By: Daniel Stevens, Head: Santam Agriculture
Crop insurance helps protect farmers against unpredictable weather that may cause significant damage to crops. Deciding on how much cover you require is an important decision and one that farmers take seriously.
Deciding on the level of cover needed when buying crop insurance
When taking out crop Hail insurance, farmers have the option to choose the potential yield and price per ton that they want to insure their crop for. The insurer will then use these values to calculate the total insured value on which the insurance premium will be based, and which will be used to calculate the claim and policy excess when a claim becomes payable.
Hectare planted x potential yield per hectare x value per ton = Insured value.
It is important to always insure at a realistic potential yield per hectare and for the correct area planted, exclusive of unplanted areas like headlands and contour ridges.
When deciding on the insured value the client must decide if he wants to buy cover for the full revenue value of the crop inclusive of his potential profit margin, or a lower value closer to the cost of production. When making this decision the client must make sure that he also takes the applicable policy excess into account to ensure that the “net cover value” (Insured value less policy excess) will be sufficient in case when an insured loss happens.
The net cover value can be adjusted by either choosing a lower insured value or choosing a higher policy excess. A higher policy excess will come at a lower insurance rate charged by the insurer as the policyholder will then take more of the first loss for his account.
Expertise makes it possible.
Behind every modern marvel is a team of experts who take innovation to the next level. In insurance, having a risk solutions partner that understands your business the way you do is crucial to protect it. With over 105 years of experience and being the leaders in specialist underwriting across a broad range of industries, you can be sure we’ll use our technical expertise to offer you quality insurance solutions to protect your business. Santam. Insurance good and proper.
For more information, speak to your Relationship Manager.
Santam is an authorised financial services provider (FSP 3416),
a licensed non-life insurer and controlling company for its group companies.
Example 1:
Farmer A in Bothaville wants to insure his maize with a potential revenue value of R 1,000,000 against hail.
If he chooses an insured value of R 800,000 (80% of potential revenue value) with a 5% Franchise as policy excess the Net cover value will be R 800,000 and if the insurance rate is 1.5% that will amount to a premium of R12,000.
If he however chooses an insured value of R 1,000,000 (the full potential revenue value) and takes a fixed policy excess equal to 10% of the sum insured, the Net cover value will be R 900,000. The insurance rate will then come down from 1.5% to 0.8% and will then amount to a premium of R 8,000.
In this example Farmer A will get R 100,000 higher net cover and save R 4,000 on his cost of insurance by taking a higher excess on the full revenue value rather than a lower sum insured with the lowest policy excess on offer by the insurer.
In conclusion, although by choosing a higher policy excess will lift the threshold from where a claim becomes payable to the policyholder it can often provide a higher Net cover value at a lower cost of insurance. It can also provide better and more cost-effective protection when catastrophic losses occur.
To find out more about our insurance solutions best suited to you, speak to your broker or visit santam.co.za.