Insurance premiums are a significant cost to most farm businesses, however few people devote adequate time to understanding the policy and discussing the limitations of their cover with the insurer.
Farm businesses may have insurance for; public liability, general farm buildings and equipment, crop production, possibly business interruption, workers compensation, life, total and permanent disability, plus income protection.
Within each category most insurers broadly cover the same thing, however increasing competition and pressure for insurance companies to maintain profit margins, means there are significant variations between policies. Often these variations relate to less common claims. Whilst these claims may be less common, when they do occur they can be significant. Therefore, by excluding such claims from the policy, an insurance company reduces its own risk and improves its bottom line.
When taking out or reviewing insurance policies, business managers should aim to deal with a reputable insurance agent, broker, or representative, who understands the farm business. In addition, it is important to make sure that this person is fully aware of the business assets, business operations, plus understand what the client wants to achieve by taking out each specific type of insurance cover.
In addition to employing a reputable advisor, it is also critical that the client takes the time to understand the policies and be actively involved in the discussion around each type of cover. By taking the time to understand the limitations of each type of cover, the business can not only ensure that its risks are mitigated, but can also save money by reducing cover on areas that are not critical to business survival.
Following are some specific areas that should be discussed with an insurer or agent:
- Use of incoming contractors; are they covered for damage caused to their machinery whilst employed by the farm business?
- Off-farm contracting; is machinery covered for work outside the farm business?
- Aerial spraying and on farm airstrips; is this covered under the public liability policy?
- Leasing and agistment; who is responsible for loss of livestock?
- On farm events such as bull sales, parties, weddings and field days; is this covered by public liability policies?
- Unregistered vehicles; what are the implications?
- Movement of machinery on public roads; is this covered under public liability?
- What are the implications of entering into contracts?
- Business ownership; what is the structure of the business?
- Land ownership; which person or entity owns the land and is any land owned by a superfund?
- Does co-insurance apply?
- Who is the policy owner or beneficiary of a life insurance policy? Will any claims made be paid to the intended entity or person, or will they go to an estate or superfund?
In the course of these discussions, the question of what it is the business is trying to achieve with the insurance, should be addressed. Rather than covering everything to a maximum value, it may be prudent to insure what the business can’t afford to lose, what is essential for the ongoing operation of the business, or what is required to cover debt.
Insurance claims are often made at a time of great stress, therefore it is far easier to take the time and effort to structure the insurance correctly at the beginning, so that claims can be processed efficiently and paid to the intended beneficiary.