Paying attention to insurance is better than paying too much

You feel compelled to buy it.

But once you’ve paid for it, you hope you’ll never have to use it.

It’s insurance.

And if you’re buying a policy for your farm, it’s probably not as straight forward as cutting a cheque and signing on the dotted line.

Making sure you have the right policy for your farm operation can be a mind-boggling and potentially expensive undertaking.

That’s why it’s so important to have a good relationship with your farm insurance broker, says Blair McClinton, director of SGI Canada’s farm business unit.

Ideally, your broker is someone who can help to assess the value of your assets, offer advice, and put together a policy that offers a reasonable level of coverage at a manageable cost.

A good broker will answer questions, identify potentially unmanageable liabilities and take the guesswork out of what can be an exasperating and costly process.

“Farm insurance can be a very complicated area,” said McClinton.

“There’s lots of variations in the types of coverages available and the ways that claims are settled — such as replacement value or depreciated cash value — so there’s a lot of … complications that people can run into.”

In a recent interview with the Western Producer, McClinton said the farm insurance industry has changed significantly.

Today’s farms are bigger, more complex and more productive than ever.

The value of farm assets is also increasing rapidly.

Not surprisingly, the task of negotiating an affordable policy that offers reasonable protection is also becoming more challenging.

According to McClinton, policy holders may be inclined to cut corners in an effort to keep premiums in check.

That might seem like a good idea when things are going well on the farm.

But its equally important to consider the financial consequences when things go off the rails.

“I think farmers, like most people, don’t want to overspend on insurance and sometimes they look at insurance as something that they don’t want to spend money on.” McClinton said.

“But insurance, by its nature, is a risk management tool. It’s there to protect you in case bad things happen and to ensure that your financial position is protected.”

The are several steps to negotiating a suitable farm policy.

Start by talking to your broker and determining your needs based on a reasonable valuation of your existing assets.

Some assets on the farm may not require coverage. But, by the same token, some assets that should covered may not be.

All operators should keep a comprehensive inventory of all farm assets and should determine their replacement values with the help of the broker or other professionals.

Most modern farm operators should be in touch with their insurance broker every time significant new, assets are acquired or existing ones are sold.

If you’re not chatting with your broker at least once a year, you’re probably exposing yourself to unnecessary or unwanted risk … or paying unnecessarily high premiums.

“It’s really important for farmers to have good, open lines of communication with their broker so that the broker understands the needs of their clients operation,” McClinton said.

So, what are the benchmarks of a good farm insurance policy?

There’s no simple measure.

That’s because every operation is different and every farm or ranch operator is different — with different risks and different risk tolerances.

Ironically, the most valuable asset in the Canadian agriculture sector — dirt — typically isn’t insured.

According to a recent report by Farm Credit Canada, the total value of Canadian farm assets exceeded $590 billion in 2016.

Of that amount, nearly $415 billion (70 percent) was tied up farmland.

The remaining $175 billion of equity consisted of machinery, buildings, livestock, farm dwellings, farm inputs and production in storage.

Comprehensive liability coverage should also be included in every good farm policy, said McClinton.

There are steps farmers can take to reduce their premium costs while ensuring a comfortable level of coverage, he added.

For example, while some assets on the farm may require protection against all types of loss, other assets may only require coverage against fire or specified perils.

Coverage levels are another critically important consideration.

Covering large assets to a reduced percentage of their replacement value can significantly reduce premium costs. But in the event of a loss, will the level of risk exposure be manageable? Co-insurance — where the insurer and the policyholder share risk — is a complex concept and one that’s often misunderstood by policyholders.

Brokers should be able to explain the concept to farm clients and provide examples of how certain coverage levels could result in an unmanageable or unexpected cost.

“Farmers can do lots of things to reduce their premiums although they may be taking on more risk than they realize because of some of the decisions that they’re making.”

“The key message is keep your policies up to date and make sure you have a good relationship with your broker.”

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