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Tuesday, May 31, 2016

Crop insurance renewal & 3 tips to get the best value.

By Andrew Whitelaw  |  Source: ACA, Trade

Key points

  • A pre harvest policy is the most common form of crop insurance. In this policy type the grower will declare yields prior to harvest, and this could result in being over or under insured.
  • A post harvest crop policy is relatively new, and requires the grower to declare yields after harvest. This can result in the grower paying a higher or lower premium dependent upon the final crop.
  • A post harvest crop policy commands a higher premium than the traditional pre-harvest method.

It’s that time of year, seeding is all but finished and we look towards the heavens for some rainfall. All going well the crop will progress without any hiccups. However, issues can arise such as hail and fire. Over the next two months you are likely to be inundated with salesmen trying to get you signed up to crop insurance. In this report we will look at the two main cover types and give a few hints on getting the best deal.

In Australia around 85% of growers typically take out some form of crop insurance, the majority will be cover for hail and fire, which will be the focus of this article. There have been a number of multi-peril crop insurance products offered. However, these are still in their infancy.

The two main policy types are a pre-harvest and post-harvest declaration. The pre-harvest declaration was the traditional policy type, and has been available for more than 40 years. The post-harvest declaration is a relatively new policy type having been developed during the last 10 years.

Those who take out crop insurance should be familiar with the pre-harvest policy. When taking out a pre-harvest policy, the grower will provide the insurer with their cropping plan including crop type, yield, hectare and crop value. Using these values, the insurer will give an insurance quote. In a typical pre-harvest policy there will be the opportunity to provide revised details closer to harvest. The updated details will then be used to provide an updated premium (up or down).

The post-harvest policy works slightly differently when it comes to declaring your crop. In this method, declared yield is declared after the crop is harvested.  This has two effects, when you report reduced harvest figures you will then pay a lower premium. However, if your yields are higher than your initial declaration you will then end up paying a higher premium. In effect with the post-harvest policy the premium will be based on what you grow. This method will stop you from being over or under insured.

The post-harvest policies will attract a higher premium over its pre-harvest counterpart, which will vary between insurers.

3 tips to get the best quote

  • Your policy from 2015/16 will provide temporary cover for the 2016/17 crop, don’t feel rushed to renew the policy.
  • Create a simple spreadsheet (figure 1) which can be used to compare the rates with different insurance providers. This means all you need to do is input the rate offered by the insurer to create comparisons, without completing application forms for each insurer.
  • Mix and match your insurance. It is possible to use multiple insurers to cover each commodity e.g. insurer XYZ may have a low wheat rate but a high canola rate.

What does this mean?

When deciding between a pre and post harvest policy, it is important to think back to previous years. If you typically have a high degree of accuracy when assessing yields around one to two months prior to harvest, there may not be the motivation to pay the additional costs for a post harvest policy.

Mecardo information is provided to assist in your marketing decisions. It contains a range of data and views on the current market. It is not intended to constitute advice for a specific purpose. Before taking any action in relation to information contained within this report, you should seek advice from a qualified professional. The information is obtained from a variety of sources and neither Mecardo nor Ag Concepts Advisory will be held liable for any loss or damage whatsoever that may arise from the use of information or for any error or mis-statement contained in this report. 


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