Insurance cover is very important to protect your business if an accident or tragedy occurs on the farm.

Insurance policies are often scrutinised after an unfortunate event occurred to see if there is adequate cover, rather than making sure in advance that the cover is sufficient.

It is important to understand what your insurance policy covers at the time you take it out.

How often do you check your insurance cover?

There are three main areas that should be covered when you insure your pig farm:

  • Building cover,
  • Stock cover,
  • Loss of profits or consequential loss.
  • Along with these you should have cover for public and employer’s liability, personal accident and also wages/salary cover.

    Each area should be discussed with your insurance company every year as you renew your policy to ensure that your cover is suitable for your business.

    If there is a mill on the farm this should also be adequately insured.

    Insuring farm buildings

    Remember that when you insure a farm building, you are really insuring the replacement of the farm building should it be damaged or destroyed.

    For example, if you have a pig finisher house with 1,000 places and it was built ten years ago, you value it at a current value of €100,000 today.

    The current cost of a new finisher house is €300 (excluding VAT) per finisher place – so the replacement cost of the building is 1,000 multiplied by €300 – so the building should be insured for a value of €300,000. This valuation should be done for all your buildings on the pig farm.

    If you only insure the building for its current value you may only get 33% of the cost of replacing it (ie €100,000/€300,000 multiplied by 100). This will not replace the building if the building is destroyed.

    You must be clear as to the perils that you require insurance for example fire, storm damage, lightning, explosion, suffocation etc.

    Insuring stock values

    When insuring the stock on a pig farm, their value must be estimated. This will vary depending on the pig sale value and the feed cost on your farm.

    There is also the replacement cost for your breeding herd which is a lot higher than the value obtained for culled sows from the herd and this is often under-estimated.

    Gilt value

    Gilts (F1s) from breeding companies usually command a premium of €100 to €120 (depending on numbers, transport distance and weights etc) above the slaughter pig price.

    If you purchase a 115kg F1 gilt when pig prices are 165c/kg deadweight (DW) the gilt will cost 115 by 76% (assumed kill-out) by €1.65, plus a premium of €110 giving a total cost of €254 (87.4kg by €1.65, plus €110).

    This gilt value does not include the cost of pure-bred females if you were re-establishing a new breeding herd.

    This is the value of a new gilt arriving on your farm at 115kg liveweight (LW).

    Sow Value

    What is the replacement value of a sow? The 115kg gilt has to be reared to 140-150kg LW before being mated and then will have to be fed for 115 days until she farrows ie, achieve the value of a sow in an operational pig herd.

    The feed cost for the gilt up to the time of farrowing will be €110/head increasing the cost to €364. An allowance should also be made for a drop-out rate of 15-20% of gilts that do not make it.

    Based on a fall-out of 20% the cost is now €437 per gilt.

    If an allowance is made to cover the labour and housing cost per gilt, it is easy to see that each sow is worth a minimum of €500 if she is to be replaced as a breeding animal in a herd.

    This has not allowed for the extra cost of pure-bred stock which will add more to the replacement sow value.

    The value of piglets, weaners and finishers will vary with the pig sale price, feed performance and feed costs (€/tonne).

    Assuming a sale weight of 110kg LW and a 76% kill-out allows a valuation for these pigs as shown in the table below.

    This values the pigs at a sale value minus the feed cost with an allowance for the other variable costs associated with bringing the pig up to sale weight.

    The decision then is what value you should assume for the stock. The average sale price for pigs from 2012 to 2016 was 161c/kg DW. The average price in 2017 (January to August) was 165c/kg DW.

    For insurance cover of stock, you need to decide what perils are you to insure against. Cover should also be sought to cover the value of pigs being transported from the farm (pigs in transit) if you transport your own pigs for sale. This should be discussed with your insurance company.

    Loss of profits or consequential loss

    The cost of profit loss or consequential loss is usually defined as the gross profit that is lost as a consequence of some tragic event that may be insured.

    Read your policy or ask your insurance company for an explanation of how the cover is defined and what that means.

    As pig prices and feed prices fluctuate the gross profit will vary from year to year.

    The gross profit is something your accountant can tell you very quickly and a three-year average is a reasonable figure to use.

    Length of cover

    The next decision is what length of cover you may require. If you have a fire on your farm and need to depopulate the herd, the time that you are out of production could well be a year, but if you run into planning issues or other problems this could even be longer.

    It is important to know when the consequential loss is triggered – it is usually the date of the incident.

    The period of cover needs to be considered – a year may suffice but if there is a fire it could take longer than a year to be fully operational again.