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Farm advice: Importance of insurance

Farm advice: Importance of insurance

John Sheddan on why it's important for farmers and contractors to regularly review insurance cover for their farm or contracting business

You should consider some of the key insurance risks below relating to your farming or contracting business.

Natural disasters

As we’ve seen in recent years, New Zealand is particularly prone to a variety of natural disasters, including earthquakes, floods and even volcanic eruptions. The 2016 Kaikōura earthquake showed the damage earthquakes can have on rural land, disrupting farming activities and damaging essential facilities such as road access, stock water systems and farm tracks.

Flooding is another significant risk, especially in rural areas where heavy rainfall can lead to river overflow and flooding, changing landscapes, damaging properties and agricultural land, along with stock and feed losses.

Often natural disasters require complex responses through councils for resource consents, insurers and the Natural Hazards Commission (formerly the EQC) – frequently with substantial delays.

Climate change

While still controversial in some people’s minds, climate change is intensifying the frequency and severity of weather-related events. Rising sea levels pose a risk to coastal properties, while changing weather patterns can lead to more severe storms and prolonged droughts.

These changes impact not only residential and commercial properties, but also agricultural operations that are heavily dependent on stable weather conditions. Insurers are adapting their policies to account for these evolving risks which, in turn, require that you understand and consistently check what is (and isn’t) protected under your insurance policies.

Cybersecurity

As rural New Zealand becomes more technologically advanced, new risks emerge. Cybersecurity is a growing concern, with businesses of all sizes vulnerable to hacking, data breaches and other cyber threats. Cyber insurance is becoming increasingly important to protect against these risks, covering costs related to data recovery, legal fees and reputational damage.

Many farmers and contractors now rely heavily on technology, both local and cloud-based, and upon which their operations depend.

Business interruption

The COVID pandemic underscored the need for businesses to have coverage for pandemic-related disruptions; this probably falls under business interruption insurance. Machinery and other related equipment are essential for operations but can be prone to breakdowns and accidents. The loss of an essential part of machinery can set a farming or agricultural business back days’ worth of work or service contracts.

Legal and regulatory risks

New Zealand’s legal and regulatory environment also poses risks. Changes in legislation can impact insurance policies and the liabilities they cover. For example, stricter building codes following the Christchurch earthquake had implications for property insurance. Effluent discharges or tree slash in rivers and beaches can lead to prosecutable compliance breaches.

It is important that you and your insurer stay abreast of regulatory changes to ensure compliance and that your insurance cover matches your business needs.

Environmental and sustainability risks

Environmental sustainability is becoming a critical consideration for insurers. Businesses (including farms) are increasingly required to demonstrate their commitment to sustainable practices; failure to do so can result in reputational damage and financial loss. Environmental insurance can cover risks related to pollution, waste management and compliance with environmental regulations.

Employee health

The key to your businesses and farm operations is the people who work for you, or even a key individual. You need to think of the impact on your business if a particular person isn’t available to work. Health insurance, trauma insurance, income protection and key person insurance are all available. These policies, however, require proper consideration of the risks faced and who is insured.

Keep an eye on your insurance policies

Insurance risk in New Zealand is changing and being impacted by natural disasters, climate change, technological advancements, health crises and regulations. Your insurance cover should be continuously reviewed and adapted to meet these evolving risks.

Insurance is no longer a one-size-fits-all approach. It now requires consideration of the type of business you run, its unique risks, and even your location and the natural hazards that it faces. Insurance premiums are increasing, and you are only protected for the risks you choose to insure against.

You may choose not to insure against some risks. This, however, should be a conscious decision and not a default choice. It is easy to underestimate the cost to rebuild a dwelling, farm or commercial building, or to source and replace essential contracting equipment or staff. It is also essential to read the fine print to see what is or isn’t covered. Insurance policies may also require you complete active steps to ensure your policy is not invalidated, such as locking buildings or securing assets, for the insurance to be effective.

Insurance, although historically viewed as a mere backstop, is now an important aspect of your business; it requires serious consideration and regular review.

Image: Adobe Stock

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