Potential pitfalls with irrigation equipment insurance
By Gert Stander – Rural Insurance Expert
Next week will mark the second anniversary of the devastating storm that ripped through Canterbury in 2013, knocked down countless trees, destroyed farm sheds and homes and toppled over 800 irrigation pivots.
Some called the September 10 storm a once-in-lifetime event and the impact of those winds rattled the affected rural community in the subsequent years.
Irrigation experts took months to repair the damage, flying in additional staff from South Africa and the United States and eventually running out of spare parts.
The immediate damage to the equipment was enormous but the wider impact on businesses through lost income and additional feed costs was even greater.
The total insurance payout of the 'Big Blow', as one commentator dubbed it, was close to $100 million.
Sadly, the real loss to the farming community was even more substantial. Many farmers were never able to receive the insurance pay-outs they thought they were entitled to.
Some took bad advice, others were underinsured but most of them in good faith assumed they had the right insurance but simply did not understand what cover their policies provided.
The anniversary of this catastrophic weather event is a good time to take stock and have a closer look at your policy.
In 2013 and even now, too many farmers have their irrigators covered for market value, or otherwise classified as same day value or actual value.
If you are covered under those conditions it would mean that you would only get the current value of the irrigator, minus depreciation, so if the brand new pivot cost you $300,000 a few years ago, you could suddenly find yourself $100,000 short to pay for a replacement.
Another potential pitfall for farmers is the policies that cover irrigation pivots as vehicles. Just because it has wheels and a motor does not mean your irrigator is a vehicle and it should not be insured as such.
There are several good reasons to recognise and insure your irrigator as a mobile plant under a Material Damage policy. First of all you will receive the replacement value instead of the market value when there is a mishap but more importantly you will be eligible to claim Business Interruption losses.
Many farmers will not be aware that Business Interruption cover is only activated when you are insured under a Material Damage policy.
Unfortunately, there are plenty of examples of farmers who had Business Interruption insurance but found out that they were unable to claim any business losses after the storm because their irrigator was only insured as a vehicle.
In many cases those secondary business costs can be higher than the actual repair bill for the irrigator.
One client in Mid Canterbury lost three spans on his pivot in the September storm and was unable to irrigate the outer reaches of his paddocks for four months until the repairs could be done. This farmer ended up claiming over $300,000 on his Material Damage policy and most of that was associated with Business Interruption.
The claim included loss of feed from the paddocks that could not be irrigated, having to put more growth supplements into the parts that could still be irrigated to maximise grass growth, the cost of buying in feed, the cost of the tractor and manpower to feed out and of course the loss of milk production.
Unfortunately, some insurers feel that calculating these losses is too hard and steer their clients away from these policies but the calculations are, in fact, pretty straightforward.
Even though the storm was a milestone event, irrigators are damaged regularly, by weather or by human error. One recent claim involved a farm worker forgetting that there was still a digger in the paddock when he turned on the irrigator, while another farmer recently focused too much on the mower behind his tractor and forgot about the raised bucket in front of him smashing into the irrigator overhead.
Accidents and spring storms are a fact of farming life and as we remember the events of September 2013, it may be a good time to have another read of your policies and make sure that the most valuable assets in your business are properly protected.
Gert Stander is a rural insurance expert with Crombie Lockwood in Christchurch
Source: http://www.stuff.co.nz/business/opinion-analysis/71636795/potential-pitfalls-with-irrigation-equipment-insurance