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Managing risk using Multi-Peril Crop Insurance

2018 Edition — A review of MPCI products for use in cropping operations

G R A I N G R O W E R S L I M I T E D

As one of the many tools farmers can use to manage risk, Multi-Peril Crop Insurance (MPCI) should have a place in grower considerations, along with decisions such as enterprise selection and best management practices.

MPCI isn’t new to Australia. However the current product range is quite different to that offered in the past. This booklet will enable you to compare what’s on the market.

A recent GrainGrowers survey on MPCI showed 13 per cent of growers were considering taking out MPCI but 49 per cent were not. Most commonly, this was because they considered the premiums were too high.

A lack of information and understanding of available insurance policies and companies also appear to be contributing factors in the low uptake of MPCI. This publication hopes to assist in correcting this.

Companies offering MPCI and the specific product attributes may change from year to year. However, while the product range described here is not an exhaustive listing, and offerings may change, GrainGrowers has endeavoured to identify as many MPCI or similar insurers as possible.

It should be noted that premiums paid will vary significantly depending on location, cropping history and risk profile.

What is MPCI?

Multi-Peril Crop Insurance (MPCI) protects against crop yield and farm revenue losses by enabling farmers to insure a percentage of crop production or revenue.

PRODUCT TYPES INCLUDE:

· Farm income protection

· Agreed minimum yield

· Parametric or weather indexed.

PERILS COVERED INCLUDE:

· Rain — drought/flood

· Heat/frost/wind stress

· Disease/pest damage

· Grain price risk

· Revenue shortfalls below an agreed level.

CROPS COVERED INCLUDE:

· Winter cereals

· Pulses

· Oilseeds

· Hay crops

· Summer crops

· Irrigated crops, and

· Other selected crops.

GrainGrowers is pleased to release this report highlighting the range of MCPI options available for grain farmers.

This is the 2nd Edition of the GrainGrowers Managing risk using Multi-Peril Crop Insurance Report following the inaugural report in 2017.

Managing risk using Multi-Peril Crop Insurance

2GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

WEIGHING UP THE OPTIONSMPCI is just one of the tools farmers can use to manage risk. The cost of the insurance needs to be considered against the cost of alternative risk management practices. When adding up the cost, remember to include the costs of your time in compiling the farm records and historical data which the insurer may require in an application.

A review of the product range shows there are a number of MPCI types on the market. Some offerings will prevent losses by covering the costs associated with producing a crop. Others look to provide proportional income surety by offering to top-up farm income, to a proportion of historical returns.

There are also weather event based options, known as parametric insurance. Farmers taking out these policies can insure against a particular weather event as opposed to insuring against the impact an event might have on the farm.

Multiple weather event insurance over the growing season can also be purchased. While this is a more simple form of insurance, parametric insurance policies do not cover against perils such as pest damage.

PRICINGPricing for MPCI products can vary between $10/ha and $60/ha depending on location, the level of cover and the depth of risk understanding the underwriter has.

Your MPCI check listIn comparing MPCI products you should consider:

• Which perils are covered ................... page 7

• The level of cover and other features offered ...................................... page 8

• If your state is included ..................... page 8

• How/when premiums are paid .... page 10

• Closing dates for applications/what stages are covered .............................. page 10

• What information is required to support an application .....................page 11

3GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

4GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

Additional information provided by the grower regarding risk on MPCI policies can reduce premiums as it enables the insurer to better understand their exposure.

WHEN SHOULD I CONSIDER MPCI?Most MPCI providers close off their offering before the seeders have finished or in some cases as early as January. This limited window of opportunity may be holding growers back from MPCI uptake. It means that the following year’s crop must be considered at harvest the year before.

APPLICATION FEESTo determine risk profile and potential exposure, most, but not all, MPCI insurance providers require a grower to pay an application fee.

Application fees can vary between providers and can vary according to the size of their operation and the product on offer.

STAMP DUTYStamp duty varies between states. Victorian, South Australian and NSW producers no longer pay any stamp duty on MPCI policies, Western Australian, Tasmanian and NT growers pay 10 per cent, while Queensland growers pay 9 per cent.

Added to the cost of a policy, stamp duty can be a significant barrier to uptake. State governments in WA, Tasmania and the Northern Territory are being pressured by industry groups and insurance providers to follow the lead from other states and withdraw stamp duty on MPCI.

