Sky rocketing rebuilding costs for farm buildings, huge value changes in livestock and massive cost inflation on some very important farm inputs – What should farmers be doing with farm insurance policies?
This week, Jack Kennedy talked to some of the insurance company representatives and brokers about the conversations they are having with clients, given the cost of shed rebuilding and the value of stock have all increased substantially.
All were crystal clear that some clients were drastically underinsured, given the significant changes that have taken place in the last 12 to 18 months.
Irrespective of the significant, very recent, cost inflation, some were even of the opinion that some farmers hadn’t engaged on re-valuing policies for a good number of years before this recent spike.
They suggest many farms would have been underinsured in the event of a claim. The recent cost hikes and value changes were now severely exacerbating the situation.
It means some policies were simply not covering the reinstatement value of farm buildings, adequately insuring the home house or adequately covering replacing stock in the event of a claim.
When asked if this mean higher premiums for clients, they all said not necessarily, as stock numbers might have been reduced on some farms, or there might be no new farm buildings.
The message was clear – pick up the phone and ask to review the policy.
FBD’s agri and business insurance underwriter Stewart Gavin and head of sales in the midlands Pat Gilligan took me through some recent examples to show how things work.
Stewart said: “If we look at the value of some stock this year compared to even two or three years ago, it is clear there is up to a 35% increase in the value of some stock.
“This needs to be factored in. For buildings, it’s about reinstatement value, not market value, so that is significant, especially on new modern buildings.”
He added: “If a shed was valued at €200,000 in a policy, but now it would cost €400,000 to rebuild – and let’s assume there was loss to the tune of €100,000 for some reason or another – then in the event of a claim the farmer only stands to get €50,000.
“Another example is if a shed rebuild would cost €1m and it was only insured for €500,000, and if there was €100,000 damage done to the shed, again the farmer only gets €50,000 in the event of a claim on this loss.”
Pat said: “For someone looking at their farm and home policy, they might well have been behind the curve for four to five years in terms of inflation. However, given the recent cost inflation at farm level, we simply can’t move rates as quick as inflation at the moment.
“For the customer, it’s about value for money and we want to leave each customer in a better place in the event something happens.
“Every situation is different and while some farms might have higher stock values, maybe they don’t have as much stock so that needs to be factored in.”
Jason Byrne is head of agri-business with Zurich farm insurance. Due to rising rebuilding costs and inflation, it is important that all customers review the adequacy of all sum insured values and amend if required.
“The home farmhouse is often overlooked in some farm policies and you have to consider if there was partial loss or a full loss, what the implications might be. We have seen some recent cases at new business where the farmhouse was grossly underinsured with the previous insurer by up to €100,000 on a reasonable rebuild.
“Any new policy with Zurich has some inflation protection and we will shortly be introducing index linking, however, index linking really only works well if the values in the policy are accurate in the first place.”
Christy Doherty is head of agri insurance with AXA.
He said: “It’s very important for farmers to get their base valuations accurate. With global inflation, it essentially means that the sums insured chosen by farmers are now out of line in the event of a claim. This is relevant to your dwelling-house and contents, your outbuilding and contents, your agri-machinery and livestock.
“My suggestion is that farmers need to give serious thought to what would need to happen to increase these values to today’s world,” Christy said.
Eunan Gallagher is a farm insurance representative with Britton Insurance which is Donegal based but its business extends across the Republic of Ireland through its website.
Farmers are an important part of the Britton business and as is a common theme in the sector, advising farmers to revalue their assets has been a key element of the exchanges with farmer customers this year.
There is a wide realisation by all its clients on just how building costs have increased and what this does to replacement costs in the unfortunate cases where that arises, according to Eunan.
However, from a farming perspective it is also important to recognise stock and machinery values have increased as well and policies need to reflect that.