Focus on: Agriculture insurance

Visitors to the British countryside this summer will have spotted all kinds of surprising sights. The nation’s farms are increasingly diversifying away from the business of growing crops and rearing cows and moving into everything from running bed and breakfasts to hosting wind turbines. After two years of bad weather and rising theft – including an alarming rise in sheep being stolen - it’s clear why farmers are evolving. This means that the agriculture insurance market now offers both new challenges and opportunities, so whether you’re already in the market or looking to break in, it’s worth updating yourself on what’s happening.

Agriculture insurance explained

Agriculture-related cover broadly breaks down into buildings, fleet, livestock and personal accident, and the main players offer combined farm products, which cover properties, contents and tend to include options to cover livestock. Crops in the field are deemed uninsurable largely but can be covered once they are inside a properly secured building. Insuring livestock against more exotic diseases is also problematic. The last foot and mouth outbreak, for example, cost the insurance industry £1.5bn, sparking calls from insurers for government support, which continues to be debated.

The insurers

The National Farmers Union is the dominant force. NFU Mutual has a gross written premium of £1.2bn, amounting to some two-thirds of the agricultural insurance market, which is sold through its own agents. The remaining third is being fought over by six insurers, which all reach farmers exclusively through brokers:

• Towergate AIUA - agricultural specialist owned by Towergate.
• BiB Underwriters - agricultural specialist underwriter, part of BiB Group.
• Rural Insurance - part of UK General Group.
• FarmWeb - in partnership with NIG, which underwrites its expanding range of policies.
• Aviva - agriculture is a relatively small part of its huge business, although its product covers a broad range of risks, from business interruption to property in transit to uncollected milk for periods when cows cannot be milked.
• Axa - beefing up its Leeds-based agricultural underwriting team with three recent hires and more to come.

The brokers

The brokers in the market are a mix of big national players including Towergate, Bluefin and Giles, and small, local, farming specialists. For example, Simon Stevens, managing director of Rural Insurance, says: “We have 600 agencies with national and regional brokers and about 100 are transacting with us every month, with five of those being national players.”

Broking in this market is frequently done face to face. “Farmers are most definitely not going online,” says Andy Halstead, AXA’s business manager, Leeds. Farmers also expect you to speak their language. Towergate Lloyd & Whyte’s area managing director, South West, Nick Hatch, says: “When we’re hiring staff, we look for farming knowledge first, as the technical knowledge of insurance can be learnt.”

And brokers must also look the part: “You can’t go out to a farm wearing a suit.”

Can NFU stay on top?

There are signs that the NFU’s stranglehold on both the insurance and broking side of the market may be slipping. Insurance Times revealed in May that the mutual had made a loss of £118m in 2009 after profits slumped 57%. On the other hand, it did manage to increase its gross written premium from £1.06bn to £1.205bn. Plus, it was still able to pay its customers a mutual bonus totalling £150m. The bonus is the biggest obstacle its rivals face in trying to pry market share away from NFU.

Market conditions

Some in the market hold the NFU’s economy of scale responsible for low rates. While that may well be a factor in play, agricultural insurance also follows the wider insurance industry trends. Hence the property and personal sides have seen little movement in rates for several years and motor is the only area to have seen rises in any significant way, with those in the market reporting a rise this year, albeit slightly behind the national trend, of about 20%.

Brokers say they are managing small, customer-specific increases. Hatch says: “We try to get a couple of percent extra as we go through the year but we take tailored approach depending on factors like claims history.”

Outlook

Profits are under massive pressure due to unusually bad weather over the past two years, particularly the two heavy snowfalls of last winter. Aviva had of agriculture Barry Hogg says: “Looking ahead, the great imponderable is the weather, and whether the events we have seen in recent years are driven by climate change and therefore likely to become common.”

A rise in theft in the countryside is adding further pressure. The NFU says “agri-crime” on UK farms cost the farming industry £49.7m in 2010, up from £41m in 2009, with thieves stealing power tools from farms and outbuildings above all. Theft of sheep, known as sheep rustling, is also on the rise, with the NFU estimating that the crime has increased five-fold and now costs farmers £5m a year.

Hogg says: “I would hope to see prices rising now – they need to – and that would mean a better outlook in terms of profit.”

Either way, as farmers diversify, so will agricultural insurance, says Farm Web operations director Ken Isherwood: “We are looking at diversifying into renewable energy, livestock haulage, horticulture and tourism.”

He believes the long-term outlook is “challenging yet positive”, mainly due to simple demographics: “We know the population is growing and someone has to feed it.”