AUSTRALIAN farmers would get access to as much as $8 billion a year more bank finance to spend on lifting crop and livestock productivity if the industry was better insured, says risk management strategist Jay Horton.
The world is apparently awash with insurance industry capital looking for a home in more diverse markets, such the southern hemisphere's agricultural sector.
But while Australia badly needs better opportunities to protect farmers from seasonal setbacks and encourage productivity confidence, Mr Horton said the local insurance industry and governments had been remarkably unmotivated about developing innovative risk solutions which worked for producers or tapped into global funds.
"Every season there's about $20 billion of broadacre agricultural commodity income risk on the line in Australia, yet only a small portion of that is insured by the outside specialists," Mr Horton said.
"In general, farmers are left alone to take on most of the risk themselves.
"If crop and livestock incomes were better insured, the flow-on benefits to ag sector confidence would unlock a further $8 billion in extra bank finance to support farmer investment and productivity initiatives."
Chasing the ambulance
Mr Horton, the managing director management consultancy Strategis Partners, has spent two decades assessing agribusiness risk and providing guidance to companies in the sector.
Strategis was also an organising force behind a recent Sydney symposium on the future of farm insurance, particularly multi-peril crop insurance and drought preparedness, from which recommendations were submitted to the federal government's agriculture strategy green paper.
"There's a huge market for insurers and re-insurers which remains virtually untapped, and the money is available," he said.
"But despite the real potential benefits available and 30 years of talking about the need for a better, broader insurance system, there are still not enough products, not enough producers insured and not enough commodities covered."
Mr Horton said not only were agricultural seasons and profitability getting riskier and needing well planned safety net policies, speakers at the symposium highlighted how much more productive farmers and rural service industries were if they could make decisions knowing there was at least compensation coverage for their input costs when the season turned too dry, too frosty or excessively wet.
He described the federal government's $5 billion outlay on drought assistance was akin to "chasing the ambulance to the hospital".
Federal drought funding could be more productively spent promoting industry-wide agricultural insurance incentives and business planning strategies.
He said surprisingly millions of taxpayer dollars provided government "backstop funding" to the health insurance sector, as well as the workers' compensation, social security, superannuation, home mortgage or motor vehicle industries, but our governments had not encouraged insurers with similar incentives or regulations to promote drought preparedness safety nets in agriculture.
John Thomson, symposium speaker and Western Australian accountant with RSM Bird Cameron, recommended governments strengthen the foundations for farm risk management with tax refunds on drought insurance premiums, and perhaps $5000 drought preparedness grants to "nudge" producers to take insurance cover.
He also suggested a drought aid policy of concessional loans to growers taking "100 per cent no plant" crop insurance coverage policies.
The symposium noted how governments could also play a lead role in building better early warning weather systems and data information to help insurers and farmers anticipate and deal with agricultural production risks, including climatic variability.
New insurance market entrants CelsiusPro and Latevo were already demonstrating better use of climate data and farm business records could underpin innovative new drought insurance products which may be easily expanded industry-wide.
Re-insurance specialist Brian Stamper, from international firm Willis Re, said plenty of reinsurance capital was available to the Australian market, which Mr Horton said was as "an attractive diversification option in a global insurer's portfolio".
"While our agricultural market and its seasonal conditions can be volatile, volatility is something insurers understand - parts of the US are pretty volatile, too," he said.
"If an insurance model to manage agricultural risk is spread across enough regions, farm commodities and perils, you'll get a lot of customers who are not making claims, even if some are."
National Australia Bank credit capability specialist Garry Gale said reducing a farmer's risk exposure also made the client more appealing as borrower.
Banks liked the idea of farm clients being better informed and more confident when making productivity planning decisions.
With multi-peril crop insurance protection or similar drought management coverage they may be eligible for more funds, or more generous lending terms.