Rural brokers are battling rising costs, shrinking capacity, premiums bloated by record claims – and CGU’s new ‘zero commission’ edict

By Miranda Maxwell

When the weather co-operates, the harvest is good. But while many of Australia’s crop farmers celebrated abundant production this year, they’re still doing it tough. And soaring insurance premiums aren’t helping.

There’s good reason for premiums to rise. The rain that brought good crops also caused record floods, leaving insurers to battle with a $7 billion claims hangover. When the going gets tough, the premiums start rising.

Rising premiums have been a reality for several years. But for farmers across Australia it’s just one of many items that cost a lot more than they did a few years ago. Think higher interest on loans, general inflation and rising energy prices – items that affect every Australian business but arguably much more when it comes to farming.

Some examples of what they face: fertiliser costs are up 30%, specialised farm machinery comes with massive price tags, and grain prices of $300-350 a tonne have not increased at the same pace as costs for 10 years or more.

Rural brokers say insurers have become inflexible and won’t budge on terms and pricing, and even clients who have not lodged claims are being hit with broad 20-30% premium increases.

For brokers who service crop farmers in particular, one new development in May pinched their own financial margins. CGU’s decision to offer crop insurance renewals without any allowance for commissions – first reported by insuranceNEWS.com.au on May 22 – elicited a strong reaction from the broker community, which was hardly surprising.

Capacity is constrained. Farm specialist insurer Argis, for example, is yet to secure a new underwriter for its Farm Extra Insurance product after a five-year deal with HDI Global Specialty came to an end in April.

“The increases over the past two years continue to bite, and current insurance premiums won’t be sustainable for many of our farming clients,” Griffith-based Spencer & Bennett-Yenda Prods broker Renae Testoni says.

Griffith is in the Riverina region of New South Wales – an area often referred to as the food bowl of Australia. But like any area where crops are a major preoccupation, the weather that feeds the food bowl gives and takes away.

Ms Testoni says placement has become hard work over the past few years, with hail events escalating rates for canola to close to 4% from 1.5% previously, and crop insurers wary of any new business. 

“Where previously we have been able to present numerous offers to clients, those options are now dwindling,” Ms Testoni says. “At this stage there are no new rural insurers coming in, and this is putting pressure on the existing ones. We have recently seen two rural insurers pull out of the market and we can only hope there aren’t more that follow.”

It’s a situation that put CGU in a strong position to withdraw its 20% commission on crop cover from July 1 without too much concern about a broker backlash. Caught between the needs of their clients and the need to actually make a living themselves, brokers have little option but to fall in line.

Executive General Manager Damien Gallagher says providing a financially sustainable crop insurance product is “challenging”, and removing the commission was a “necessary step to help us continue to provide this product”.

He says continuing to offer crop cover in future is CGU’s “strong desire”.

But severe weather claims and increasing reinsurance costs have significantly hit affordability, Mr Gallagher says.

“We made the decision knowing…a withdrawal by CGU would have downstream effects on customers who rely on this cover for their livelihoods,” he said.

While Ms Testoni is worried about the impacts on her clients “if weather patterns push us into another drought”, other affected brokers have been more direct in their criticism of CGU’s move.

“This is short-term thinking, throwing the baby out with the bathwater,” Dubbo-based MIH Insurance Brokers Directing Manager Rodney Cox says. “They really don’t want to be there but they are worried about the backlash if they leave the industry.”

Farm brokers say the insurers who remain in the sector are writing business at a noticeably increased cost, and some insurers will not accept new clients due to capacity issues. CGU has increased rates annually for several years, and Allianz and QBE have also introduced increases over the past 12 months.

In South Australia’s rural centre of Waikerie, GIA Insurance Brokers Account Manager Ben Haynes says he has successfully placed the majority of his crop farmers’ risks for the next year. The premiums have been high, and the inevitable result has been underinsurance.

“Insureds are not increasing sums insured to reflect the sharp increase in replacement cost,” he told Insurance News. “I can only put this down to high premiums.”

