In recent years the strength of the rand combined with production surpluses, has put immense pressure on agricultural profits. This has resulted in many farmers cutting costs by reducing insurance cover or cancelling policies altogether. Although reduced cover may provide some short-term relief, it also reduces a farming enterprise’s capacity to recover from large financial setbacks.
Seeing as most farmers are not insurance experts, consulting with a broker and conducting annual risk assessments to establish what needs to be insured is crucial to managing risk successfully. By updating insurance policies annually, farmers can eliminate the possibility of being underinsured as many farmers tend to undervalue building and production structures.
Lowering your premium
Hanlie Kroese, business development manager at Santam, says lowering insurance premiums still beats not having any insurance at all. Farmers who are contemplating a lower premium should keep the following insurance tips in mind:
- Avoid unnecessary claims by implementing good risk management practices.
- By carrying the financial responsibilities for certain risks themselves, farmers can lower their insurance premiums. However, insurance should still be considered if there is enough disposable income to cover the monthly premiums.
- Premiums are usually adjusted downwards if you do not claim for a year.
- Farmers can save more in the long run by re-assessing risks annually.
- Join the Fire Protection Association of South Africa (FPA). Many insurance companies offer discounted rates and other rewards to farmers who proactively reduce and manage risk.
Solar panels and goods in transit
Hanlie explains that farmers should be more aware of items that are insured separately. Solar panels are only insured along with a building if it forms part of the building’s fittings or fixtures. If a solar panel is separate from the building and not fitted to the building site, it will have to be insured separately.
When transporting goods, it is important to note that insurance cover applies only to the farmer’s own property. “Should the insured company transport third-party items for remuneration, that company is deemed a transport contractor, and the business must then be underwritten and rated accordingly,” Hanlie adds.
Emphasis should be placed on informing insurance providers of any contract work that your farming business undertakes. If uninsured machinery gets damaged or breaks while conducting contract work on another farmer’s property, you might not be able to claim damages.
“Contractors who are solely focused on contract harvesting with no underlying agricultural business of their own, will not qualify for a farmer policy and should apply for a commercial policy instead,” she says.
Damage to agricultural implements
Insurance cover for agricultural implements and various transport trucks that travel long distances both on- and off-road is almost non-negotiable. According to Hanlie, knowing the cost involved in replacing farming equipment beforehand can help you to invest your capital better.
“Damage to the tyres of certain track tractors will require both tracks to be replaced due to the unique hydraulic system. However, in other instances only the damaged track needs to be replaced. For other tractors, the undamaged corresponding tyre need only be replaced if its wear exceeds 50% or if the manufacturer deems it necessary,” she adds.
Insurance clauses are often not properly examined before settling on a specific cover option. This can lead to inadequate cover of farming equipment when you need it the most. Some on-farm systems are only partially covered under conventional cover options. This places extra responsibility on farmers’ shoulders to ensure that each piece of equipment is fully covered against damage or liability.
“An example of this is an agricultural pivot irrigation system where above- or underground power cable extensions and any power unit that does not form part of the towers, might be excluded from the pivot insurance package,” Hanlie says.
Fire and explosion liability
South Africa is prone to veld fires, which can become particularly hazardous at the end of winter when the grass is extremely dry and strong winds tend to add fuel to the fire. Although most farmers are aware of the possible damage a veld fire can cause to their own crops, grazing land, livestock and farming equipment, the potential legal liability of fires spreading from your property to a neighbouring property is often overlooked.
If a neighbouring farm suffers damage, the party in question will seek to recover those damages from the owners of the property from which the fire spread. For this reason, liability insurance such as spread-of-fire cover is a necessity for farmers in drier areas of the country.
The impact of load shedding
Protecting against losses resulting from load shedding can provide significant peace of mind for agricultural producers whose yields and income are exceptionally vulnerable to power outages.
Dairy farms are highly mechanised and require large outputs of electricity to drive the production process. Milking times are usually scheduled either for early mornings or late in the afternoon, which often coincides with load shedding.
Some farming sectors, such as the fruit or vegetable industry, rely heavily on temperature regulation. Power outages can affect the storage of fruit and vegetables destined for export markets, which not only affects the farmer’s profitability, but also dents the agricultural economy.
Load shedding also affects farms that rely heavily on irrigation. Most crop farms schedule irrigation for the cooler periods of the day to decrease evaporation, which usually falls within load shedding periods. Poultry farms depend on heat during the colder months to mature young chicks in broiler houses. Therefore, electricity interruptions can result in a significant loss of income if these chicks die because of exposure to freezing temperatures.
Load shedding claims
Load shedding often results in claims lodged by farmers for the damage caused by interruptions in business operations. Other claims directly related to load shedding also involve damages caused by power surges, which can damage any farming equipment that relies on electricity. Business interruption cover entails insurance for gross profits, gross revenue and the additional increase in the cost of working. This cover now includes loss or damage resulting from power surges.
To prevent the devastating effects of load shedding altogether, farmers are relying heavily on gas alternatives, solar panels and back-up generators. According to Hanlie, some insurance companies such as Santam do insure fixed and portable generators under different sections of their insurance policy. Farmers should however be mindful of the type of generators they use and own, so that they can correctly declare their assets, thereby ensuring maximum cover.
Andries Wiese, head of Agriculture, Hollard Insure, says farmers often opt for the most affordable insurance options available to them when it comes to livestock insurance. “Farmers often insure their livestock against fire and lightning, but forget to insure against certain area-specific diseases. Each farmer must determine the unique risks that threaten his or her profitability, and then take out insurance against those specific threats,” he says.
Farmers should be wary of underinsuring, which often results in inadequate cover for damages. “Farmers should continually adapt their insurance specifications to the growth of their herds and be very specific when it comes to insuring their livestock,” he adds.
In case farmers only have a limited amount of capital that they can allocate towards insurance, Andries says priority should be given to the animals that will ultimately grow the farming business.
Insuring fruit and vegetable farms
MC Loock, senior manager of agribusiness at Standard Bank, says high-value produce is often considered too expensive to insure, leading farmers to invest in savings plans, investments or asset liquidation to help manage risk.
“Insurance is one of many tools used to protect a business. Having a more holistic approach to risk management can help farmers to formulate a plan that takes both their resources and goals into consideration. The most important thing is to ensure that your input costs are always covered,” MC concludes. – Claudi Nortjé, Plaas Media
For more information, contact Hanlie Kroese at email@example.com, Andries Wiese at firstname.lastname@example.org and MC Loock at Marthinus.Loock@standardbank.co.za.