WHO SHOULD I DISCUSS MPCI OPTIONS WITH?Discussions regarding MPCI should be made with appropriately qualified individuals holding an insurance broker’s license.

It may also be worth checking that this advice comes from a party with their own professional indemnity insurance. n

HOW MPCI WORKS A REVENUE INSURANCE EXAMPLEThe 5-year historical average revenue of a farm is $1 million. For 2017, the farmer is offered 70 per cent revenue coverage, at $25 per hectare, for a premium of $57,500. In 2017, the farm’s revenue falls to $500,000, which is 50 per cent of its historical average. This triggers a payout of $200,000, which is the difference between the sum insured of 70 per cent of the historical average ($700,000), and what the farmer earned for the year.

For 2018, the historical 5-year average for the farm would fall to $900,000. If it again takes out 70 per cent coverage, the threshold for a payout would fall to $630,000. If again the farmer makes $500,000 for the year, the payout would fall to $130,000 for this year.

Revenue insurance implicitly insures against commodity price downturns that affect farmer income. However, price downturns are often the result of higher yields, which would offset some of the price downturn.

Source: Adapted from review of Multi-Peril Crop Insurance Incentive Measures, Independent Pricing and Regulatory Tribunal, October 2016, page 18.

5GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

GOVERNMENT REBATESThe Federal Government is offering a one off rebate for advice and assessments to help farmers prepare and apply for a new insurance policy to manage drought and other production and market risks. Eligible farm businesses can apply for a rebate of the costs of engaging an accountant or farm advisor to undertake an assessment required by an insurance provider, compiling historical farm financial performance and production data, and analysing insurance options based on a long-term, whole-of-farm risk assessment.

The rebates are for half of the costs incurred by eligible farm businesses from 1 July 2015, up to a maximum of $2,500 (GST exclusive).

The farm business must have a written offer from an insurance provider for a new or additional policy covering a peril or climatic event that the farm business has not insured against within the past five years.

This is limited to MCPI products, parametric products (based on rainfall or other climatic factors), or other single-peril products (e.g. fire, hail and frost insurance).

The rebate cannot be used to offset premiums.

For more information about the Federal Government’s Managing Farm Risk Program visit:

http://www.agriculture.gov.au/ag-farm-food/drought/assistance/mfrp

Support for farmers’ take-up of MPCI products in other jurisdictions is as follows:

QUEENSLANDThe Queensland Government in 2017 announced research grants of $100,000 for projects that collate and/or interpret agricultural production data on a regional or industry/crop specific basis that could be used in the assessment and development of risk management products such as crop insurance further down the track.

VICTORIAVictorian farmers no longer pay stamp duty on MPCI policies.

NEW SOUTH WALESOn the back of the final Independent Pricing and Revenue Tribunal (IPART) report: Review of Multi-Peril Crop Insurance Incentive measures (2012), the NSW Government has announced it will abolish the 2.5 per cent stamp duty on Multi-Peril Crop Insurance products from 1 January 2018 to make them more affordable to farmers.

However, since the IPART report found no evidence of market failure to justify direct government intervention, the government said it would not be introducing a subsidy scheme for premiums.

Product details Product type

MPCI features

Product name

Availability Product details Product type

2018 2019MPCI

Provider name

Product type

Underwritten by

Cost

of

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on

Bus

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Agr

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Para

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/ w

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Oth

er

Details

Insurance Facilitators, Cropsure Yes Expected

Insurance Facilitators

MPCI Inter Hannover 3

CGU, Crop Income Protection Yes Expected CGU / WFI

Crop Income

Protection

Insurance Australia Limited 3*

Latevo, Certainty Yes Expected Latevo MPCILloyds of London

(2018) 3Multi Level Coverage from

40% to 90%

MCPI Australia, Multi-Peril Crop Insurance Yes Expected

Multi Peril Crop Insurance

AustraliaMPCI

Liberty Specialty markets 3 3

The policy is a revenue based product. Yields are used to determine average

income per hectare

Primacy, PrimeGuard Yes Expected Primacy MPCI Allianz 3 3 Agreed value

SureSeason Revenue Winter Crop Multi-Peril Yes Expected SureSeason MPCI Lloyds of London 3

Celsius Pro, Weather Index Yes Expected Celsius Pro

Weather Certificates

Multiple 3 3 3Book 20 days prior to the risk period.

