10 INSURANCE TOP TIPS.

Navigation: Main page

Author: Horne, Suzie

Don't just renew your insurance, check the cover, limits, exclusions and excesses thoroughly. On farms managed by Strutt & Parker, consultant Mark Hall says that, in general, cover is not reduced when insurance is reviewed, but values are looked at very carefully.

"In particular, the value of crops in store and of livestock need to be checked, especially if it is some years since this was done," he says. Lower values may lead to lower insurance premiums, but it is also important to ensure correct values are used to avoid the risk of under-insurance, as this could mean a lower payout than the value of a loss.

Values of feed, seed, fertiliser and other inputs may also be lower than in the past. But averaging also applies to this type of insurance, so sums need to be adequate to avoid being penalised in the event of a claim, says David Murray Wells, who farms 800ha (2000 acres) in North Yorkshire and is also executive chairman of Harrogate underwriter Towergate AIUA.

Those who have not had building work done recently may not be aware of costs, says Mr Murray Wells. "Rebuilding costs must reflect the true costs of the work. Most buildings should be covered for reinstatement in modern materials."

Cutting cover is a common way to try to reduce insurance costs. There are areas where this can be done, but they are not necessarily the obvious ones, says Mr Murray Wells.

Reducing the sum insured on buildings is often a misguided approach, he warns, because the policyholder risks being under-insured. In such a case the payment of a claim would not only be insufficient to cover the cost of the loss, but would also be scaled back by the same percentage as the degree of under-insurance

"It would be better to leave the sum insured where it is, assuming it is correct and adequate. In some cases flood cover could be removed, but the situations where this can be done are limited.

"If the policyholder is willing to take on another part of the risk himself by using excesses on farm buildings, this can make a significant difference to the cost of cover." As a guide, the cost would reduce by up to 20% for a farmer willing to take on an excess of £500 on buildings cover, while an excess of £1000 would bring a premium reduction of up to 30% on policies underwritten by Towergate AIUA.

Calculate a global sum for all buildings, suggests Mr Murray Wells. "This is easier to calculate than separate sums for each set of buildings and guards against under insurance. This approach need not cost any more or less than nominating a sum for each building. There may also be some buildings which you would not replace in the event of a total or near-total loss, and so rebuilding sums for these can be left out of the calculation to bring the overall cost down.

"The value of equipment such as grain dryers within buildings should be insured as part of the building, rather than separately as fixed plant, because it is cheaper to insure at the buildings rate."

Insuring buildings on a first-loss basis is often considered a cost saving measure, but Mr Murray Wells advises against this because the saving is not significant. First loss is the option of covering say the first £200,000 loss on an asset worth, say, £500,000. "Most losses are in the £0 to £200,000 range," says Mr Murray Wells. But first loss cover is often given for walls, gates and fences and this could be deleted altogether, he says, depending on location and circumstances.

Fires caused by electrical faults and damage as a result of burning waste are among the most common subjects of farm insurance claims, says Elaine Pyke, chief executive of FarmWeb.

A safer farm is also a better insurance risk and this can mean lower premiums, says Mrs Pyke, but the following applies to all farms:

* Make regular housekeeping checks around the farm (with your broker if possible). Potential hazards can be eliminated or reduced, often at limited cost, to get competitive premiums.

* Be aware of employer's responsibilities (Health and Safety at Work Act 1974, Management of Health and Safety at Work Regulations 1999).

* Ensure that electrical installations are inspected regularly and that any remedial work is carried out without delay.

* Maintain all boundary hedges, fences and gates to ensure livestock are safely contained. Where public has access to your land, consider spring loaded fixings on gates to minimise risk of gates being left open and livestock straying.

* Consider the height of overhead power lines when working with machinery such as boom sprayers, irrigation pipes and ladders.

* Ensure that a COSHH assessment has been carried out and that all chemicals are clearly identified and stored in accordance with manufacturers' recommendations.

* Protect employees, family and public by adequately fencing ground level slurry tanks.

* Correctly dispose of manure, slurry and dirty water to prevent pollution and avoid prosecution (insurance will only pay for pollution incidents which are sudden and unpredictable).

* Provide adequate training in the use of machinery and equipment together with any protective clothing that may be required (Personal Protective Equipment at Work Regulations 1992).

* Ensure that all machinery is regularly maintained and that guards are fitted and secure (Provision and Use of Work Equipment Regulations 1998).

Insurance and safety at work have become big issues as the number of foreign workers on UK farms has increased. NFU Mutual's liability insurance specialist, Alan Streather, advises farmers to assume workers have employee status even if they are sourced via agencies.

"It can be very difficult to check that agencies have arranged appropriate insurance to cover the workers they supply. So it is safer all round to inform your insurer and have all workers covered under the farm's employer's liability insurance," he says.

Strutt & Parker is increasingly using insurance to offset the cost of employee sickness or accident, whereby the insurance pays the cost of the employee's AWB rate sick pay, leaving the business with cash to employ temporary staff in their place.

