Insurance can cut reliance on drought support

Insurance can cut reliance on drought support

International insurance businesses want exposure to the Australian farm income protection market, due to the geographic diversification it brings to their books.

International insurance businesses want exposure to the Australian farm income protection market, due to the geographic diversification it brings to their books.


A global insurance expert says the sector can play a valuable role in lessening reliance on government drought assistance.


THE AUSTRALIAN government can provide incentives for global insurers to participate in farm income protection insurance in Australia without having to implement large scale subsidies like in the US.

That is the opinion of a British global insurance expert who has been working with the fledging Aussie multi-peril crop insurance (MPCI) sector in establishing a foothold in the Australian market.

Julian Roberts is the managing director of alternative risk transfer solutions team for global insurance brokerage Willis Towers Watson, based in London.

He said getting the private sector to help mitigate climatic risk would be a sound move by the Australian government.

“As it currently stands, the government is often forced to step in through drought funding initiatives anyway, so allowing the commercial insurance sector to take some of that risk would be a benefit,” Mr Roberts said.

In terms of how the government could support crop insurance mechanisms, Mr Roberts said small tweaks such as introducing tax incentives, the removal of stamp duty and stepping in to help underwrite policies in extreme events, such as a one in a hundred year drought, by means of an industry stop loss would all be beneficial.

He said Australia had to come up with a system that reflected its own risks.

“The price of insurance will reflect the risk, at present the market signals, with the low uptake, shows both that supply and demand are mismatched and that awareness is low.”

He said the products that would likely work most appropriately should be designed to address the specific needs of Australian farmers and may be different to those overseas.

“You might see farmers favour something that gives them a modest level of protection, just covering the cost of production or a little below.

“It is all about the cost and what people are prepared to pay, it’s like a car, it can be used to get you from A to B just the same, but you could be driving an old ute or a Rolls Royce, you choose the cost and value that is appropriate for you. 

“Farmers are rational and price savvy and will make their choices accordingly.”

In spite of its relatively small scale, compared with the agricultural powerhouses of North America, China, India and Europe, Mr Roberts said the world insurance sector was interested in having a presence in Australia.

“We don’t have the exposure here and it would be valuable diversification, especially as with weather phenomena such as El Niño what is a bad year in Australia is often good in the Americas and vice-versa.”

And he said getting the insurance sector onboard would be a good start in lessening the reliance on government in drought years.

“If the government doesn’t assist in implementing the right commercial framework for crop insurance in Australia, the take-up of this type of insurance protection will remain stubbornly irrelevant; and farmers will inevitably revert to government for assistance in future drought years.”


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