More Australian cereal and legume farmers every year are buying crop insurance to protect them from the consequences of extreme weather events and fire, together with ancillaries such as loss in transit and straying livestock. Many farmers, however, continue to choose to bear these risks themselves. Others sit on the fence, making a decision during the course of the growing season.
So, who’s right?
Well, we can only speak from our considerable experience in the field, but in general, we find that the more experienced and skilled farmers tend to belong to one or other of the first two categories. That is, they have made a long- term decision, grounded in their understanding of the land they farm and the crops they plant, either to always insure, or to never insure. The fence- sitters tend to see the question as a form of gambling and to decide as the growing season proceeds whether or not to insure. The reality for them is that the House tends usually to win.
What is Crop Insurance?
Crop insurance protects agrarian producers against loss or destruction of the crop through hail, fire, straying livestock, and so on.
The most common form is known as Final Revision insurance, because the premium is calculated on a yield forecast fixed on or before a date declared by the insurer, and known as the Final Revision Date. It works like this:
- Early in the growing season, the grower estimates the yield of his crop in terms of hectares sown, yield in tonnes per hectare and market price per tonne delivered.
- As the season proceeds, the grower can revise his forecast any number of times, until
- Final Revision Date. This is declared by the insurer according to the characteristics of the district in which the crop is being raised. No further revisions to the forecast are permitted after the Final Revision Date.
- The premium calculated from the Final Revision, and is payable upon harvest.
A less common variant exists, called Post Harvest Crop Insurance, in which the premium is based on the value of the grain actually harvested.
So when’s the best time to insure? Are there advantages to getting in early? Or, since the premium isn’t set until the Final Revision Date, why not wait until late in the season? Actually, it works the other way round. Most policies provide for no-cost voiding of the policy in the event that a crop is declared a failure before the Final Revision Date. And since the premium is only payable at harvest, there is no cost to insuring early. And any crop insurance policy will have an embargo of at least 48 hours, which rules out tactical insuring based on a scary weather forecast.
Early Bird Advantages
Insurers, particularly the smaller ones who may be offering the lowest premiums, have a limit to their exposure in any particular district. So the insurer you spotted in June offering great premiums and conditions may easily be all sold out by the time you decide later in the season that you want to insure. Cover may still be available, but at a higher cost and possibly on less favourable terms. Another advantage to early insuring is that your policy can include cover for the cost of reseeding in the event of an early crop wipe-out.
Insuring early has another less obvious benefit. Crop Insurance markets are understandably sensitive to the weather, and the best time to expect favourable terms is early in the season, during periods of settled weather.
Crop insurance is not a form of gambling, but a means of managing your risk profile and protecting your long term prosperity. Your FERME broker will be happy to advise you and create a policy that matches your risk appetite.