Livestock disease insurance – what to look for in policies

The UK is in the grip of its worst-ever avian influenza outbreak, TB continues to ravage farms and African swine fever is spreading westwards across Europe.

Most farms have a general livestock insurance policy, but often only after a serious disease has struck does it become clear that specific losses were not covered.

General livestock insurance policies do not come with disease cover as standard.

See also: Business clinic: does insurance cover costs of fly tipping?

Farmers often assume that the loss of an animal to disease will be covered, but policies are more likely to cover general risks such as fire damage, accidents and theft.

Animal losses to disease must be specified separately and will come at an additional cost, says Chris Walsh, farming insurance specialist at NFU Mutual.

Diseases covered

Foot-and-mouth, avian influenza, salmonella, classical swine fever, TB, brucellosis, Aujeszky’s disease, maedi visna and anthrax are among the most commonly available diseases for addition to policies.

The cost and availability of the options varies according to the ever-changing level of risk.

For example, poultry farms have been in the grip of the worst-ever avian flu outbreak. The average pay-out to affected farms is £600,000 over the past year, and some individual claims have cost insurers more than £1m.

While progress on a vaccine offers hope, the assumption made by some global insurance risk assessors is that the virus could be endemic in the UK, says Mr Walsh.

Poultry keepers with existing avian flu policies will be able to keep their cover, but the risk and costs are too great to insure any new customers at present.

Likewise, for bovine TB insurance, farms in hotspots and with a history of breakdowns, can find it difficult to obtain cover.

Matt McWhirter, divisional director at insurance broker Lycetts, says the TB situation demonstrates the difficulty in insuring against livestock disease losses.

In areas such as vehicle cover, insurance is mandatory. This provides a nationwide funding base for the small percentage of drivers who make claims, he says.

However, livestock disease cover is not compulsory, so in areas with a low risk of a disease, such as TB in the east of England and Scotland, farmers will not take out insurance.

Those in high-risk areas will want cover, bringing insurers a high risk of paying out from a limited funding base.

This is the key reason why livestock disease insurance is becoming increasingly expensive, Mr McWhirter he says. 

Although the pig sector faces the looming threat of African swine fever (ASF) arriving in the UK, a combination of rising input prices and post-Covid/post-Brexit market disruption, has forced farms into the red and disease cover is a cost too far.

NFU Mutual has offered an ASF option to policyholders since December 2019. Since then the disease has spread westwards across Europe, with cases reported in wild boar in Germany.

Despite the increasing risk, only a handful of producers have taken out the policy. Mr Walsh says: “It is one more cost to bear for the industry, and without a case so far in the UK, the risk is seen to be one worth taking,” says Mr Walsh.

However, the situation would change rapidly if the disease made the jump across the Channel. Demand for cover would rise and the risk to insurers would grow.

How long insurers would be able to offer cover to new customers remains to be seen.

Mr Walsh says it is likely it would follow the same pattern as avian flu, with early policy­holders accessing cover more easily and later requests facing higher premiums or no offer at all.

Insurance cost

A premium of £250 would provide about £100,000 of disease cover, according to Lycetts, but the figures vary hugely between businesses which have distinct risk levels.

The disease profile within an area and the individual risks – herd or flock size and management system – all have a bearing on the final cost of cover.
Premiums have changed over the past 18 months.

The costs of replacing stock or contaminated feed following an outbreak, plus any required cleaning and disinfection operations, have all risen, says Mr McWhirter.

Practice on the farm will affect payment rates too. A business that buys in stock from a high risk area or with lower levels of biosecurity could see premiums adjusted upwards or cover refused altogether.

What does insurance cover?

Diseases such as avian flu, TB and brucellosis attract government compensation at a percentage rate of the animal’s value. Insurance is then used to cover a proportion of the remaining amount.

Primary disinfection is carried out by government officials, with the cost borne by Defra, but the cost of secondary cleaning and disinfection is down to the farmer’s account.

The outlay for operations after an outbreak of the virus can be considerable, particularly as fuel, chemical and labour costs have gone up. However, this cost can be included in policies.

An area that is often overlooked is business interruption. Disease outbreaks and government movement or trade restrictions can shut down businesses for long periods.

The resulting loss of income can be higher than the original livestock losses, so it is worth considering cover that bridges the gap until cash starts to flow into the business again.

Avoiding pitfalls

The first step is to research and consult on the risk and potential cover available with a broker or a range of advisers.

Discussing any changes and keeping the insurer up to date with these is vital. Cover can be refused if the farm details are altered after the cover has been taken out, Mr Walsh says.

For example, even small changes to stock numbers or buying procedures – such as taking stock from a new area – may alter the cover required.

Breakdowns in biosecurity may also nullify a claim. Insurers will investigate farms and may not pay out if agreed levels of biosecurity have not been met, he adds.

It is important to understand precisely what is included in a policy, along with any obligations this places on the insured, so it should be read and any queries addressed.

“Don’t assume that the words brucellosis or anthrax in a policy mean that animal losses to the disease are automatically covered,” says Mr McWhirter.

Understanding what is included also applies with an annual policy renewal – book a date about four weeks ahead of the policy being reissued.

That gives time to ensure all the details are correct, any changes are explored and that the cover is still appropriate.

It is important to keep abreast of changes that may affect the value of stock and any issues affecting exposure to disease risks.

Disease cover tips

  • Engage an agent or broker early, in plenty of time to review and update a policy
  • Read the policy – and ask for advice to fully understand what is covered and what stipulations are laid out. Check the exclusions
  • Talk to processors and customers – they may require protection from business disruption as part of a contract
  • Don’t let the renewal date pass without checking that cover is still appropriate
  • Notify insurers of changes to the enterprise – if you are unsure what type of change to notify, ask for these to be set out
  • Benchmark with similar units, flocks or herds to obtain a realistic cost for insurance cover
  • Explore cover for business interruption and clean-up costs