The last season was a good one for broadacre farmers, he says, although there has been minimal rain so far for the new season. That may mean a light year for harvesting, and vineyards have had a poor vintage with low prices for grapes from wineries.

“If this happens again next year some won’t survive,” Mr Haynes says. 

Sharon Power is a broker working with Ms Testoni in Griffith. She’s also a farmer, with her family operation sowing about 3300 hectares this year with wheat, barley, oats, canola, as well as running 1500 ewes and lambs. That gives her sharp insight into the realities of modern farming. Like those big spray rigs that crop farmers rely on. They cost around $500,000 each.

“You need efficient machinery, and with that comes the use of GPS equipment and other technologies which are a lot more expensive than we incurred as farmers 30-odd years ago,” Ms Power says. “You’re talking about a harvester on average costing up around half a million dollars – that a farmer is utilising for only six weeks of the year.”

Dwindling options: rural brokers like Sharon Power, left, and Renae Testoni, would like to see more capacity coming into the market

Unstable weather patterns over many seasons and natural catastrophes are starting to have a huge impact on premiums across all lines of business, and the Spencer & Bennett-Yenda Prods team say they’re experiencing an influx of potential clients needing to place cover with a diminishing field of insurers.

Flood cover is a top sticking point, with more properties designated as being in a floodplain and priced accordingly. Farm flood cover is “only token”.

“We want to work with insurers who genuinely take the time to look and consider all the information, not a ‘one approach fits all’ model,” Ms Testoni says. “The majority of rural clients would welcome having the option of taking flood cover out for their home and contents at the very least, and would be happy to pay for it.”

Some rural brokers say insurers are “putting everyone in the floodplain bucket”, with even everyday commercial business hard to place. One broker contacted by Insurance News said that when Argis ran out of capacity, moving to a new insurer generally cost clients an extra 30% on their premiums.

Mr Cox says flood mapping software is creating “vast differences” in premiums and only Allianz offers an opt-out of flood cover.

“We can’t remove the flood loading,” he says. “For instance, for some reason some insurers think Binnaway is in a flood zone. It’s actually in a pretty high place towards Coonabarabran up in the Warrumbungle mountains. The premiums vary to billy-o, from say $2500 to $15,000 for the same house. The differences are incredible.”

In Victoria, North East Insurance Brokers Director Tim Clarke says premiums for his clients are up, and “not necessarily the ones that had claims against them”. His office in Mooroopna, located on the banks of the Goulburn River, flooded in October.

For clients affected by the floods, “the renewals have come through and we’ve nearly fallen off our chairs,” Mr Clarke tells Insurance News.

“A lot of the other insurance companies won’t touch them. If they’ve been affected by the floods, they’d prefer to have flood cover. So if the premium went from $2500 to $5000, they’d pay it.” 

In Dubbo, Mr Cox says technology has changed the broker-insurer relationship. A broker for 33 years, he says inexperienced insurance staff and “computer-generated things” now make the decisions, and “if the computer says no, no one wants to have a go”.

Some clients who elected to self-insure more risk and cut the sums insured also must factor in the changing economic landscape. The cost of building materials is up around 30%, and demand for builders makes it a sellers’ market for trades. Homes insured for $400,000 now need to be closer to $650,000.

As input charges rise all at once, more insureds now push back at renewal, telling their brokers something has to give.

Veteran Adelaide broker John Corletto reports large premium increases ranging from 15-30%, with higher excesses thrown in. Policy index percentages are higher on renewal compared to other years, he says, and clients still need to increase all sums insured to reflect higher material and labour costs.

He mostly uses CGU, which is renewing most rural policies – but for much more than previously.

“Weather events are a massive concern,” he tells Insurance News. “What’s next if insurers pull out of certain product markets or certain rural areas?

“It is the worst I’ve seen in 40 years. Insurers need more staff, and assessors need more resources.” 

In Dubbo, Mr Cox says two long-established broker colleagues have quit the industry in frustration, but he has no plans to follow.

“It can get to you. The claims are the stressful part, but I pity the poor ones that don’t have a broker.

“I am going to stay in the industry I’ve been in for 33 years. I want to keep helping people.”

SOVEREIGN