-off date to ensure that their estimated yields and agreed sums insured are accurate. If the estimate is too high, then unnecessary premium is paid to insurers, if too low then the losses could be very high. Once the cut-off date for reducing sums insured has passed there is a 48 hour waiting period.

How does Broadacre Crop Insurance work?

Crop insurance policies for broad acre crops are yield-only covers. As such, the crop insurance policy does not include loss of quality, loss of nutritional value of seed or loss of germination ability of seed. Most policies also contain the provision to penalise the grain grower if deliberately under-insuring.

If the actual yield at the time of loss or damage is greater than the yield insured, the grower is considered as being his own insurer for the difference. Individual policies do vary as to the extent of cover and breadth of exclusions. It is important that grain growers are aware of its contents prior to taking cover.

What is the Replanting Allowance?

Most companies now offer additional cover both before and after traditional cover started and finished. The replanting allowance has been
introduced to provide cover for most crops following germination up to the first jointing or eight-leaf stages. The cover under the replanting allowance is limited to the costs associated with replanting if the damaged crop
needs to be re-sown.

What is Coverage of Harvested Grain about?

Another major policy extension is the coverage of harvested grain. With many growers now storing grain on their farms, most insurers have extended coverage for grain in storage to loss or damage resulting from fire, lightning or explosion. Chemical overspray or straying livestock are other benefits where claims are payable under this benefit on the identification and disclosure or a responsible third party.

What is a Post Harvest Policy?

There is now available by many insurers, a post harvest policy where the grower pays a premium on the actual yield harvested from the paddocks
insured. This option may be beneficial in years such as this, with the imminent threat of locusts severely affecting the crop yield after the final
revision date. Forms are completed by the grower after harvest, thereby paying a premium on the paddocks actual yield. This may be audited randomly by the insurer requesting access to crop records, yield monitor output or grain delivery receipts.

Can I carry the risk of crop loss or damage myself?

If you are considering carrying the risk of crop loss or damage yourself, you should review your debt situation first. Generally, to be safe, you will need to be free of debt as a major fire frost or hail could soon result in substantial and irreversible financial loss. This is almost impossible in hard economic times and drought, when most farmers must borrow heavily to sow crops. If you find yourself in this situation, you can ill-afford to carry the losses from the cost of sowing the crop, the potential loss of yield and
the potential loss of profit from the crop.

General Advice Warning

This advice is general and does not take into account your objectives, financial situation or needs. You should consider whether the advice is suitable for you and your personal circumstances. Before you make any decision about whether to acquire a certain product, you should obtain and read the relevant product disclosure statement.

If you need more assistance please contact John Bowman for more specific advice

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