Multi-Peril Crop Insurance (MPCI) is slowly gaining momentum in Australia, with a number of companies showing interest in this segment of the market.
MPCI compensates for crop yield loss by allowing participating producers to insure either their cost of production, or a certain percentage of crop yield.
Underwriters are effectively insuring the costs associated with growing the crop. They are not insuring the gross revenue from the crop, as is the case with insurance for fire and hail.
The type of events covered by MPCI may include; flood, excessive rainfall, hail, frost, snow, damage from wildlife or pests, disease, drought, heat stress and fire. Covered events are likely to vary slightly between insurance companies.
Two companies which are currently operating in this market are Latevo and Primacy. Latevo is underwritten by Assetinsure while Primacy is underwritten by Allianz.
The two products offered operate slightly differently, however the underlying principle of providing a level of cover designed to meet the growing cost is common to both.
The Latevo application process includes a risk assessment and analysis of 5 years of historical revenue and expense data, in order to calculate a cost of production which will be insured. Latevo charge a Risk Assessment fee of $5,500 for this step.
Primacy cover a guaranteed yield, which is a percentage of what is termed the approved yield. The Primacy application process requires at least 5 years of historical production data. There is no cost associated with the Primacy application.
Whilst there are differences in the application process and the way in which the cover is calculated, for all intents and purposes, both companies intend to cover the costs associated with growing the crop.
Due to the associated risk, the premiums charged for MPCI are high, making this type of insurance too expensive for general use. MPCI is most likely to be appropriate where there is short term, above average risk. For example, following a large expansion where a complete crop failure could put significant financial strain on a business.
With a number of companies considering this market, it is likely that MPCI will become more common in Australia. In time the products will be refined and with competition and scale, plus increasing size of the insurance pool, premiums may reduce. However, one would assume that this insurance will lead to an increased appetite for risk amongst farmers, the flow on effect of this being increased land values due to increased demand.