Insurers push for MPCI recommendations

06 Aug, 2017 04:00 AM
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 Multi-peril crop insurance could provide government with a sustainable way of implementing drought policy according to the Australian Farm Institute.
Multi-peril crop insurance could provide government with a sustainable way of implementing drought policy according to the Australian Farm Institute.

PROVIDERS of multi-peril crop insurance (MPCI) are calling on the State and federal governments to listen to key recommendations from a New South Wales regulator regarding the emerging sector.

The final Independent Pricing and Regulatory Tribunal (IPART) multi-peril crop insurance review report was released recently and continued to suggest an upfront subsidy on premiums would be the most effective means of getting growers to take out MPCI.

Support for the subsidies had been watered down, with IPART suggesting subsidies only be provided initially, however it reaffirmed support for some form of subsidy at least in the short-term.

IPART is an essential services regulator in NSW.

Darryl McCrae, director of MPCI provider Sure Season, said he did not mind the subsidy only being offered initially.

He felt farmers would recognise the value of MPCI once they participated but said a catalyst such as a subsidy to use the product would help people take out cover in the first place.

“We generally find people are happy with the product once they start using it, there is just that reluctance to make the jump,” Mr McCrae said.

“The IPART recommendations would be a good way of increasing uptake of MPCI, then we think you would be able to phase out the subsidy as more policies were written and costs came down.”

IPART suggested a subsidy as a more effective tool than the use of a stamp duty waiver, which it rated as one of the least effective drivers of uptake.

Mr McCrae agreed and said other measures designed as an impetus to get people to investigate taking out MPCI, such as the federal government’s rebate on the financial checks required prior to taking out MPCI, had been only partially successful.

“We are seeing a steady stream of people looking at MPCI, but the measures, such as the rebate, while welcome, probably haven’t really got people over the line.”

Not all industry participants are as keen on the IPART proposal.

Australian Farm Institute executive director Mick Keogh said while the idea would likely appeal to growers it may create political difficulties.

“There is plenty of evidence that subsidising premium costs (farmers involved in the United States multi-peril crop insurance scheme have about 60 per cent of their premium costs subsidised by the government) encourages adoption, but becomes almost politically impossible to discontinue,” Mr Keogh said.

“Government-run schemes are unlikely to be administratively efficient and would create political difficulties in the event of an underwriting loss.”

The NSW government has not taken IPART’s advice on board, announcing it would seek to stimulate MPCI participation through a stamp duty waiver applicable across crop and livestock insurance products in a move estimated to cost $12 million.

There will not be a subsidy.

In spite of not supporting subsidies, Mr Keogh said MPCI was one of the best ways governments could manage drought policy.

“Drought is looming in places such as WA and this inevitably heralds demand for drought aid, yet it seems governments will once again be caught scrambling for policy responses if current conditions persist,” Mr Keogh said.

He said Australian governments had yet to come up with sensible policy measures to deal with the risks of farming in one of the most climatically-variable environments in the world.

Mr Keogh said measures had ranged from doing nothing right through to handing money out to those ill-prepared for drought.

He said MPCI would fill a role in helping farmers manage drought risk and to better deflect the inevitable calls for taxpayer handouts next time a serious drought occurs.

Mr McCrae said the sector was slowly evolving.

“We want to get to that point of critical mass, where there are enough participants across a diverse range of environments,” Mr McCrae said.

He said already different products were emerging with fits for different farming systems.

“There are a number of products on the market and there are different policies that will attract different growers,” he said.

Mr Keogh raised the possibility of tax deductions, rather than subsidies, as a means for government to create an incentive to participate in MPCI.

“One suggested approach that appears to have some promise is for the Australian government to offer a 150pc tax deduction on the cost of premiums paid for accredited farm multi-peril insurance policies, supported by an agreement by all State and territory governments to waive stamp duty on such insurance policies,” he said.

“The 150pc tax deduction could potentially have a relatively low cost for the national government, as any revenue loss would be offset in drought years through farmers having income from insurance policy payouts, on which tax would be payable.”

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FarmWeekly
Gregor Heard

Gregor Heard

is the national grains writer for Fairfax Agricultural Media

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