A crop mitigation product is back on the table after insurance giant Swiss Re Corporate Solutions visited WA last week to shore up support for a 2014 foray into the market.
WA is set to act as a pilot for the rest of the country, as Swiss Re tests the water in the west before considering rolling out a product nation-wide.
It’s just two years since CBH launched its own crop mitigation insurance, which saw few growers sign up and the grain handler record a $500,000 loss on the product.
But Swiss Re director and global head of food and agriculture Bernard Belk said their product would be different.
“Just because something has failed once or twice doesn’t mean it cannot work the next time, ” Mr Belk said.
“What we want is to bring the technology that we have in the US with our partner (The Climate Corporation) which works very well.
“This is something that we have to adapt to WA. It is working in the US so there is no reason that it will not work in Australia.”
Mr Belk said discussions with farmers had revealed that growers wanted a flexible product, meaning Swiss Re would offer insurance that could cover either the cost of production or the cost of production plus a margin. He said the aim was a simple product, which did not require assessors to view crops before paying and would result in faster settlement.
But first Swiss Re requires information on grain yields from CBH and weather and soil moisture data from the Department of Agriculture and Food to design the details.
The company already offers similar insurance products across the globe, but Mr Belk concedes Australia is a high risk country for grain production.
“(WA is) more risky than other places in the world, but it is also less risky than the rest of Australia. That’s one of the reasons also that we want to start in WA, ” he said.
But despite the production risk, Mr Belk said the company was confident it could still deliver a profit to its shareholders from a WA crop mitigation product and was not concerned that unlike many other agricultural nations Australia did not have government assistance in the form of subsidies.
“In the US, the program our partners are running is not subsidised by the Government … we are not concerned about WA not getting subsidies, we don’t rely on subsidies to make it happen, ” he said.
Farmers have waged a decade-long battle to get a crop mitigation insurance product, but successive agriculture ministers have refused to use State funds to underwrite an insurance program.
During that time many farm equities have continued to erode as profit margins shrink.
While this latest product will not require financial assistance from the Government, it does come after Liberal MLC Nigel Hallett and Max Trenorden and Philip Gardiner — both set to contest the election as Independents — visited Swiss Re in Zurich late last year.
Ultimately, the insurance will provide a safety net for growers in the face of increasing grain production risk. That’s something Muntadgin cropper Jeff Hooper, who farms with his wife Kaye, said was imperative if farmers were to remain viable in the future.
He applauded the push by Mr Hallett, Mr Trenorden and Mr Gardiner to obtain crop mitigation insurance and was one of a group of farmers who met Mr Belk at Bruce Rock last week.
“The 2000s have been poor for us, ” Mr Hooper said. “We’ve had a one-in-100-year frost twice, a one-in-100-year drought three times and from the other five years there’s only been one year I’d class as average.
“It’s really only been such an issue the last 10 years — before that the seasons were favourable.
“I’d like to think most of the time our premiums would expire (but this insurance is) extremely important to the future of the industry.
“Undoubtedly it will make a difference to confidence, particularly if you’re looking to lease land — you would be able to guarantee the cost of production.”
But it’s not just about those who are already farming.
The Hoopers have a 16-year-old son who Mr Hooper said in the current agribusiness climate they were not encouraging to return home to work the farm.
“But if we had this cover, and it was affordable, it would give us more sustainability, more confidence, ” he said.
“That’s part of the problem — young people aren’t coming back to the farm.”
It’s not just farmers who are pushing for crop mitigation insurance. Westpac’s WA grain head Chris Moore said it might be that banks mandate crop mitigation insurance for some farmers before finance was granted.
He estimated that up to 70 per cent of WA growers were in a financial situation where they would require crop mitigation insurance to continue to be viable for banks.
“If you’re at 65-70 per cent equity, (in one bad year) you could easily go down to a sub-50 per cent level, ” Mr Moore said.
“If you’ve got a mechanism that ensures you won’t fall below 62 per cent (equity) then that’s good business.”
But Mr Hooper said if banks were to mandate mitigation insurance for growers, the reduction in risk should be reflected in reduced interest rates.
Mr Belk said Swiss Re was hoping for a sign-up rate of 20 per cent in the product’s first year and in 2-3 years there could be a participation rate of 40 per cent.
Representatives from Swiss Re and The Climate Corporation are returning in April to further discuss details with stakeholders.