If triggered, payment is made 20 days thereafter

AWB Broadacre Crop Insurance Yes Yes

Crop Risk Solutions

Named Perils

Swiss Re International SE

Aust. Branch3 3

Agreed value, area (ha) x yield (t/ha) x value ($/t) — crop establishment

failure (CEF) cost/ha

Achmea Australia, Winter Crop Insurance Yes Yes

Achmea Australia

Fire, storm and hail

Achmea Australia

Yield loss represented as a percentage of either the potential yield of the crop in the paddock or the insured

yield whichever is the lesser.

6GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

* Subject to a 5 year history of actual production

MPCI features

Perils covered

Product name

Availability Perils covered

2018 2019

Lack

of

rain

fall

Exce

ss

rain

fall

Dis

ease

Inse

ct/p

est

dam

age

Tem

pera

ture

st

ress

Gra

in p

rice

ri

sk

Fros

t

Win

dsto

rm

Rev

enue

sh

ortf

alls

be

low

an

agre

ed le

vel

Other PerilsPerils

specifically NOT covered

Insurance Facilitators, Cropsure Yes Expected 3 3 3 3 3 3 3

CGU, Crop Income Protection Yes Expected 3 3 3* 3* 3 3 3 Insured can elect to include standard fire

and hail policy at the same time.

Fire and hail unless the extension is

taken

Latevo, Certainty Yes Expected 3 3 3 3 3 3 3 All natural perils — refer to policy wording when released

MCPI Australia, Multi-Peril Crop Insurance Yes Expected 3 3 3 3 3 3 3 3

Note: grain price drop only comes into effect if there is a claim triggered by another All perils covered on winter grown crops, no summer or irrigated

crops at this stage

Primacy, PrimeGuard Yes Expected 3 3 3 3 3 3 Please refer to the policy wording for full details

SureSeason Revenue Winter Crop Multi-Peril Yes Expected 3 3 3 3 3 3** 3 3 3

Drought, water stress, heat stress, flood, hail, excessive wind, frost, lightning,

excessive rain, snow, hurricane, cyclone, tornado, wildlife, accidental fire, bushfire,

insect or pest manifestation, plant disease, livestock damage

Celsius Pro, Weather Index Yes Expected 3 3 3 3 3 Profit on crop at harvest

AWB Broadacre Crop Insurance Yes Yes 3

3 (wheat barley canola only)

Hail and fire, CEF and insufficient soil moisture at planting

Achmea Australia, Winter Crop Insurance Yes Yes 3 Hail, fire

7GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

* But not damage allowed as a result of insufficient or improper application of disease control measures** Only if another peril occurs

8GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

Cover level States covered

Product name

Availability Cover level for each peril nominated / purchased States covered

2018 2019100% of

agreed crop value

Other % of crop value Agreed value Relevant notes

NSW Vic

Qld SA WA

NT

Tas

Excl

usio

ns

Insurance Facilitators, Cropsure Yes Expected 3 3 3 3

CGU, Crop Income Protection Yes Expected No, up to a

maximum of 65%Select between 50% and 130% 3 3 3 3 3

Latevo, Certainty Yes Expected40%–90% of

average historic revenue

3 3 3 3 3 3 3 Station country

MCPI Australia, Multi-Peril Crop Insurance Yes Expected

Between 65% and 80% of crop value

3 3 3 3 Limited cover in Qld

Primacy, PrimeGuard Yes Expected 3 3 3 3 3 3 3 3Special

acceptance required for Qld

SureSeason Revenue Winter Crop Multi-Peril Yes Expected 3 3 3 3 3 3 3 3

Celsius Pro, Weather Index Yes Expected 100% of sum

covered 3 3 3 3 3 3 3

AWB Broadacre Crop Insurance Yes Yes 3 3 3

Agreed value depending

on customer requirements, CEF cost/ha

3 3 3 3 3

Achmea Australia, Winter Crop Insurance Yes Yes 3 3 3 3 3 3 3

MPCI features

9GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

Crops covered Fees

Product name

Availability Crops covered Fees

2018 2019 Winter cereals Winter pulses

Winter oilseeds Hay crops Summer

cropsIrrigated

cropsOther crops

Application fees Notes regarding application fee

Insurance Facilitators, Cropsure Yes Expected 3 3 Lupins Nil

CGU, Crop Income Protection Yes Expected 3* 3** 3*** Nil

Latevo, Certainty Yes Expected 3 3 3 3 3 $5,500 Fee is once off for individual assessment, growers with performance greater than district average are

reward with higher coverage.

