Multi-peril crop insurance stamp duty to be waived for farmers
According to Revenue SA, the amendments to the Stamp Duties Act 1923 introduces a stamp duty exemption for multi-peril crop insurance policies from 1 January 2018.
According to the Stock Journal, Primary Industries Minister Tim Whetstone said that the waiving of stamp duty, which is 11% of the overall policy cost, was retrospective.
“Any farmer that has taken out MPCI since January 1 can also apply to claim that stamp duty back,” he said.
The idea behind reducing the regulatory red tape is in hopes that more farmers would consider multi-peril crop insurance for their farm business. The stamp duty savings might reduce the cost barrier and improve affordability of this income protection in preparation for next season.
Grain Producers SA chief executive officer Caroline Rhodes welcomed the legislation passing, highlighting that growers wouldn’t need to seek reimbursements now from Revenue SA.
“Growers can still seek a refund from Revenue SA for policies purchased from January 1, 2018,” she said.
About Multi-peril crop insurance
Previous barriers of successful multi-peril crop insurance products
As you may know, MPCI has had a somewhat troubled upbringing. The previous attempts to launch MPCI products highlighted a range of potential barriers:
- Affordability – high premiums and low take up compared to traditional crop insurance
- Systematic risk – with events that would trigger an MPCI policy, they are often a risk that affects a significant number of policy holders simultaneously, such as drought or excess rainfall
- Adverse selection – the theory that high risk farmers are more likely to take out an insurance policy which drives insurers to increase premiums, and pushes lower risk farmers out of the program
- Moral hazard – the theory that a policy holder may change their behaviour and increases their exposure to risk when insured
- Lack of data and underwriting skills – insurance industry lacks detailed climatic information to accurately assess the exposure and estimated duration for an insured event
- Lack of awareness – the product is relatively new in Australia, so our farmers may not have sufficient information about MPCI and how it can fit within their broader risk management strategy
- Time poor – requirements for detailed farm records may act as a barrier for busy farmers
Multi-peril crop insurance opportunities
Despite the long list of barriers historically, there are examples of disruption that bring optimism for further MPI market development.
- Risk diversification – given the success of MPCI in Europe and elsewhere, insurers might be able to diversify risks by pooling Australian exposure with European exposure, which will help alleviate the systematic risk barrier
- Better access to data – drones, satellite and technology will increase farm level data and help reduce adverse selection and moral hazard issues
- Product innovations to meet requirements of Australian farmers will also ensure greater adoption, and a more sustainable MCPI product (i.e. requiring policies to be taken out across multiple seasons to ensure that the risk is manageable for insurers)
- Government incentives such as tax incentives which is what we’ve now seen locally.
Your income protection solution
At Managed Insurance Solutions, we’ve partnered with Latevo underwriting, and our offering can cover farmers from the moment the seed goes into the ground for perils such as drought, water stress, heat stress, flood hailstones, wind, frost, lightning, excessive rain, snow, hurricane, cyclone, tornado, wildlife, wandering livestock, fire and weed infestation, chemical overspray, insect or pest manifestation or plant disease out of reasonable control.
The trigger for a claim is a reduction in income below the farmers’ 5 year average over the whole operation. We believe that MPCI could form a smart component of the professional farmer’s risk management strategy – and now with the stamp duty exemption, it’s at least worth getting a free quote for consideration.
Contact us to talk about your crop insurance questions.