challenging conditions for farm clients

The knock-on effects of challenging conditions for farm clients

The increased risk of bushfire this year has certainly been hitting the headlines, but challenging conditions can cause consequential issues on top of higher fire risk for farm clients. We spoke to Rural Affinity Managing Director James Hooper about factors that may impact farmers over the coming seasons.

“A relatively small number of farmers will be directly affected by increased bushfire risk, more broadly a large number will face an increased grass fire/wildfire exposure given the last three years of high rain.

“The farmers are coming off three amazing seasons. There’s so much feed being generated, that the stock can’t keep up with it and now that the rain has subsided, a lot of that grass fuel is still there, as we’re heading into hotter conditions.”

When asked about preparation for increased fire risk, James noted that farmers will be doing things to manage risk like strategic fire breaks, and they should also check that they’ve got adequate cover, especially for fencing and livestock.

Given the increased risks, some insurers may also want farmers to provide evidence of risk mitigation, prior to providing or increasing insurance cover for highly exposed assets.

Insurance premium affordability

Arguably, an even bigger issue for farmers now will be farm insurance premium affordability. The market was soft (pricing on the lower end of the insurance cycle), and then Australia was hit by some fairly big catastrophes including the Black Summer fires of 2019/20 and Cyclone Seroja, which impacted the WA wheat belt in in April 2021.

That was what we would consider a ‘rogue cyclone’,” notes James, “Because it’s not common in that area and it caused substantial losses.”

The soft pricing, paired with losses from catastrophes has caused the market to correct and contract, with premiums soaring upwards of 50% in the last three years.

Add to this, farm incomes are generally expected to drop during El Niño seasons.

This combination of reduced income and profitability pressures on farmers, overlaid with the increased cost to insure, is resulting in many farmers cutting back on their level of cover. But James is concerned that they’re doing that in an inflamed, aggravated risk environment.

What measures can farmers take?

“It’s the same stress across many industries right now,” notes James. “People are trying to cut back their covers to save money at a time when income is down, but they’re also less likely to be able to withstand a loss at this point in time – their finances are being jeopardised.

It’s a timely topic – NIBA’s Insurance Adviser recently interviewed James about protecting the future of farming as well, and his advice is consistent and relevant.

“Farmers have to think about what they need to keep the farm running should they experience an incident – increased risk of grass fires could particularly impact fencing which is expensive and also more difficult to get materials and contractors to come and rebuild right now.

“Another consideration is the optional increased costs cover in a farm pack – if your pastures are burnt, even if they’re not insured, you get an increased cost claim to help cover things like buying feed in for your stock.

“So if it were my farm, I’d prioritise those three things: consider increased costs cover, and be aware of the increased risk to fencing and livestock which are very exposed in high fire risk season (whether it’s grassfire or bushfire).”

Not all doom and gloom

When asked about what’s next for farmers while we weather (sorry) the current conditions, James is anticipating that the market will flatten – not just for farmers but across the board over the next 12 or so months.

However, weather patterns like El Niño can go from one to three years on average, in which case most businesses and farm businesses that are impacted will need to have contingency plans in place, should it be a longer duration. James adds, “Farming is changing. Our forefathers often didn’t trust forecasts, they’d often just plant their crops and hope. Now farmers are getting quite sophisticated in how to invest their dollars more wisely. Things like fertiliser, which can be an expensive input, isn’t effective if it doesn’t rain, so they’re making decisions more carefully based on data and weather forecasting.”

The information in this article is of a general nature only and may contain advice that is not based on your personal objectives, financial situation or needs. Accordingly you should consider how appropriate any advice is to those objectives, financial situation and needs, before acting on the advice.