MCPI Australia, Multi-Peril Crop Insurance Yes Expected 3 3 3 3 3 Lupins Nil

Primacy, PrimeGuard Yes Expected 3 3 3 3 Nil We do not require an application fee. Survey might be requested if cover requested past May.

SureSeason Revenue Winter Crop Multi-Peril Yes Expected 3 3 3 3 3 Linseed $4,400 Once off application fee which meets the Federal

Farm Risk Management Grant criteria

Celsius Pro, Weather Index Yes Expected 3 3 3 3 3 3 3 Nil

AWB Broadacre Crop Insurance Yes Yes

3 (Frost: wheat

barley canola only)3 3 3 3 3 3 Nil

Achmea Australia, Winter Crop Insurance Yes Yes 3 3 3 3 3

MPCI features

* Wheat and barley only ** Canola only *** Certain crops only

10GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

Premium payment Closing date Cover stages

Product name

Availability How are premiums paid?

Closing date

Cover stages

2018 2019Upfront — as % of crop or other

agreed value

Payment after an agreed date

Monthly, proportion

of crop or other agreed value

Revenue share

after an agreed date

Other Single offering

Multiple in accordance with crop growth stage

Insurance Facilitators, Cropsure Yes Expected

10% deposit — balance by 12th

January

15th May on given year 3

CGU, Crop Income Protection Yes Expected

50% of premium (based on initial

planting estimates — payable within 10 days of policy

being bound

Final Balance (usually remaining 50%) — based on actual plantings

— must be paid by 30th July

Two equal monthly installemnts 27th March 2018

Zaidoc Scale defines growth stage (wheat and barley) — to

validate established crop coverage Sylvester-Bradley and Makepeace

Scale (canola) — to validate established crop coverage

Latevo, Certainty Yes Expected 3 3 Monthly and

harvest payment options available

July 9th — prices rise from May 25th 3

MCPI Australia, Multi-Peril Crop Insurance Yes Expected 3

Will accept pre-arranged

periodical payment

Normally 30th April, will extend depending

on volume of sales3

Primacy, PrimeGuard Yes Expected 3 No formal cut-off date 3

SureSeason Revenue Winter Crop Multi-Peril Yes Expected

Deposit with agreed premium payment from Post seeding

Completed application 25th April 3 3

Celsius Pro, Weather Index Yes Expected 3 Never closes 3

AWB Broadacre Crop Insurance Yes Yes 3

Frost: 1st August 2018 — CEF close at Final Revision Date (FRD)

of 2018 Hail and Fire Policy

3

Achmea Australia, Winter Crop Insurance Yes Yes 3 8 weeks before harvest 3

MPCI features

11GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

Information requirements

Product name

Availability Information requirements

2018 2019 Production history

Agronomic history

Accounts / Financials Other Key methods used to calculate coverage

Insurance Facilitators, Cropsure Yes Expected Minimum 5 years,

or up to 10 years Calculated based on production history data

CGU, Crop Income Protection Yes Expected Last 5 years actual

yields must be provided 3 Estimated plantings x area x value — using aveage yield (last 5 year actuals)

Latevo, Certainty Yes Expected 5 years Current 3Grower annual

declarations, GPS locations, current season crop

Historic performance and seasonal conditions

MCPI Australia, Multi-Peril Crop Insurance Yes Expected 6 years 6 years 6 years Calculation methods used are confidential. We use clients 6 years

averages on the above data provided

Primacy, PrimeGuard Yes Expected As much as the grower can provide

As much as the grower can provide Calculated based on production history data and agronomic records

SureSeason Revenue Winter Crop Multi-Peril Yes Expected 5 years 3

SureSeason offers a Risk Assessment process prior to Underwriting to quote. SureSeason allows flexible options to suit the growers enabling

the grower choice in the process to quote and policy design.

