Is your farm insurance up to the task?

With commercial farms and agribusinesses becoming increasingly diversified to include aspects such as agri-tourism, restaurants and hospitality, venue and function facilities and B&Bs, farm owners need to take a much closer look at how their risk insurance would play out in the event of catastrophe and the risk of liability claims against them in the event of fires, droughts or accidents.

According to Yolanda Barnard, Aon South Africa’s George Branch Manager, risk management in the agricultural sector has undergone a metamorphosis in recent years.  “Farmers are exploring new farming techniques as well as additional revenue streams.  Very few can be classified as standard farms anymore as many have diversified their operations to include restaurants, wedding and function facilities, guest accommodation and guided game tours.  Such diversification fundamentally alters the nature of the risks that farmers are exposed to, as well as the financial quantum of what is at risk when it comes to weather catastrophes such as fires, floods and droughts. The knock-on effects from a business interruption perspective are also significant as various revenue streams can be impacted by a single event.   

Aon highlights some of the factors that need to be considered in building a risk-ready agribusiness sector:   

• Crop, livestock and game insurance:  Crops, game and livestock form the backbone of farming operations, and if not appropriately insured will leave the farm without an income until replaced.  And replacement is typically not straightforward – for example, a macadamia orchard can take up to seven years to produce a crop if a total replant is required after a major fire.  The business interruption and impact on income and sustainability of the farm is tremendous, and this type of cover usually needs to be done on a negotiated basis with the insurer.     
• Buildings cover:  Many farms were built many years ago, with new additions and renovations made over the years.  With the new additions, as well as the generally sharp increase in property values, it’s vital to do a professional property valuation and make sure that insured sums are sufficient to cover the replacement costs of all structures, as well as the site rehabilitation and preparation costs along with the architectural plans in the event of a fire or weather catastrophe. 
• Contents Insurance:  Having contents cover in place is crucial to the livelihood of a farm when you consider the host of specialised equipment typically found on a farm. 
• Stock Insurance:  It is important to note that insurance for stock is not the same as contents cover and needs to be accounted for under an additional insurance for stock, both while in storage and in transit.
• Vehicle insurance:  A commercial vehicle insurance policy will cover any partial damage or a complete loss on trucks, tractors, harvesters and so on in the event of a fire.  However, the general trend on older vehicles is to insure against fire risk only under the fire section of the policy and not under the motor section, which often does not hold muster if the vehicle needs to be replaced in its entirety, leaving the farmer out of pocket due to underinsurance. 
• In order for a farm to obtain fire cover, fences need to be specified on the insurance schedule and maintained – a costly asset that requires significant upkeep, especially on game farms where specialised and electrified fencing solutions are utilised. 
• Public liability – This cover is essential to protect the farmer against allegations of negligence such as slip and fall incidents, attacks by wild animals or neglected fire barriers or flammable objects that are not correctly stored, such as diesel as some examples.  One of the best ways to proactively fight fire risk is for farmers to become members of registered Fire Protection Associations (FPAs). As an FPA member, when it comes to public liability, no presumption of negligence would apply in case of a civil claim for damages where a fire has spread from a member’s land and caused damages or losses to the neighbouring property or land of another person. The plaintiff will carry the onus to prove negligence on the part of the farmer (defendant) regarding the cause of the fire, or the spreading of the fire to neighbouring farms.
• Specify the nature of activities – It is crucial to declare exactly what activities take place on the farm/property, as the hospitality industry (wedding venues, restaurants, tours) faces an entirely different set of public liability risks that would not be covered under a typical agricultural policy. 
• Business interruption insurance would compensate farmers for the financial impact of physical damage to property or other key external events, for example, damage at a key customer or a supplier’s depot, or own operations that prevents the normal farm business operations from continuing and generating revenue and an income. 
• SASRIA cover - the South African Special Risk Insurance Association (SASRIA) provides cover for riots, protests and violent strikes which should not be overlooked from an agricultural perspective.
• Directors & Officers Liability insurance – Agribusinesses often feel they don’t need any type of management liability coverage because they aren’t a ‘corporate’ entity, however many owners, directors and managers in an agribusiness face the same exposures, particularly in the area of employment practice, fiduciary obligations and public liability.  A D&O policy provides essential cover for commercial farmers who are directors in a company that owns the farm.  The policy protects the personal interests of directors, officers and other employees that are charged with supervisory and managerial responsibilities, and who can be held liable for wrongful acts that may occur in their day-to-day farm management. 

“A significant concern is the high level of underinsurance in the sector as farmers don’t review their policies or replacement values of equipment often enough. Farmers are also unaware of the risks they face, but the reality is that much of the take-up is informed by the prevailing economy.   Here the guidance and insights of a professional broker versed in the complexity of agri-risks will prove invaluable in striking the balance between affordability and being appropriately insured for a worst-case scenario.  As agribusinesses continue to diversify their operations and income streams, the complexity and range of risks widens, requiring a professional broker to help develop suitable risk management strategies coupled with appropriate insurance tools,” concludes Yolanda.