Whether you have a legal, tax, insurance, management or land issue, the experts at Farmers Weekly’s Business Clinic can help. Here, Liam Hewitt of A-Plan Rural Insurance gives advice on how to assess business interruption cover.
See also: Business Clinic: what kit checks should be done?
Q. After fairly significant damage to agricultural buildings over the past few months, I thought about the business interruption guarantee (IB).
We are a mixed crop and livestock farm with some diversification (rented workshop and lodge). Given the issues with BI and the pandemic, what advice do you have on how we assess BI coverage?
What questions should be asked and what should be considered when evaluating this type of coverage?
A: If something unexpected happens to buildings or machinery, your farm insurance policy should cover repairs, rebuilding or replacement.
However, it will not cover lost income or increased expenses during the period when you may not be able to carry out your normal business activities, and this is where BI Insurance can help.
Insurable risks may include:
- Damage to buildings or equipment related to fire/weather
- Damage caused by vehicles or falling objects
- Damage caused by third-party providers which in turn affects your business
- Livestock or other disease
- Closed due to official notice or announcement.
Clarity on what contingencies you are insured for is essential, so check your insurance schedule with your broker or insurer.
Different types of business interruption insurance include:
- Earnings Covers loss of farm income and normal operating expenses until you can resume your day-to-day business activities (usually when a property is rebuilt)
- Benefits Covers loss of farm income and normal operating expenses until farm income and operations return to pre-incident levels (or a specific period of time has passed)
- Actual loss suffered Coverage calculated from actual loss due to business interruption
- Rental income Covers rental income if a rented house or building is damaged during the time needed to repair the property and find a new tenant. It can also provide coverage to find alternative accommodation for tenants during this time.
For certain incomes, there are specialized covers such as coverage against livestock diseases.
This is the maximum period during which your business income is paid by the insurer. Consider the worst case scenario and how long it would take to rebuild and get back to generating the same revenue as before.
For arable income, 12 months is often considered sufficient. For larger and more complex dairy units, it may take 24 months to rebuild and re-establish a herd.
For vacation homes or more specialized rentals, it can take even longer to rebuild, re-establish a clientele or find the right tenant. In this case, 36 months may be more appropriate.
Define the sum assured as the expected income from grain sales for the coming year to cover both produce and inputs in the event of loss.
Thus, if a harvest is destroyed by fire in a warehouse or in a field, the compensation corresponds to the final value of the harvest.
Similarly, in the event of loss of fertilizer or seed, loss of earnings cover can be arranged to compensate you for the cost of replacing these inputs, as they may not be covered by a standard policy depending on coverage in place and advice received.
Insure breeding stock, dairy cows or bulls (fixed assets) in the livestock component of your policy. Ensure offspring (calves and lambs) and milk production (products) under the loss of income section.
By insuring the products as income and not as livestock, in the event of a major loss of breeding stock, the value of future offspring and milk is also covered, even if they have not yet been born or produced.
In conclusion, BI insurance should put a business in the same financial position it would have been in had no loss occurred, so make sure the coverage variables reflect that.
Do you have a question for the panel?
Describe your legal, tax, financial, insurance or farm management question in no more than 350 words and weekly farmers will ask a member of the panel. Please provide as much information as possible.
Email your question to FW-Businessclinic@markallengroup.com using the subject line “Business Clinic”.