Underinsured SA farmers face huge insurance risks
Posted on 10. Mar, 2010 by admin in Business-Financial Results, News-Technology
Underestimating the replacement value of farming equipment, combined with a failure to regularly review their policies, means that the percentage of South Africa’s farmers who are underinsured could be as high as 70%.
“There is a definite trend of underinsurance in the agriculture industry, says Jonjon Smit, sales director at CIB Insurance Solutions (CIB). “Based on our claims experience, we estimate that between 60% and 70% of farmers are underinsuring their key assets. The result is that many farmers could face financial ruin if they are unable to afford to replace these assets.”
He says one of the key reasons for farmers being underinsured is the rapid rise in the cost of agri-processing equipment, vehicles and assets in recent years as technology and functionality have both improved.
“Some modern harvesters can cost as much as R4 million. This means that farmers who are using older equipment do not take into account the replacement cost of their equipment.”
He adds that many farmers also tend to undervalue their building structures, partly because they are simply unsure of what they have and what they would cost to replace.
Smit says affordability is another reason for farmers being underinsured. “While the last few years have put a strain on most people’s finances, farmers have felt the squeeze more than most with around 70% of their input costs, such as fuel and fertiliser, being imported and therefore subject to fluctuations in the rand exchange rate. Unfortunately, when things get tight, insurance is often one of the first expenses to be cut.”
Smit says it is a good idea for farmers to ask their broker to carry out a risk survey, which will identify the specific risks to each farm. “This could assist farmers who are financially strapped to ensure that they are at least covered for the most likely risks.”
“It is crucial that any farmers struggling to cope financially take the time to talk to their broker to discuss how they can reduce premiums, rather than cancelling their policy. Options such as increasing the excess on a policy may seem undesirable, but it is far better to pay a higher excess and still be insured than risk facing complete disaster.”
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