COUNTING COSTS: Blenheim farmer Linda Lerch 's Laidley farm was severely affected by flooding as a result of Cyclone Debbie in March last year, and while she is interested in new insurance products, she said it all came down to cost.
COUNTING COSTS: Blenheim farmer Linda Lerch 's Laidley farm was severely affected by flooding as a result of Cyclone Debbie in March last year, and while she is interested in new insurance products, she said it all came down to cost. Dominic Elsome

Crop insurance still not a viable option for farmers

RESEARCHERS at University of Southern Queensland have partnered with the insurance industry and Queensland Farmers' Federation to better understand the risks farmers are exposed to and produce more effective crop insurance products - and while farmers are interested, a lot of questions remain.

USQ Deputy director of the Centre for Applied Climate Sciences associate professor Shahbaz Mushtaq said the project hoped to produce insurance policies that farmers would not only use but could also afford.

"We want to make sure that what we achieve is cheaper, affordable and sustainable and are really targeted insurance products," Prof Mushtaq said.

He said insurance companies had previously lacked an understanding of farmers' risks, and this increased the prices.

One of the key findings to date has been the development of parametric policies - insurance products that pay out an agreed coverage when a predetermined 'trigger' occurs.

Prof Mushtaq gave an example of a policy where if there were three consecutive days of rainfall above 5mm during harvest season, a farmer would be eligible to access a payout for lost income due to being unable to harvest as a result of the rainfall.

While most of the research has so far focused on sugarcane production, similar products could also be developed for Lockyer Valley growers.

But, many remain sceptical.

Blenheim farmer Linda Lerch said while the research was thought provoking, a lot of questions remained. "The big question is - what's it going to cost?" she said.

Ms Lerch said even if the costs of new products were reduced, many farmers would still struggle to justify the expense.

"The profit margin in farming is so low," she said.

I'm already spending on insurance for buildings, machinery, public liability, machinery breakdowns. I'm spending about $25,000 a year already, and you have to have insurance on that sort of stuff.

She also questioned how the 'trigger' would be determined and monitored, adding that flood insurance would be particularly tricky.

"You might have 10 inches of rain at the head of the creek and not a drop here, but you still get the flood."

Research is vital for insurance industry

Global insurance giant Winston Towers Watson says research such as the University of Southern Queensland's project is vital for the insurance industry to better understand what farmers want and need from their insurance.

Alternative Risk Transfer Solutions managing director Claire Wilkinson, said the nature of insurance warranted better understanding between farmers and insurer, especially when developing new products.

It is critical to involve the agricultural sector in the development of customised policies.

She said the parametric policies now being developed streamlined the insurance process for farmers.

"The transparent and objective nature of the parametric policies leaves no debate about the operation of the cover or the calculation of a claim, so claims are settled very quickly after the occurrence of the policy trigger," Ms Wilkinson said.

While similar products have been available since the 1990s, the uptake of them in Australia has been limited largely by the misconception the products are expensive and complicated.

Ms Wilkinson said while the policies could be applied to a range of agribusinesses, each policy would have to be tailored to specific circumstances.

"Policies are highly customised to the buyer's risk exposure, geography and risk-management objectives," she said.

"Each policy would need to be refined and targeted to the specific needs of Australian farming sectors."


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