Farm insurance: What can you afford to go without?

Farmers are making some increasingly tough decisions about what equipment and assets they might have to live without if forced to make a serious insurance claim.

The past five years of soaring coverage costs have made farm insurance one of the industry's biggest input expenses, particularly in the cropping sector.

Sheds, ageing silos, grain handling equipment, older farm vehicles, ag bikes, chainsaws, pumps and power tools are typical of the sort of assets now often excluded from their insurance coverage inventory as many farmers are forced to be more clinical about what they can afford to risk losing to a fire or fierce storm event.

Other frequent cost cuts include scratching comprehensive coverage for utes and trucks, while still retaining third party liability cover; totally abandoning coverage for some older buildings or fences, and taking on greater excess cost responsibility in event of a claim.

"We've got very few sheds insured these days - we just can't afford to worry about them," said NSW Central West grain and livestock producer, John Lowe.

Mr Lowe's insurance premium costs leapt at least 90 per cent in the past five years, including one year when the bill went up an eye watering 60pc.

"We've always been fairly careful about considering what we can afford not to insure, but we're still paying a bigger proportion for insurance than we ever used to," said Mr Lowe, who chairs NSW Farmers business, economics and trade committee.

"We've been fairly loyal to our insurer over the years, but it's probably time to go through the exercise of sharpening the pencil and shopping around.

"Unfortunately insurance companies seem to offer much less coverage flexibility for the bigger price you pay these days."

Farm sector insurance brokers report annual premium increases of 25pc to 30pc have been common in recent years, or 50pc in some seasons, depending on a farm's locality, the commodities involved and the sort of insurance claim activity in the area of late.

A perfect storm of severe weather events and bushfires around Australia, global reinsurance cost spikes and spiralling machinery and construction costs has hit the farm sector - and other industries - hard.

Average farm insurance expenses were relatively stable in Australia during the 1990s and early 2000s, typically around the $10,000 a year mark.

However, by 2010 the trend picked up pace, particularly in the cropping sector where premiums jumped from $20,000 to $35,000 by 2016, then almost doubled in the next five years.

Grain sector coverage, which includes crop insurance and stored grain, has partly reflected increased grain market values in the past two decades, plus some significant expansion in cropping farm sizes making premiums more expensive.

Between 2020 and 2022 alone, as grain prices surged, the average per hectare cost of insuring a cropping enterprise leapt 40pc, although commodities analyst and Episode3 director, Andrew Whitelaw, noted rates varied around the country.

"If there are more claims in one region, then the costs increase, while higher machinery replacement costs also make insurance claims more expensive to cover," he said.

He calculated cropping farm premiums had experienced compound annual growth rates of close to 9pc since 2010, and about 8pc in the mixed farming sector.

Sheep and cattle industry insurance costs were higher too, but rises had been closer to longer term compound growth rate trends at 3pc to 4pc.

One NSW regional-based broker whose client base covered a big swathe of farming enterprises said while livestock producers were finding it hard to understand their yearly premiums jumping from less than $10,000 to $20,000-plus since 2019, larger scale croppers now paid $100,000 - up from pre-pandemic costs around $60,000.

"I get farmers asking about loyalty discounts, but for some it's a case of being lucky to actually qualify for insurance coverage at all," he said.

Insurers were "a lot more thorough" and may simply opt to withdraw their exposure in some situations if uncomfortable about the way a farming business was operated or maintained.

In particular, agricultural machinery contractors' coverage options were getting notably tighter.

This was partly due to the huge cost of replacing modern gear such as headers, and the lack of skilled labour available to operate them properly in peak times.

Adelaide-based rural broking specialist, Liam Bache, said machinery costs were a significant contributor to ag's big premiums, noting the cost of a decent tractor-seeder combination had doubled since 2015 to nearly $2 million today.

"You could also be spending $30,000, or maybe $50,000, on crop insurance," said Mr Bache, from big broking network, MGA Group.

However, he also suspected agricultural insurance cost rises had been artificially restrained five to 10 years ago, thanks to some cross-subsidy support from other areas in the insurance market.

"Farm insurance rate rises were surprisingly stable, not even matching CPI in some years," he said.

"It just wasn't sustainable, especially when global insurance costs generally started rising much faster, and replacement costs for farm assets like buildings, vehicles, machinery or grain were increasing so much."

A typical farm premium in South Australia's Mid North had subsequently gone from $24,000 in 2014 to around $50,000 this year.

As a result farmers were modifying their coverage to focus on protecting what their business simply could not afford to lose.

Equipment bought on borrowed finance took priority as did key coverage for loss of infrastructure like woolsheds, the family home and some sheds.

However, older vehicles, and sundry farm gear from augers and field bins to road rollers, quad bikes, tools, generators and pumps were frequently excluded, particularly from extras packages covering theft or partial damage.

"Individually they don't represent much of a cost to your premium, but five or 10 items could be a $500 or $1500 saving in premium costs," Mr Bache said.

"Even modern sheds, if they're well built, may be considered at relatively low risk of damage, so dropping them could be quite a saving, too.

"Although if you do have to replace them, buildings aren't cheap."

Achmea Australia's agriculture strategy director, Phil Heath, said farmers should also double check their coverage has not inadvertently included vehicles or other assets they have sold in the past year or two.

"Always review what's listed in your coverage and the excesses you are willing to pay," he said.

"If you think you can retain a bit more risk yourself, then increase your excess component."

Similarly, downgrading comprehensive coverage for some farm vehicles or buildings may be an option.

However, he said under-insuring key assets was "dangerous", partly because the eventual replacement cost could be way more than expected, as well as other potential problems.

While Mr Heath doubted rising premium prices had pushed many farmers to forego coverage, Episode3's Mr Whitelaw said he had heard of some who were "self insuring".

"Self-insurance might be a real thing, but I wonder if those guys are actually putting money away each year as part of that strategy, or are they spending the money they save on something else."