Agriculture is an unusually risky business, with the unstable weather conditions brought about by climate change increasing the risk even more. Insurance expert Theo Potgieter answers your most pressing questions about agricultural insurance.
Potgieter, director at UniGro Insurance Brokers with over thirty years of experience in the insurance industry, says farmers should insure their operations for the same reason they insure their homes or cars; peace of mind.
“Like home insurance, your farm insurance provides protection against property damage, personal liability, bodily injury, and crop damage. It also protects you and your family from financial difficulty. Agriculture is central to improving food security in SA, and agri-insurance gives the farmer the peace of mind that their assets and crops are covered, and their focus can now shift to farming.”
Potgieter explains that by getting insurance, farmers are able to protect their assets, leave an inheritance to their loved ones, pay their debts and other expenses, and ensure financial security. He says farmers should consider getting insurance as soon as they start owning assets or start planting.
“Banks will also insist that assets under a finance agreement are covered [by] an insurance policy. This refers to production loans for the planting of crops.”
As insurance requires farmer-specific assessment, you have to speak to an accredited financial advisor before selecting your cover. To get more general insights into the industry, Potgieter unpacks the different elements of cover.
Who qualifies for agricultural insurance?
Agri-insurance applies to agribusiness, so you must have a farm to qualify. And any person can take out insurance as long as there is insurable interest. For instance, you cannot insure a tractor that belongs to someone else. You will not be able to insure it, even if you’re using it on your farm. That tractor needs to be in your name to be covered. So, there must be an insurable interest in a specific asset.
With crop insurance, when you rent a piece of land and you plant on that, then we can insure that crop because that crop is actually your crop. You’ve got an insurable interest in that crop. So that’s where insurance eligibility comes into effect.
So as long as you own land, and it’s deemed agricultural, or you are farming with your own crop on leased land, you can have an agricultural policy covering your assets and crop on that field.
How does agri-insurance factor into agricultural financing?
The co-ops or the commercial banks will give [the farmer] a loan, and the farmer needs to provide security for that loan. By insuring their crops and their assets, the farmer will more or less take care of that loan [if something bad were to happen to their operation}, depending on their cover. I won’t say it will be cover them 100%.
There are always some factors that that will influence either the claim or the payouts, but most of that will be covered in terms of an insurance policy. So, for example, if the farmer has crops on the field, it will be covered in terms of a fire policy, or hail or any other peril that they elects to insure, and the same with their assets as well. Their house and equipment will then be covered in terms of the insurance policy.
Can you please explain agricultural asset insurance?
Agri-assets insurance covers buildings, offices, theft, loss of profits, liability, motor etc. This type of cover can also be extended to include poultry, as well as personal contents. Non-crop insurance also extends to cover cyber risks and directors and officers liability.
[It is advisable that] every farm have cover against the spread of fire. The farmer can and will be held liable for damages which occurs as result of a fire that started on their property and spread to neighbouring farms. Farmers must adhere to the rules and regulations set out in the national Veld and Forestry act 101 of 1998.
What about crop insurance?
The most popular crop insurance are the products that cover hail, wind, and other perils. Then there is a more specialised crop insurance which covers your crops for too much rain, or too little rain, etc. We call that type of cover the “multi-peril policy for crop”, which tends to be a more expensive policy than the hail policy.
The following factors are considered by an insurer when insuring crop:
- Yield/Hectare
- Commodity price – Rand per ton
- No claim bonus
- Excess carried by the farmer
Each crop is insured according to its potential yield and can be increased if the potential of the field has increased, and farmers can decide for which price they want to insure. The farmer’s excess refers to that portion of the cover that the farmers elect to self-insure. Additionally, crop insurance is a seasonal product. Therefore, the cover is only granted for a specific production season.
Where does livestock cover fit in?
Livestock is normally covered under an agri-asset policy, like a fire policy, where the farmer has cover for livestock death caused by a veld fire, or if there is a lightning strike on it the farm and it kills livestock.
Livestock is normally not covered for theft, as it’s quite expensive and quite difficult to prove that there was indeed the theft of livestock. So, in short, a livestock policy is different from a crop policy, as crop policies only look at your crop, but livestock forms part of your assets insurance.
Are there any other agri-insurance exclusions?
The main exclusion under agri-asset insurance is that of special risks insurance. This type of cover is provided by SASRIA (South African Special Risks Insurance Association), which is a public enterprise. It forms part of your asset insurance, if selected, and cover is for damage caused by civil commotion like riots or protests. Another agri-asset exclusion is that of war and nuclear risks. Of course, gross negligence by a farmer will also not be covered.
An exclusion from crop insurance cover is disease, as this is something that the farmer is expected to manage and prevent. With the multi-peril type insurance policies, the farmer is covered for uncontrollable diseases, or insect infestation.
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