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WA Uses Mutual Structure for Crop Insurance

04 April 2011

AUSTRALIA - Grain co-operative CBH Group has formed a mutual company with broker Willis to offer multi-peril crop insurance in WA.

The insurance will cover the cost of production for wheat and barley farmers in the state and lost revenues if the crop is hit by a catastrophe.

Farmers will have to nominate the hectares they will be planting and the underwritten yield will be based on production in the previous 10 years.

Applications to join the mutual open on April 4 and close on April 30. This will then provide cover for the October 1 to January 31 2012 growing season.

WA Farmers Federation Risk Mitigation Committee Chairman Bob Iffla told insuranceNEWS.com.au about 15 per cent of WA grain growers are expected to use the new product.

"It is a pilot program in the first year," he said. "CBH have put $10 million into the mutual and we will be seeking reinsurers to underwrite the risk."

Iffla says the pilot will be limited to just WA this year, but there are plans to expand it to other states and also cover other grain crops such as oats and lupins.

"We have also spoken to lending organisations in WA and they are supportive," he said.

"This will enable farmers to secure finance for their crops when they couldn't in the past. It is going to put a lot more confidence in the grains industry."

By establishing a mutual to provide insurance, farmers will also avoid paying 11 per cent stamp duty in WA on the cover.

The state's grain growers have suffered from an extensive drought during the past 12 months, with grain crop production halved.

With more traditional crop policies drought was not covered, meaning the farmers have incurred considerable losses.

The CBH Mutual product disclosure statement (PDS), which has been obtained by insuranceNEWS.com.au, says the product is not covered by the Insurance Act, and nor is it regulated by the Australian Prudential Regulation Authority.

Because it is not a regulated insurance product, if the losses exceed the membership costs, claims will not be paid.

Cost of membership will depend on the level of cover being offered and growers can cover between 30% to 60 per cent of their expected revenue.

According to the PDS, a $2 million crop would have a premium of about $200 a hectare. This would provide a $750,000 payout if there was a claim.

TheCropSite News Desk



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