Celsius Pro, Weather Index Yes Expected 3

No information is required. Historical weather events are used to determine premium

AWB Broadacre Crop Insurance Yes Yes By application Hail, fire and frost — Agreed value, area (ha) x yield (t/ha) x value ($/t)

CEF — Agreed value, area (ha) x nominated $/ha

Achmea Australia, Winter Crop Insurance Yes Yes 3

Amount of yield loss will be determined by the loss adjuster represented as a percentage of either the potential yield of the crop in the paddock or the insured yield whichever is the lesser based on

current and prior years’ records.

MPCI features

Other information Contacts

MPCI features

Product name

Availability

Other important policy information

Contacts

2018 2019 Phone Web

Insurance Facilitators, Cropsure Yes Expected Fire and hail provides full revenue cover (08) 8372 4020 https://www.if.net.au/

CGU, Crop Income Protection Yes Expected

1300 137 863 (Rural Insurance

Centre)

https://www.cgu.com.au/business/ farm-rural/crop-insurance

Latevo, Certainty Yes Expected Product is distributed via registered brokers 1300 528 386 http://latevo.com/

MCPI Australia, Multi-Peril Crop Insurance Yes Expected The company has been developing the policy for 4 years 1800 075 515 http://www.mpciaustralia.com.au/

Primacy, PrimeGuard Yes Expected (03) 9603 1050 https://www.pum.com.au

SureSeason Revenue Winter Crop Multi-Peril Yes Expected Grower re-quote options x 4 year on year at NO cost. Premium discounts apply to

growers/farm business that renew SureSeason policy (03) 5382 0569 http://www.sureseason.com.au

Celsius Pro, Weather Index Yes Expected Weather certificates can be priced off a BOM weather station, or a grid reference

and aimed at specific weather events (02) 9994 8009 https://www.celsiuspro.com/

AWB Broadacre Crop Insurance Yes Yes Exclusive to AWB Customers 1800 447 246 https://www.awb.com.au/crop-insurance

Achmea Australia, Winter Crop Insurance Yes Yes 1800 724 214 http://www.achmea.com.au

12GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

14GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

References

NATIONAL• Feasibility of agricultural insurance products in Australia for weather-related production

risks, National Rural Advisory Council (NRAC), 11 October 2012 (www.agriculture.gov.au/ag-farm-food/drought/nrac/work-program/agricultural-insurance-feasibility)

• Options for insuring Australian agriculture, M. Hart, E. Heyhoe and L. Whittle, Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), September 2012 (http://www.agriculture.gov.au/SiteCollectionDocuments/ag-food/drought/ec/nracv/work-prog/abares-report/abares-report-insurance-options.pdf)

• Australian Government Managing Farm Risk Program: http://www.agriculture.gov.au/ag-farm-food/drought/assistance/mfrp

NSW• Multi-Peril Crop Insurance Incentive Measures, Independent Pricing and Regulatory Tribunal

(IPART), 2016 — www.ipart.nsw.gov.au/files/sharedassets/wesite/shared-files/investigation-section-9-sea-legislative-requirements-multi-peril-crop-insurance/final_report_-_ review_of_multi-peril_crop_insrance_incentive_measures_-_October_2016.pdf)

• Multi-Peril Crop Insurance Cost benefit analysis of selected support measures, The Centre of International Economics (CIE), 2016 (https://www.ipart.nsw.gov.au/files/sharedassets/website/shared-files/investigation-section-9-sea-legislative-requirements-multi-periol-crop-insurance/consultant-report-by-the-cie-multi-period-crop-insurance-cost-benefit-analysis-of-selected-support-measures-october-2016.pdf)

QUEENSLAND• Crop insurance research grants — guidelines (https://www.daf.qld.gov.au/business-trade/

development/crop-insurance-research-grants)

Acknowledgements

GrainGrowers acknowledges the work of Kondinin Group’s Ben White in preparing this report.

14GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

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May 2018

This information has been provided as a guide only. GrainGrowers makes no warranties about the accuracy or completeness of the information. GrainGrowers does not accept any liability for any loss, damage or other injury resulting from its use. This information doesn’t take into account your personal objectives, financial situation and needs. You should consider these matters and the relevant Product Disclosure Statements (PDS) before you act on any advice. You may also wish to seek the advice of a qualified financial planner.