Obtaining insurance is one of the most important things you can do to prepare for post-fire recovery. Interviewed producers who had good insurance cover felt that insurance was essential for a quick and least stressful recovery. Access to insurance increases the options you have after a fire. Few producers are fully insured: for example, in a small group of producers affected by the Black Summer bushfires, only 15–80% of losses were recouped, with the median ‘gap’ between losses and payout being approximately $300 000.
To ensure you are insured adequately:
- Review your policy annually when you pay your premiums to avoid accidentally underinsuring – talk to your broker.
- Budget for insurance as a routine farm expense. Premiums are often as low as 2% of all costs, or 1.6–2.1% of gross income.
- Understand the types of farm insurance:
- home and contents
- farm property: fences, livestock, buildings and contents, tanks and silos, stockyards, machinery and vehicles
- farm business interruption: may cover the cost of feeding livestock or relocation (agistment) until the property has recovered. Check the conditions in the fine print with your broker.
- If only partly insuring your livestock or an asset’s value, discuss with your broker whether your policy has an ‘average clause’. An average clause can reduce the payout if you are under insured and you should avoid having one in your policy where possible.
Different farms may need different insurance based on fire risk and financial position. A farm with low equity and no other source of income may need greater insurance cover. In the absence of insurance, limited cash flow and therefore limited ability to reinvest and rebuild can result in severe business interruption or failure. In contrast, farms with high equity and low debt may be able to have lower insurance cover if they can borrow against other assets during recovery, although some insurances may still be required.
In general, tailor your insurance cover to your business situation, attitude to risk and the probability and potential cost of an event like a bushfire, rather than just the cost of the policy. The high cost of insurances in some areas reflects the high risk of bushfire or flood. Consider prioritising ‘business-critical’ assets: what is essential for keeping stock on your property?
No two insurance policies are the same. Seek advice about the best policy for your business. Note that insurers may refuse to update your insurances very close to bushfire season, so seek advice before planning to make late changes to your policy in high fire risk years.