In recent years, many rural businesses have had to diversify or make other necessary adjustments to their business model. In these cases, it is important to examine your insurance programme to ensure it is keeping pace. However, the same goes for those whose business offering remains largely unchanged, simply due to the rising costs of running an agricultural business in such a challenging economic landscape.
When reviewing your insurance programme, it is important to consider the following:
Business interruption (BI)
A single event has the potential to jeopardise a farmer’s business and livelihood so it’s important to understand and compare the benefits of business interruption verses increased cost of working. Your BI insurance should reflect the time and resources needed to fully recover from an unexpected event. All business activities should be included in the business description on your policy schedule, for example, if you have diversified into new areas such as shoots, property letting, camping or glamping.
It’s not just the cost of the incident itself to consider (such as building repairs after a flood, or the replacement of damaged farm machinery) but also the length of time the business is unable to operate as usual. If your indemnity periods are inadequate, you may be left with ongoing losses after the insurer stops paying—for example, renting alternative premises beyond this timeframe.
As building costs continue to rise due to supply chain disruption and inflationary pressures, there is an increased risk of property underinsurance for agricultural businesses. A farm building may be valued at considerably more today than it was two or three years ago. During the pandemic, when site visits were not possible, some businesses fell into the habit of reviewing their insurance over the phone but an on-site valuation can provide a much more accurate figure.
Your buildings sum insured should reflect the cost to reinstate the property to a similar design and specification. This is especially important if you have listed buildings which would require traditional methods of repair or construction. Inadequate cover can delay a claim, incurring further expense and disruption. It could also result in the average being applied, meaning a claim pay-out could be reduced by the same percentage as the underinsurance, no matter the size of the claim.
Machinery and plant
The cost of farm machinery is rising, with new and second-hand tractor values up by as much as 30%–40%1, meaning that many agricultural businesses may be underinsured. As well as ensuring your existing equipment is adequately covered, you should let your broker know if you are bringing in additional machinery and vehicles to meet increased seasonal demand. In the event that these vehicles break down or are stolen, you don’t want to find that they are not covered under your insurance policy.
Livestock, deadstock and crops
If you have increased your number of livestock, is this reflected in your insurance cover? With cattle prices at historic highs in December 20222 and continuing to rise3, it’s important to ensure your cover levels are as accurate as possible. Similarly, the cost of fertilisers and feeds is volatile and likely to remain elevated during the energy crisis. In the event of an incident that damages or destroys livestock, deadstock, or your crops, you will want your insurance policy to perform as you would expect it to.
Do you have sufficient cover in place to protect the business financially if faced with regulatory investigations, internal disputes or administrative issues? Consider insurance products such as Rural Protect which covers negligent acts or omissions and can offset the costs of investigations and prosecution from any of the UK’s regulators and enforcement agencies. You may also need to arrange for equipment such as telehandlers and forklift trucks to be inspected to comply with regulations.
Cybercrime is a significant threat to businesses in any sector, including agriculture. Everything from your computer and farm management software, to the automated machinery, security cameras and smart phones you use has the potential to expose your business to a cyber incident. Most standard business insurance policies do not cover cybercrime and so it’s important to consider cyber insurance, especially as cyber-attacks are becoming increasingly sophisticated and widespread.
How can Gallagher help?
Having your insurance programme professionally reviewed well in advance of your renewal date can help you focus on the quality and relevance of the insurance coverage, as well the cost. This is something our team can carry out for you.
Our extensive agricultural experience means we understand the pressures you are facing today. We can look at your business risk from all angles, from your liabilities to regulatory risks, with a view to highlighting gaps in cover or areas of underinsurance that could result in an uninsured loss. We can also arrange buildings surveys and valuations through our partnership with a RICS-approved company to provide up-to-date buildings replacement sum insured values.
If you would like to know more about our insurance review process, or the risk management services we provide to help you safeguard your business, please get in touch.