What to consider when taking out farm insurance
© Tim Scrivener There are only two types of insurance required by law – employer’s liability (EL) and cover for motor vehicles on the road.
Beyond that, one can insure for anything – and spend the earth doing so, says Jonathan Armitage, head of farming ay Strutt & Parker.
See also: More farm business management advice on FWi
There’s a balance to be found, he says between saving the cost and taking the risk that the savings over the years will cover the cost of uninsured losses.
The guiding principle, he suggests, is to make sure you insure what you cannot afford to pay for yourself – or would have difficulty paying for – if the worst happens.
Below, he suggest some common areas to be aware of.
What cover is needed?
Public liability Some claims now exceed £10m, so check that your levels are appropriate.
Fly-tipping Cover may be advisable in some areas.
Special conditions If any have been imposed, can you prove they are being adhered to in the event of a claim?
Insurance values Underinsurance is common, with the prospect of claims being “averaged” as a result.
Although many policies will apply some index linking to the insured values, this does not always keep pace with real costs for a variety of reasons, and traditional buildings will need special care because of the construction methods and materials required.
Have a revaluation every few years to ensure they remain appropriate. Remember to calculate on replacement/rebuilding costs, not market value.
Implements Understand when, and on what basis, implements are covered. This might depend on whether the implement is attached to an insured vehicle at the time of the loss.
Loss of revenue /loss of profit insurance This protects against wider losses as a consequence of an insured risk.
For example, a combine fire might lead to further losses due to delayed harvesting, or bringing a breeding herd back to full production after a loss will take time.
Diversification Farm insurance covers only the business of farming – new enterprises bring new risks that also need to be considered.
Inform your broker or insurer of plans for new enterprises, such as those that invite people onto the farm, or selling or processing food or other items.
Property
Let property
Consider whether to hold cover for loss of rent should the property have to remain unoccupied for a period – for example, after a fire. It can take a year or more to rebuild a property.
Walls and boundaries
Rebuilding walls is expensive. Usually, damage as a result of fair wear and tear will not be covered, so policyholders need to consider what is covered, the value of the cover and the basis.
For example, is it on a “first loss” basis, which provides only partial insurance cover to a pre-agreed value or limit?
Empty property
There are usually policy requirements for the management and inspection of empty properties, particularly in the winter when frost or water damage is possible.
Make sure you are familiar with these, carry them out and make any appropriate diary notes when this is done, otherwise a claim may be rejected.
Construction projects
Discuss this with insurers before a project starts.
Renewal tips
- Summarise what has changed over the past year. Changes should be noted as they happen and insurers informed where appropriate. However, items could be missed, such as a change in the balance of crops and, therefore, values – for example, if a high-value crop is dropped, or the farmed acreages change, is the sum insured still appropriate?
- What new vehicles or drivers have been added over the year? Have you checked licences and certificates – are there any new convictions?
- Have you reported incidents – for example, pollution or accidents?
- Changes in the workforce will affect the extent of employer’s liability cover. Remember temporary/casual staff and the value of unpaid family labour when calculating the cover needed. Ensure that correct health and safety policies and processes are complied with.
- Be truthful – electronic records mean there are good databases for insurers to check.
- Beware of paying for crop insurance twice – once as a growing crop and once for crop in store. This can be avoided if the cover is for loss of profits instead.
- Ensure quotes are on a like-for-like basis and will remain on the same basis right up to signing up.
- Look at different levels of excess to see how this affects the premium and the value relative to the premium.
- Consider a cyber policy to protect against hacks and data loss.
Misunderstandings can be costly
Farm insurance claims raise a number of issues that highlight misunderstandings, mistakes and oversights, says Debbie Airey, managing director of County and Commercial Insurance Brokers, and GRP Group head of national practices in agriculture. Here are some examples:
Averaging
This is the term used for calculating the sum due when farm businesses are underinsured (see more on p25).
It works like this: If a farmer insures a building for £80,000 but the realistic rebuilding costs are actually £100,000, a total loss claim would pay out only £64,000 (£80,000 less 20%), because the building was 20% underinsured.
Tenant’s improvements
Tenants must insure their own improvements, even if these are in a landlord’s building. For example, if a tenant farmer installs a new kitchen at their own expense, it should be covered on the tenant’s insurance policy.
Tenant’s liability
Where the action of a tenant is negligent, the tenant may have to pay for damage to property insured by the landlord.
For example, in one case, a welding spark set fire to a farm workshop on a let farm.
The tenant’s insurance had to pay for the cost of the damage because it was seen to have been caused by his negligence.
Documents
Taking an employee’s word on legal issues such as the validity of a driving licence or certificate of competence can put an employer in a stressful and potentially costly situation.
“In one incident, unknown to the employer, an employee held only a provisional licence. He was allowed to drive unaccompanied and hit a car.
“The insurer would pay for the third-party damage to property and the third-party injury, but if the farm employer was judged negligent, the insurer could seek to recover the value of those payments from the farmer,” says Mrs Airey.
“Always ask to see and take a copy of any licences and certificates. Do this periodically to ensure they are still valid.
“Make it clear to employees that they must inform you of any change affecting the validity of driving licences or certificates.
“If there have been speeding or other convictions, the licence holder needs to inform their insurer.
“People often think that a mobile phone driving offence is a minor offence – it is not, and insurers should be informed,” says Mrs Airey.
Injuries at work
Where an employer gives a staff member protective workwear, they should ensure it is used properly, and that there is some record that such workwear has been issued, such as the employee signing for the kit.
“We had a case where an employee had been given steel toe capped boots, but was not wearing them at work. He had an accident at work which broke his foot.
“However, the farmer could not prove that he had given the staff member the boots, so the farmer was liable for the cost of the injury.
“Had there been some record of the boots being issued, this may not have been the case, although it could have been argued that there was still a liability on the part of the employer as he did not ensure they were used.
“In such a case, it could also have been argued that there was contributory negligence on the part of the employee, so the claim could have been assessed, for example, as 60% employer liability, 40% employee liability.”