Agricultural insurance: Common mistakes and how to avoid them

Agricultural insurance is often perceived as complex and difficult to navigate, yet it plays a critical role in protecting farm businesses against unpredictable losses.

To help farmers make informed decisions, Lunga Njara, agricultural economist and insurance strategic partnerships manager at Land Bank, explains how brokers support farmers through risk assessment and policy selection.

He also highlights common insurance pitfalls and outlines practical steps for managing claims effectively. Njara stresses the importance of combining insurance with broader risk-management strategies to build resilient and sustainable farming enterprises.

The role of brokers and ongoing risk assessment

While every farm is different, Njara notes that farmers are not expected to navigate insurance complexity alone.

“Usually, it’s the broker who walks the farmer through the risk profile and policy structure. Insurers are required to train brokers on their products, and if there are changes in a particular season, brokers must undergo refresher training and pass regulatory assessments before selling those products,” he explains.

This regulatory requirement is designed to protect farmers and ensure that advice is accurate, current and compliant.

Common insurance pitfalls – and how to avoid them

After more than a decade in agricultural insurance, Njara has seen recurring mistakes that can undermine a farmer’s financial recovery after a loss.

Under-insurance

“One of the biggest issues we see is under-insurance,” he says. “Farmers insure for less than the true value to save on premiums, but that leads to inadequate payouts.”

He explains that if a farmer’s break-even cost is R1 000 per hectare but they insure for R800, the payout may be insufficient to replant the following season.

“The purpose of insurance is to put you back in the same position you were in before disaster struck. If it can’t do that, then it hasn’t served its purpose.”

Njara advises farmers to base sums insured on realistic production costs, asset replacement values or livestock values, rather than estimating arbitrarily. “At the very least, ensure that at the break-even level. If you can afford market-value cover, that’s even better, but break-even is non-negotiable.”

Insurance should restore the farm’s financial position after a loss, not generate profit. Photo: Pexels

Not understanding policy mechanics

Another major pitfall is a lack of understanding of how policies actually work.

“Some farmers take insurance because a financier requires it. They buy cover, but don’t understand what they are insured for – or what they are not insured for,” he said.

This often leads to confusion around concepts such as excesses and franchises, or disappointment when a loss is not covered. “A farmer might insure against hail and then try to claim for drought. But if drought isn’t covered, there is no claim.”

Njara stresses that farmers should insist on clear, written explanations, with practical examples.

Missing key coverages

Focusing on one risk while neglecting others is another common mistake.

“For example, taking hail cover but ignoring fire risk in a fire-prone area. That’s why a full risk analysis with your broker is critical,” he says.

Taking cover too late

Insurance must be taken out before the risk materialises.

“We often get calls from farmers asking for cover after the season has already turned dry. At that point, drought cover may no longer be available,” Njara cautions.

Even if coverage is still technically possible, the farmer will pay the same premium as someone who insured earlier, without the benefit of early-season protection.

“Insurance must form part of planning, not a reaction to bad conditions,” he says.

Data and disclosure issues

Accurate data is essential, particularly for products such as multi-peril crop insurance, as verifiable information is required to set guarantees and ensure appropriate cover. In livestock insurance, misunderstandings around all-risk cover are also common.

“All-risk does not mean everything is covered. Policies exclude controllable losses, such as poor management or preventable diseases. Farmers must read and understand those exclusions,” Njara says.

What to do when disaster strikes

When losses occur, swift and informed action can make the difference between a smooth claim and unnecessary delays.

Njara outlines key steps:

Mitigate further losses
“Policies require farmers to take reasonable steps to prevent additional damage, such as securing damaged structures.”
Notify your broker or insurer immediately
Early reporting initiates the formal claims process.
Document everything
Take photos and videos, keep damaged items until assessed, and retain records of emergency costs such as veterinary fees or temporary repairs.
Work closely with the assessor
Guide assessors to affected fields or assets, provide maps, records and invoices, and ensure nothing is overlooked.
Review assessment reports carefully
“This report determines your payout. Understand it fully before signing,” Njara says.

What drives premium costs?

Premium costs vary significantly depending on the type of cover and the level of risk involved:

For crop insurance: Key drivers include the farm’s location and associated environmental risks such as hail belts, flood-prone areas or drought sensitivity, as well as the type of crop and its susceptibility to specific perils.

Insurers also assess historical yield performance and claims records, alongside the sum insured, which is calculated using expected yields and prevailing commodity prices.

Policy structure plays a further role, particularly the choice between an excess and a franchise. As Njara explains, an excess (or deductible) lowers the premium but is deducted from every claim, while a franchise sets a loss threshold that, once exceeded, allows claims to be paid in full, although this comes at a higher premium.

For livestock insurance: Premiums are influenced by species, breed and age profiles, the production purpose such as breeding, dairy or feedlot operations, health status and management systems, as well as location-specific disease and predator risks.

For farm assets: Insurers consider whether cover is based on replacement or market value, the level of exposure to insured perils, and the security measures in place to mitigate risk.

Njara generally advises farmers to insure assets at replacement value rather than market value, noting that market prices can decline and leave producers short when equipment needs to be replaced. He ultimately encourages farmers to view insurance as part of long-term business sustainability.

“Insurance is not just about compliance or protecting a loan. It’s about ensuring continuity – that after a shock, the farm can still operate, repay obligations and plant again.”

Strengthening on-farm risk management

Insurance works best when combined with broader risk management strategies.

Njara highlights several approaches that insurers view positively:

Physical protection, such as hail nets for high-value crops
Climate-smart agriculture, including conservation tillage and drought-resistant varieties
Diversification, through mixed cropping or livestock systems
Technology adoption, such as soil sensors, weather apps and precision tools
Strong management and record-keeping, which improves both resilience and insurability
Farmer networks and organisations, which support shared learning and better decision-making.

“Insurance is just one tool. When combined with good planning, data, technology and sound management, it becomes far more effective,” Njara says.

In a sector shaped by uncertainty, the message is clear: informed insurance decisions, taken early and reviewed regularly, are central to building resilient and sustainable farm businesses.