How farm innovations could jeopardise your insurance coverage
Image: Soraya Crowie / African News Agency (ANA)
Farmers employing various innovative strategies to maintain profitability on their farms may introduce new risks that may not be covered under their existing insurance policies.
Changes that can introduce new risks that may not be covered under their existing insurance policies include contract farming arrangements, leasing portions of land to third parties, or switching to higher-value crops and infrastructure investments.
With South Africa's farming sector under growing financial pressure, Jan-Hendrik Botha, the Head of Underwriting at Western National Insurance, urges farmers to prioritise full disclosure of any changes to their operations.
'When a farmer's insurance policy is initially underwritten, it is based on specific farming-related activities, whether it's cattle farming, crop production, or fruit farming. Alterations to operations - such as leasing farm space to outside contractors, installing solar energy systems or engaging in third-party processing - change the risk profile. If these aren't disclosed to the insurer, the policy may no longer be valid and claims could be denied.'
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Budding optimism
After a notable uptick in the first quarter of this year, the Agbiz/IDC Agribusiness Confidence Index (ACI) fell by 5 points in the second quarter to 65. Most respondents pointed to the uncertain global trade environment, lingering geopolitical tensions and the domestic animal disease challenge as some of the key factors constraining the sector.
Despite the slight decline, the current level of the ACI implied that South African agribusinesses remain optimistic about business conditions in the country.
Earlier this year, the Land Bank said South African farm properties faced multiple structural challenges, including increasing competition from imports and rising production costs, particularly energy expenses.
"Additionally, persistently high interest rates are affecting affordability across the industry. The cost of financing inputs has increased, which in turn is placing pressure on profitability. Export-linked commodities are further impacted by currency volatility; the rand's recent drop to a historic low of R25 to the British pound is a case in point.'
The financier said said these combined factors are likely to influence farmland values. It added that in agriculture, producers often shifted to alternative crops when the profitability of a specific commodity declines.
Crop changes
For instance, citrus may be replaced by other crops, although the value per hectare of these alternatives may differ. Whether such changes in land use and valuation will occur remains to be seen, and will depend on how these market forces evolve.
Botha said the rise in non-disclosure in the agricultural sector is a growing concern, particularly around these types of operational changes.
'For instance, a farmer who enters a joint venture with a contractor for crop spraying or storage might not realise this increases both liability and fire exposure. Their policy, tailored to traditional farming risks, won't necessarily cover claims stemming from third-party negligence or equipment damage from unauthorised usage. Failing to disclose these activities leaves the business exposed,' Botha said.
non-disclosure risks
The consequences of non-disclosure can be severe and may result in the voiding of the policy at claims stage if the loss is linked to an undisclosed risk. Full, ongoing disclosure allows the insurer to make relevant adjustments to cover and pricing and also provides an opportunity to explore additional risk mitigation solutions such as reinsurance or tailored endorsements to protect both the farmer and the insurer's exposure.
Botha highlighted that as farming businesses evolve, their risk categories may shift from medium to high-risk, necessitating more frequent risk assessments.
'Agricultural businesses typically undergo an initial risk survey, with annual reviews thereafter. But when introducing high-value assets like processing plants, advanced irrigation systems or expanding storage capacity, the risk profile shifts significantly, and insurers may need to reassess more frequently,' Botha said.
Another common area of non-disclosure includes infrastructure investments like installing solar panels or building cold storage, as well as changes in farming activity, for example: transitioning from grain to high-value crops such as berries or nuts.
'Farmers might not realise how these upgrades or shifts affect their insurance. If not reported, the policy may no longer reflect the business's actual needs,' Botha added.
Non-disclosure did not just affect claims but could potentially hinder future insurability.
'If a history of non-disclosure emerges, it may lead to increased premiums or result in the business being declined cover altogether. Insurers view non-disclosure as a sign that risk has been misrepresented, making it harder to maintain favourable terms,' he cautioned.
Regular reviews
To help farmers navigate these evolving risks, Botha encourages regular and transparent communication with brokers. He said a broker's role is to ensure that policyholders understand the full extent of their coverage and that any changes in their operation are disclosed promptly.
"This is especially important in agriculture, where operations can shift rapidly due to market demands or climate challenges. Working closely with a reputable broker is essential for maintaining suitable coverage.'
The insurer said as the agricultural sector continues to modernise and adapt, full disclosure remains critical in protecting farming enterprises.
'We urge all farmers to review their policies regularly, especially when changes occur in operations, assets or third-party agreements. Keeping insurers informed is the best way to avoid unpleasant surprises at claims stage,' Botha said.
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