Ed Davey is a director at Dallas Scott Davey, an independent insurance broking and risk management firm based in Lincolnshire, that is part of the TL Dallas group. Dallas Scott Davey specialises in agricultural insurance.
Ed said: “Agriculture has faced and risen to major challenges for hundreds of years, not least because Yeoman are generally tenacious and determined. However, today’s farming has such financial risk in growing the simplest of produce that every family’s crown jewels are at risk. There are fifth and sixth generation family businesses looking down the barrel of the proverbial gun, whilst simply trying to produce broad acre crops. Agri inflation, conflict, political reform, and market instability have created a perfect storm of uncertainty. As a consequence, having a professional quality specialist farm insurance broker working for you has never been more important.
“Supply chain issues are at their most challenging in our farming history. If you can find fertiliser, it is soul destroying to write the cheque that pays for it. Farm brokers need to understand how that impacts their client’s farming business. It isn’t just about whether sums insured are adequate under the revenue section. It’s more about whether there is any solution at all to a major loss. Will the revenue sums insured potentially be exposed to under-insurance due to the cost of replacing key commodities such as fertiliser if the whole yard goes up? The answer is probably. Will motor policies have adequate values for tractors to reflect the tight market – the answer is maybe not. Will wordings be challenged by increasing costs of replacement of attachments, often limited on an unspecified basis under a motor policy – the answer is you should expect it. Will reinstatement sums insured be sufficient to rebuild that traditional barn – the answer is I doubt it. Farm brokers need to be factoring all of this into their review and making sure sufficient cover can deal with all of these circumstances.
“Of course, brokers can’t do it on their own. Working alongside specialist agricultural loss adjusters is key and given the world we are in, there needs to be a pragmatic approach to mitigating loss at the point of a claim. Sometimes, however it is just about supporting and listening – as brokers we can’t solve everything and there are challenges our clients face that we can’t do anything about. Investing our time into our clients’ businesses and becoming part of the support team is key. We can and we must be more than just a financial solution to an event that happened on the farm.
“Contingency planning has become a key management tool to any farming business. It is as important as knowing what level of insurance cover one holds. For too long brokers and agents have reviewed existing cover and talked about premiums as though their lives depended upon it. Brokers need to offer more and engage and immerse themselves into their farming clients’ businesses. The conversation can’t be just about an insurance review.
“Whilst insurance may well indemnify the business financially, the disruption can often go beyond what is covered by a policy wording. Prevention is as important as any insurance policy. Safeguarding property, and more importantly lives, must be a key consideration when risk assessing a farming business in the context of disaster, including accidents and extreme weather events. Whether it be storms, high rainfall, and flooding or as we witnessed this harvest, the risk of fire due to tinder dry conditions, there is a great deal to consider in respect of risk mitigation.
“Having a contingency plan is a great way of enabling the business to react to a serious event, as well as mitigating the extent of damage the business may suffer. Simple measures such as training staff, having an in house “fire brigade” with water bowsers and pumps, as well as operational fire extinguishers in all of the vehicles are simple examples of how to prevent a small fire becoming a raging inferno. Highlighting how important committing time to think about contingency is key.
“There are of course specialist fields. Brokers need to be one step ahead of major events such as avian flu. Some enterprises need to be on cover before the unit begins work, such as Christmas turkeys. Once you are amidst the outbreak, it is often too late for other businesses, not yet affected, to seek cover. Throughout the year as a farm broker, I am advertising the need to consider the cover in the market. Expecting underwriters to want to increase their exposure amidst an outbreak is naive. Again, contingency planning, discussing risk assessments and advocating the highest levels of biosecurity are key components to building a strategy to both alleviate and defend against the disease. Growers need to understand that having an insurance policy against avian flu isn’t a safeguard and that they can take their eye off the ball. If we want to see cover remain in the market, and premiums remain affordable, and we want to mitigate the incidence of this disease, we have to have joined up thinking, and take collective responsibility in our standards of production across the UK.
“Then we have the traditional issues facing the farming industry such as rural crime. Whilst much opportunity still rests with manufacturers building in new security features to our agricultural plant, one has to accept the stable door was somewhat open for that particular horse as it bolted in respect of much of our equipment. Further, whilst we can immobilise, add trackers, set perimeter alarms, and have CCTV across our yards, we can’t stop the professional, “steal to order” criminals and there is now an element of “terror” attached to theft. There is absolutely no point in contesting a theft or burglary when faced with armed criminals. So even for the very best, most secure and well managed risks, there is always going to be a theft risk to agricultural plant and machinery. Given claims inflation and the cost of replacing equipment such as teleporters, quad bikes and 250HP tractors, there is little wonder, given the loss ratios suffered, that farm insurers are wondering what they have to do to keep premiums in check. As brokers all we can do is offer best advice in security enhancement and given the “duty of care” aspect of all wordings in the market, make sure our clients understand their responsibilities.
Given the risks the industry faces, it certainly underlines how important it is, that the farming world has support from brokers, insurers and loss adjusters. However, as never before it is key that the personnel are top quality. Many years ago, the farm drive would witness passage from all sorts of reps, whether they be seed, grain, machinery or finance. The bank manager would be offered a full cooked 3 course lunch. Long gone are those days. Yet, as brokers we still sit around the kitchen table and take part in the family farming debate as well as advise on insurance requirements. That is a privilege we must not waste and it is key that farm brokers have a firm understanding of the farming industry before embarking upon offering key advice.
“It is also important to remember that the farm insurance market is finite. Due to claims inflation, weather events and the ever-growing incidence of crime, not forgetting attritional claims, there is no surprise that the market remains firm and ideally wants to harden further. The thought of losing a capacity at this stage would lend huge disadvantage to the farming industry, not least in further resulting in hardened rates. That this pressure comes at a point in the industry when agri–inflation and so many other financial pressures are leaning on it, goes unnoticed by clients. Very few farmers envisage there not being enough insurers. However, as a specialist farm broker, I am ever aware of where the point of equilibrium sits. Attracting new blood to carry risk isn’t easy. Consequently, it is a case of making sure existing capacities are not “burned out” by the vagaries of the farming industry and the risks it faces.
“Brokers hold a responsibility in educating farming clients as to the importance of sustaining a healthy competitive insurance market. When you consider cost of litigation and awards, and that agriculture still experiences a disproportionate level of fatalities every year, it isn’t hard to understand why underwriters remain focused. I am, however, a great believer in cooperation and I continue to believe a solution exists in a more collaborative approach to farm insurance between underwriters and clients alike. There has to be incentive and I genuinely believe features such as low claim rebates and visible discounts for good risk management features should play a larger part.
“There has to be trust shown between each end of the deal and there has to be logic applied to underwriting. Too often I witness a reaction from capacity that is out of context with the broader farming risks under review. Further, too often there isn’t enough disparity in premium between a risk with a 0% loss ratio and another with 100%. Farmers can become disillusioned by their insurance experience, shared in the pub or more likely in their bench marking club, as a result. As brokers we need to challenge underwriters on strategy. With farming clients, engage with them and inspire them to invest in risk management to the benefit of all. When you consider the cost involved in growing an acre of wheat with ammonium nitrate costing nearly £200 an acre alone, a £1000 per year spent on a good independent risk management consultant doesn’t seem much by comparison.
“Going back to the early insurance days of seven farmers all putting into a pot every year in case their stack went up in smoke, each held a stake in their future. As brokers, if we can instil the concept of collective responsibility and the impact any one event has upon the price, we all pay, I do think we can help our clients and our farm insurance market evolve to a more prosperous future.”