The cost of this and other insurance can be reduced considerably by the use of excesses, says Jonathan Ellis of Norfolk accountant Larking Gowen. For example, employee sickness policies can be arranged so that no claim is made in, say, the first week or month of sickness. Medical and health insurance costs can also be reduced if the policyholder is prepared to accept an excess on these.

The cost of employer's liability cover is calculated according to the payroll, but policyholders need to think about their liability towards everyone working on the farm, whether paid or unpaid (do not forget family members), full, part-time, or casual.

Revenue cover, also known as profit protection, income protection or turnover cover, pays out for revenue or profits forgone as a result of an insured risk affecting the business. Declarations of income or turnover avoid averages being applied, which might scale back payouts on claims.

For example, a fire may destroy a pig house and the stock it contains. While traditional farm buildings and livestock insurance would cover the building and stock, the time the unit spends out of production and, therefore, not earning would not be covered.

This type of cover includes extra cost of working cover, which would pay for a hired parlour or machine when the farm's own buildings or equipment are damaged by an insured risk.

* Keep farm and home contents sums up to date, and make sure homes and buildings are well maintained, say insurers. Repairs such as fixing loose slates and repointing chimneys can prevent serious damage from storm force winds. The same applies to farm buildings where loose or damaged sheeting can lead to the loss of a building in a severe storm. The more often you claim, the more your insurance will cost.

* As well as damage to property by storm, rural homes are at greater risk of disruption to their power supply when exposed electricity cables are brought down by falling trees

* Water damage is also frequently caused by burst pipes, usually unlagged pipes in the insulated lofts of unoccupied homes or buildings, and especially in holiday cottages.

* Regularly check the condition of trees on your land -- and take action if they are in a dangerous state, warns NFU Mutual. At least 30 people have died from tree related fatalities in the past five years alone in England and Wales, with many hundreds more seriously injured.

* If your home or business is in a vulnerable location, take steps to minimise damage and save lives in the event of a flood.

Engineering insurance is an increasing requirement on many farms. This covers lifting gear such as jacks, trolley jacks, forklift trucks, lifting chains and telescopic handlers. This type of cover is unlikely to be included as standard in a farm policy, says Mark Hall.

Farms were brought under the scope of lifting plant inspection and certification regulations some years ago. But some farmers are still not aware of the legal requirements, says NFU Mutual liability specialist Alan Streather. "In very basic terms, if equipment is used for lifting, then it is likely to require regular inspections and certification."

Your insurance will only cover you for activities relating to the business or occupation stated in your policy. So, if you diversify or expand outside farming you must inform your insurer or broker. This even applies to farm visits by local schoolchildren.

Where stock, machinery or buildings are bought or sold, and this requires changes to sums insured, let the insurer know. Inform them also where buildings are, or become, listed.

Even changes within the farming business will need to be notified, warns Mark Hall; for example, a move to having your land contract farmed or becoming a contractor yourself. There are few farming businesses which are not undergoing some form of restructuring, so all are likely to need to review their insurance cover.

Recent high profile cases have highlighted land and animal owners' liabilities for injury and damage caused by straying stock. Adequate public liability insurance compensates the policyholder in the event that he or she is legally liable for injury to members of the public or damage to their property.

Standard public liability cover varies between insurers from £1m to £10m. NFU Mutual provides a standard cover limit of £5m for farms, but says very large businesses and those with boundaries along main roads or motorways should consider extra cover to protect them against the possibility of a massive claim after a road accident involving straying livestock. Where possible, keep boisterous stock and sucklers in fields without public footpaths, suggests the Mutual.

"There are also instances under our public liability cover where farmers can compensate members of the public whose property is damaged by their activities, even when farmer liability isn't proven. Called moral obligation insurance, the cover can be used by farmers to settle claims for damage to members of the public's property such as damage to cars caused by cattle being herded along roads," says the NFU Mutual's Tim Price.

Buying insurance cover is really the purchase of a promised speedy and comprehensive claims service when an accident or loss occurs, says Richard Scott, general manager at Rural Insurance Group.

If you have to make a claim on your insurance, the sooner you report the loss, the better, because of the risk of evidence disappearing, witnesses moving away, being difficult to contact or forgetting details. Damage can usually be repaired more quickly and easily if a loss is reported promptly.

"Once it's reported, it's not the farmer's problem, it's our problem."

PHOTO (COLOR): Essential machine of action? Consider revenue cover to pay for the cost of hired equipment.

PHOTO (COLOR): Check your trees (see 6)

PHOTO (COLOR): If your home or business is in a vulnerable location, take steps to minimize damages and save lives in the event of a flood.

PHOTO (COLOR): Report any losses as quickly as possible.

PHOTO (COLOR): Insurance and staff is a big issue.

PHOTO (COLOR): Keeping machinery secure and well-marked can help cut premiums.

~~~~~~~~

By Suzie Horne