AGRICULTURAL INDUSTRIES ANTICIPATE A DIFFICULT SEASON

With extended drought conditions, transitioning market conditions and ongoing gaps in product availability, a difficult season for both growers and insurers seems imminent.

KEY TRENDS

  • A difficult season for both growers and insurers seems imminent.
  • The insurance market is very limited in terms of availability, crop type and region.
  • Any significant losses this season will result in further contraction of an already challenging marketplace.
  • Growers struggling with reduced farm incomes are advised to work with insurers to avoid underinsurance and, instead, try to negotiate higher excesses.
  • Underinsurance will be unavoidable for some.
  • There is an opportunity for new or existing insurers to develop products and fill those gaps.
John Van der Vegt agribusiness video

It is likely to be a difficult season for both growers and insurers warns John Van der Vegt, National Head of Agriculture.

For dryland growers this is due to fewer anticipated crops and lower yields. Similarly those with irrigated crops will also see lesser yields and will have to deal with higher water costs. For insurers, we anticipate a lower premium volume and, if the current climatic cycle continues, a higher likelihood of instability and associated storms and fires.


The winter broad-acre crop is largely reliant on pre-season and in-crop rainfall; consequently growers in south-eastern Australia have had difficulty in navigating extended drought conditions.


Gallagher has seen significant reductions in areas planted, due to low soil moisture, (especially in northern New South Wales and southern Queensland) as well as reduced yields on crops in many other growing regions due to lack of in-crop rainfall, excessive heat and frost.


The fall in production has generated a highly competitive insurance market as the current handful of insurers attempt to maintain their premium volume in a market where the normal $125 million premium pool for fire and hail cover is likely to fall below $100 million.

The financial stress felt by many farming operations affects more than just the growers

For those activities reliant on irrigation, such as cotton, horticulture and viticulture, the continuing drought has left water storages at critical levels, with many systems unable to provide water allocations to growers, and rural towns taking precedence for access to an increasingly precious commodity.


Unfortunately the insurance market is very limited in terms of availability, crop type and region. While cotton is well supported, the appetite among insurers for horticulture and viticulture is curbed, and for vegetable cropping it is non-existent. Any significant losses this season will result in a further contraction of an already difficult marketplace.


Plantations are perhaps the most exposed to the current drought conditions and climate change.


Significant fire events overseas have already impacted the limited global insurance market, with some market experts suggesting plantation insurance will be one of the first casualties of climate change.

It is worth noting that the financial stress felt by many farming operations affects more than just the growers. If growers are unable to sustain, and adequately insure, their income producing assets then the supply chain reliant on their production, including nearby rural communities, will suffer, as will the broader economy.


Growers struggling with reduced farm incomes are advised to work with insurers to avoid underinsurance and, instead, try to negotiate higher excesses before resorting to alternative cost-saving measures such as reducing their insurance values.


Unfortunately gaps in the market in terms of product range and availability of cover, particularly for horticulture and vegetable growers (who either can’t access cover or can only access limited cover for their crops), mean that underinsurance will likely be unavoidable.


This development brings with it an opportunity for new or existing insurers to develop products and fill those coverage gaps. We continue to watch developments in this space with considerable interest.

BUSHFIRE SEASON OFF TO AN EARLY START

With a severe and extended bushfire season predicted, consistent below-average rainfall, above-average temperatures and low soil moisture, Gallagher strongly advises clients to proactively review their cover and be prepared for a bushfire season that has started earlier and will last longer than we are used to.

A CLOSER LOOK AT CURRENT CONDITIONS

According to the Bureau of Meteorology this past winter has been unseasonably warm and dry, with rainfall for the season “among the lowest 10% of historical records for much of New South Wales and southern Queensland in particular”.

John Van der Vegt headshot

John van der Vegt

National Head of Agriculture

T: (02) 9424 1893

M: 0413 526 370

E: john.vandervegt@ajg.com.au

Sources:

‘Bushfire season is here and set to last even longer in 2019–2020’, Gallagher, September 2019

Australia in winter 2019, Bureau of Meteorology, 2 August 2019

Climate outlook for November to February, Bureau of Meteorology, 24 October 2019

Australian Seasonal Bushfire Outlook: August 2019, Bushfire & Natural Hazards CRC, 28 August 2019

‘Firefighters battle to contain more than 130 blazes across NSW and Queensland’, The Guardian, 10 September 2019

‘Bushfires update: losses climb past $13 million as claims pour in’, Insurance News, 10 September 2019

Australian Seasonal Bushfire Outlook: August 2019, Bushfire & Natural Hazards CRC, 28 August 2019

‘Bushfire season is here and set to last even longer in 2019–2020’, Gallagher, September 2019