It seems yet more challenges are ahead for Australia’s agricultural industry, as several factors combine to make things difficult for both farmers and their insurance providers.
After more than 30 years in the agriculture sector, John van der Vegt is one of the most experienced brokers in the field – he says a number of issues have come together in recent months to create a perfect storm that farmers and insurers will soon have to weather.
“Extended drought conditions, hardening market conditions, and ongoing gaps in product availability are casting a grim shadow over Australia’s agricultural industries,” said van der Vegt, national head of agriculture for Gallagher. “It is likely to be a difficult season for both growers and insurers.”
Discussing current climate conditions, van der Vegt said the lack of rainfall means dryland crop growers are facing reduced plantings and lower yields, while irrigated crops also face reduced plantings and higher water costs.
“For insurers, this will translate to lower premium volume, and if the current hot, dry climate cycle continues, a high likelihood of instability and associated storms and fires,” he said.
van der Vegt’s comments come after Gallagher released its most recent market report, which predicts that the expected $125 million premium pool will fall below $100 million as a result of significant reductions in areas planted and subsequent yields.
“The market is hardening and if significant losses eventuate this year as a result of fires, hail, or storms, a knee-jerk reaction from underwriters and insurers is likely,” he warned.
Unfortunately, while Australia’s agriculture industry is in desperate need of more substantial protection, the insurance market is very limited in terms of availability, crop type and region.
“Unfortunately, gaps in the market in terms of product range and availability – particularly for horticulture and vegetable growers that either can’t access cover or can only access limited cover for their crops – mean that underinsurance will be unavoidable,” said van der Vegt. “While cotton is well supported, the appetite among insurers for horticulture and viticulture is curbed, and for vegetable cropping it is non-existent.”
Although the situation seems largely doom and gloom, van der Vegt suggested that there is one positive – according to him, difficult scenarios such as this often encourage alternative players to create innovate insurance solutions to meet a need which is not currently being met.
