Changes to multi-peril crop insurance stamp duty – what does it mean for your farm?

According to Deloitte, multi-peril crop insurance (MPCI) provides coverage against a range of perils that affect crop production within a single policy. It covers perils currently excluded from other named peril insurance, including drought, excess rainfall, wind, and wildlife damage.

As you may know, MPCI has had a somewhat troubled upbringing. The previous attempts to launch MPCI products highlighted a range of potential barriers:

• Affordability – high premiums and low take up compared to traditional crop insurance
• Systematic risk – with events that would trigger an MPCI policy, they are often a risk that affects a significant number of policy holders simultaneously, such as drought or excess rainfall
• Adverse selection – the theory that high risk farmers are more likely to take out an insurance policy which drives insurers to increase premiums, and pushes lower risk farmers out of the program
• Moral hazard – the theory that a policy holder may change their behaviour and increases their exposure to risk when insured
• Lack of data and underwriting skills – insurance industry lacks detailed climatic information to accurately assess the exposure and estimated duration for an insured event
• Lack of awareness – the product is relatively new in Australia, so our farmers may not have sufficient information about MPCI and how it can fit within their broader risk management strategy
• Time poor – requirements for detailed farm records may act as a barrier for busy farmers

Multi-peril crop insurance opportunities

Despite the long list of barriers historically, there are examples of disruption that bring optimism for further MPI market development.

• Risk diversification – given the success of MPCI in Europe and elsewhere, insurers might be able to diversify risks by pooling Australian exposure with European exposure, which will help alleviate the systematic risk barrier
• Better access to data – drones, satellite and technology will increase farm level data and help reduce adverse selection and moral hazard issues
• Product innovations to meet requirements of Australian farmers will also ensure greater adoption, and a more sustainable MCPI product (i.e. requiring policies to be taken out across multiple seasons to ensure that the risk is manageable for insurers)
• Government incentives such as tax incentives which is what we’ve now seen locally.

At GIA Insurance Brokers, we’ve partnered with Latevo underwriting, and our offering can cover farmers from the moment the seed goes into the ground for perils such as drought, water stress, heat stress, flood hailstones, wind, frost, lightning, excessive rain, snow, hurricane, cyclone, tornado, wildlife, wandering livestock, fire and weed infestation, chemical overspray, insect or pest manifestation or plant disease out of reasonable control.

The trigger for a claim is a reduction in income below the farmers’ 5 year average over the whole operation. We believe that MPCI could form a smart component of the professional farmer’s risk management strategy – and now with the stamp duty exemption, it’s at least worth getting a free quote for consideration.

Contact us to talk about your crop insurance questions.