Estimated reading time: 3 minutes
Risk is the likelihood of damage or loss. Peril, on the other hand, is the misfortune, accident, or disaster that may occur. When the probability of an event and the severity of its consequences are considered together, people naturally start seeking protection. Insurance then emerges as the solution: If something goes wrong, the insurer can often restore your situation to the position you were in before the incident.
Insurance through the ages
In the previous century, insurers typically sold policies covering specific perils. For example, you could insure your household contents against fire. If your home burned down, you would be compensated. But if a flood struck, you were left to bear the loss yourself, since your policy only covered fire.
For many, this approach made sense because they could choose which risks to cover and pay only for those. The danger, of course, was getting caught unawares when the unexpected happened: a flood in Laingsburg, lightning in the Western Cape, or children playing with matches near lucerne bales.
As the century turned, insurers began offering combination policies to address this gap. Household content insurance, for instance, started bundling risks such as fire, hail, snow, and theft. Some policies even included automatic cover for everyday mishaps, like a geyser bursting or children accidentally breaking a glass tabletop. These packages, while convenient, often came with stricter rules and higher premiums.
Modern insurers now focus on hybrid solutions, allowing clients to insure specific items against specific risks. For example, I can insure my prized Merino ram against impotence. If something goes awry with the rest of my flock, that’s my problem, but if something happens to that specific animal, I’m protected.
Risk management in farming
Risk management is about balancing perils, their likelihood, the value of your assets, and the insurance premium you pay. Your own responsibility plays a major role: For example, a vehicle left outside overnight is at far greater risk than one locked safely in a garage.
Can anything be done to reduce premiums without cancelling your policy? Yes. Consider these guidelines:
- Work with an expert broker to structure your insurance correctly and negotiate premium options across insurers. Keep a detailed asset register so you know exactly what you own, its value, and what you cannot afford to lose.
- Identify the perils you are most concerned about. For instance, if shearing late in winter, early rains could cause cold stress among the sheep.
- Assess the likelihood of risks. Some perils, like lightning, are more common in certain regions and insurers often have detailed maps.
- Take responsibility for prevention. Do workers smoke near bales? Are freshly shorn sheep sheltered? Is machinery cleaned daily? These choices affect your risk profile.
Risk management means weighing what could happen, its likelihood, and what steps you can take to prevent it. Insurance is part of your broader financial planning – it is a safety net, but you must understand where the gaps in your own net are located. – Andries Wiese, head of agriculture, Hollard
Unique cover structures are available for members of the National Wool Growers’ Association. Learn more at www.nwga.co.za/hollard-insurance-risk-cover/ or email andriesw@hollard.co.za
