Historic multi-peril payouts

15 Jan, 2015 01:00 AM
This proves that the product can work

AUSTRALIAN farmers are set to receive what are believed to be the first substantial payouts for multi-peril crop insurance (MPCI) within days.

Chief executive of Latevo International Andrew Trotter said his company had been told by its reinsurer that it would be paid for its first three claims and was currently finalising the formalities for payment to proceed.

He said he hoped it would be the final step towards widespread farmer acceptance of MPCI.

“I think up until the money hits farmers’ accounts there is always going to be a degree of scepticism, but this proves that the product can work.

“MPCI is going to be huge for agriculture in this country, and we’re really getting some momentum in getting government to understand this.”

Latevo is set to pay three claims immediately, with Mr Trotter saying a total of eight claims are likely to be paid out by the end of the month. The value of the payments is understood to run to millions of dollars.

A good start: GPA

Andrew Weidemann, chairman of Grain Producers Australia (GPA) said he was pleased to hear of the payments, but warned it did not suddenly mean an end to Australian farmers’ battle to manage climate volatility.

“It’s a good start and we congratulate Latevo for entering this space, but there is more to do.

“We still have some concerns with the cost of the product, sure, there will be some people who see the prices as acceptable as they stand, but for most I’d still say the premiums are too expensive.”

He said GPA had convened a multi-peril risk management taskforce featuring leaders from across the grains industry to come up with submissions on MPCI to the government investigation into agricultural competitiveness.

“We applaud commercial businesses for entering the space, and it’s a product that can really help with confidence in our sector, but we still feel government has a role to play on this one,” Mr Weidemann said.

He said the taskforce was advocating the government set up a three-year pilot scheme, featuring incentives for growers to use MPCI, such as tax concessions for those using MPCI and funding a 200 per cent maximum stop loss ratio on losses reinsurers could be exposed to in any one extreme season from extreme weather event, to limit exposure to severe weather events.

Mr Trotter said he had also been lobbying government heavily on the need for MPCI and said he felt he was getting traction.

“We’re breaking down the stereotypes that MPCI can’t work in Australia, people will see growers getting paid out and see it can be done.”

From his company’s perspective, Mr Trotter said he was keen to expand the amount of policies written for the upcoming season, but said it would depend on the demand and the timeframe.

“It’s not like getting normal insurance, the process is more like getting a home loan, so it will take growers time, so if people are interested, they should be thinking of getting organised soon.

“The work in getting an MPCI policy is very much upfront.”

MPCI working in Victoria

Mr Trotter said the benefits of MPCI could clearly be seen this year in states like Victoria.

“We’ve seen the summer rain there and we know the value of controlling summer weeds, but it is going to be a big cost in terms of chemical and farmers’ cash flow are already under pressure after last year’s horror season.

“It would make a big difference in getting capital if growers had MPCI last year.

“They would still be out of pocket, but it would be manageable.”

For Bangerang, near Warracknabeal, farmer Phil Koschitzke, the difference between getting a MPCI payment, or not, is stark.

“Without it, we’re faced with a catastrophic issue, with it, we’ll be faced with a loss, but it will possible to get our crop in this year without too much of a problem.”

Mr Koschitzke has been told by his insurer, Latevo International, that has claim would be paid out.

“We haven’t actually been paid, so we’re still a bit disbelieving that this could actually happen, it will mean a lot if we do get the money.”

He said his local area had endured the brunt of Victoria’s dry season.

“Other areas got some grain even though it was below average, but we were faced with a full-blown, one in 20-year drought.”

He said the insurance would not see him make a profit for the year but would allow him to go to his bank and work out a plan for financing next year’s crop.

“I’ve had people stop me in the street and say they’ve heard I’m going to have a good year, that’s not the case, we’re not ‘mailbox farming’ by any means, we’ll still lose money even with the payout, but it will make things a lot more manageable.

“I had a chat with the bank manager the other day, and he told me ‘we’d be having a different conversation today if you didn’t have this insurance’, so it’s something they’re conscious of as well.

“I’m just so hopeful that this product gets off the ground, not only just for my own business this year, but for all farming businesses in our area down the track.

“This year we saw good operators have an absolute shocker and a working MPCI will give our communities the resilience against these sort of weather events they need,” he said.

Gregor Heard

Gregor Heard

is the national grains writer for Fairfax Agricultural Media
Date: Newest first | Oldest first


15/01/2015 5:58:27 AM

Insurance is not about feeling no pain at all. It's about making the pain manageable - to that end a lot of people are over insured.
15/01/2015 11:05:22 AM

Let's hope Latevo can stay the course as a commercial venture. High premiums reflect the high risks they face with MPCI - after all, this is Australia!!
15/01/2015 7:44:05 PM

Agree Qlander, you should only insure what you cannot afford to lose. I don't see MPCI being taken up by more than 20% of growers, but if you want to expand and can't afford to lose an additional 10% of equity from a drought year, then this sounds like a good finance protection product
17/01/2015 8:43:54 AM

QGGA employed Jim Anderson from the USA in the mid 80s to assist the Insurance Committee with Multiperil crop Insurance and spent a million dollars in doing so. It was underwritten and brought to the field trial stage but the premiums looked like being 10% of the underwritten value. Unlike the US where the Govt assists with premiums Australia will be too expensive without Federal support so underwriters will not make a profit, so I expect this important initiative to lapse.
18/01/2015 3:53:13 PM

Insurance is not cheap but you only have to get a claim once in 70 years to get your money back (not taking into account any inflationary factors).
19/01/2015 3:21:22 PM

Percy I think your 70 year claim is based on fire/hail insurance at around 1.5% premium.This insurance is income insurance so will be a hell of a lot higher than that.The more conservative and reliable farming operations may not touch this leaving the risk takers to force the price up sky high.A less risky plan of attack could be FMD's,pay some in each year to cover the disasters.
Zero till
19/01/2015 7:31:00 PM

If only we had a single desk and orderly marketing hedging our crop and there wouldn't be any risk growing wheat, even at a Rankin Springs.
Bushie Bill
21/01/2015 7:43:53 AM

Sure Zt, and if it rained $100 notes every month, it would be even better, wouldn't you say/. The concept of the single desk is, to quote One Term Tony on another issue, "dead, buried and cremated", although, good ol' OTT never did explain how it was possible to cremate something that was already buried. Sigh, our PM is of such high intellect, isn't he? A fine example to us all, eh?
23/01/2015 3:59:32 PM

Realist, re "unlike the US where the Govt "assists" with premiums, etc". i'm assuming your comment was made with tongue firmly embedded within cheek. If not , why would anyone set up a scheme that is designed to basically underwrite the operations of the companies that run the grains industry in the US. The multi peril crop insurance scheme is , in the US a massive drain on the public purse and market distorting behaviour, just like the single desk, remember?


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