The importance of examining the fine print
Farming is changing, so is
the insurance market. So
check your cover carefully
FARM insurance remains an extremely competitive business, with policyholders regularly negotiating reductions in premiums.
While there are around 50 insurers who will write farming cover, the bulk of the business is in the hands of the 10 or so main operators, who are all keen to hang on to what is a relatively stable sector.
Two main areas now provide insurers with their biggest headaches – employers and public liability. An increasing number of claims are being taken to industrial tribunals, and the general increase in awareness of legal routes such as this is likely to mean that activity in this area will continue to increase.
Public liability insurance is plagued by the implications of several recent developments, including changes in food safety law, product liability issues, traceability of agricultural produce and speculation over links between animal and human diseases.
The intention signalled by the government to widen public access to farm land also has important public liability implications, as it is not yet clear whether this may change the nature of the duty of care which landowners and occupiers may have to members of the public.
As with other input costs, there are ways of cutting insurance premiums, but this is not always the priority, despite lower farm profitability. In particular it is important to check when competing quotes are being considered that they are being offered on a like-for-like basis.
The current states of both the insurance market and farming profitability mean that there are several areas where particular attention should be paid when farm cover is being reviewed:
• Make sure you revise values and tonnages of grain and other crops annually to take account of changing prices, yields and quality, says Strutt & Parker consultant Teresa Dent. The same applies for livestock values.
If these are left from year to year, you may find that a claim in a high priced year leaves you under insured, in which case the pay out would be scaled back by the proportion of the under insurance.
• Consider extending your theft cover to include the value of associated livestock subsidies, advises Mrs Dent. A snap inspection by MAFF may reveal for the first time lower numbers as a result of theft, leaving the flock owner having to persuade MAFF to treat him sympathetically on the premium payment.
"MAFF says it will look at this on a case-by-case basis, but we now insure both the value of the sheep and of the premium as a lump sum," says Mrs Dent.
• Loss of income protection may be worthwhile for many businesses. As well as covering the loss of revenue caused by an incident such as fire or theft, it may also pay for hire of alternative buildings, equipment and or machinery to enable production to continue.
• Young drivers – declare the ages of all drivers under 25 to make sure you are covered. Some policies have exemptions for young drivers which may catch you out, says Mrs Dent.
• Beware of signing up to long-term agreements offering a discount for putting insurance business with the same company for between three and five years, says Nigel Wellings of Northampton-based insurance consultants Farmers and Mercantile.
Mr Wellings points out that the brokers duty is to the insured, not to the insurer. "If an individual has been insuring with a company for a number of years, he should be getting the benefit of the very best rates without the need for LTAs," he says.
Policyholders should check documentation for LTA clauses that may have been slipped in without any clear explanation or prior agreement, he says.
• Membership of a farmers buying group or co-operative may provide cheaper or better cover through a group scheme.
• For between £100 and £150 a year you can protect your business from legal and accountancy fees for Inland Revenue and Customs and Excise investigations, employment protection proceedings such as unfair dismissal claims and compensation awards.
• Defence costs for prosecutions concerning animal health, food safety and health and safety at work would also be covered by such insurance, as would claims against third parties for damage to property, nuisance or trespass, including the costs of evicting New Age travellers.
• Check policy documents when they arrive. Be clear about details such as implement cover. Some policies only cover these when they are attached to a tractor. Others which cover detached implements may impose a single item value limit.
• Farmers should be more aware of their risks, says broker Christopher Bell of R K Harrisons Bedford office. He sees motor claims being thrown out by insurers on a regular basis where vehicles have been stolen because keys were left in them.
• Insurance costs can be cut by careful consideration of whether the business can afford to take on a larger excess. "Many of the larger farms take on all the small losses," says Mr Bell. Many estates now operate an excess of £500 to £1000 on property risks, considering that the cost of taking on such risks is more than outweighed by the value of the discount.