Changing values – farmers urged to guard against underinsurance

May 25th 2022

Rory Gibson, from our Edinburgh office, warns how soaring prices could leave farmers struggling financially should they need to make an insurance claim.

The war in Ukraine, coupled with the ramifications of the worldwide Covid pandemic, has triggered major cost increases across a wide spectrum of industries.

The prices of grain, seed and other agricultural commodities – including diesel and fertiliser – have risen, and building materials such as steel, timber, concrete and bricks have also seen significant price increases.

Against this economic backdrop, it is essential that those working in the agricultural sector review their insurance arrangements to avoid the risk of being underinsured.

Significant discrepancies between current values and the sums insured could result in reduced claim payments in the event of a loss.

With the rapid increases in fertiliser price and grain values, farmers who insure their produce when in store, and insure their revenue through a business interruption mechanism, need to be aware of how the current situation could affect their insurance.

Three years ago, for example, the price of fertiliser was around £300 per tonne, but is now in excess of £1,000. If you are insuring it under ‘produce and dead stock,’ £10,000 of cover is unlikely to be sufficient.

Farmers should give equal consideration to their buildings and vehicle insurance.

The price of materials used for farm buildings has risen and, in the case of steel, its value increased by more than 30 per cent between January and the end of March. Whether buildings are insured on a ‘reinstatement’ or ‘modern materials’ basis, the rebuild price has almost certainly increased.

Furthermore a global shortage of vehicle parts and lengthy delays in production, has seen depreciation on vehicle slow, and even reverse. This could mean that a tractor or quad bike is worth more now than it was when bought as new – the insurable value should reflect this.

We are living in uncertain times, which is why it has become prudent to review insured values more often than the annual review date.

Specialist advice and guidance should be sought from an experienced insurer or broker who is able to respond appropriately to the prevailing circumstances and their effects on the marketplace.

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