The Insurance Council of Australia (ICA) has said it supports the removal of stamp duties on agricultural insurance products nation-wide as a key measure to improve the uptake of farm income and crop insurance for primary producers.
ICA CEO Rob Whelan said state taxes and levies on insurance were unfair and highly inequitable, and contributed to the low uptake of farm income and crop insurance products. He stressed any stamp duty concessions on insurance introduced for the agricultural sector should quickly be applied to the whole community.
David McKinnis from Steadfast agrees with Whelan and supports the initiative to improve the uptake of farm income protection insurance, “Removing Stamp Duty is one small step as it is only 10 per cent or less of the cost of the insurance, so that alone will not greatly impact the take up. As Rob says, duties and levies are unfair and highly inequitable, and should quickly be removed for the whole community.”
“Government support should be directed at encouraging the take-up of crop and farm income insurance,” Whelan said. “The abolition of stamp duties for agricultural insurance products is one of five measures that insurers believe would help primary producers in times of drought and protect an important sector of the economy.” Several states have already implemented stamp duty concessions for primary producers.
McKinnis explains that the take up of Farm Income or multi-peril crop insurance in the grain growing sector seems to be limited to 100-150 growers nationally, out of approximately 18,000 Australia wide; so, there are clearly issues. In his opinion, those issues include:
- Perceived affordability
- Residual reliance by producers on drought relief or exceptional circumstances payments and measures.
- Limited availability of products in the current market, and
- Low level of awareness and knowledge of how these new products work, by both the growers, and the distributors; whether they are brokers, agronomists , farm advisers, or others.
Whelan said access to better data, removing unfair taxes and introducing incentives would play a significant role in improving outcomes during droughts or following extreme weather such as floods or cyclones.
Mckinnis concurs that for farm income insurance there is not enough accurate data at a low enough level, “With the right data, risks can be priced correctly, but without that data the market will set the price, and this year I understand some participants will pay out more than five times in claims that they will collect in premiums.”
In countries where farm income protection is successful, such as the US, not only are farmers subsidised to the tune of around 60 per cent of the cost, but insurers are protected with a Government supported guarantee which limits their losses. The other proposals raised by the ICA at the Prime Minister’s Drought Summit include:
- Running a census on every primary producer to collect and publish critical data. More information is required on the agricultural sector to support underwriting of existing covered crops and expansion into livestock and non-cereal crops
- Introducing tax reductions or offsets for farm income and crop insurance products. This incentive would help encourage greater take-up of these products and ultimately reduce dependence on government support
- Starting a government-guarantee facility for insurers offering farm income and crop insurance for 25 per cent of losses at the declared 1:60 to 1:100 year drought. This would assist insurers to maintain reinsurance cover in the global market
- Changing government lending criteria through the Regional Investment Corp (RIC). It should be dependent on the primary producer holding adequate farm income or crop cover, in the same way that a private market lender will not lend unless the asset is protected by insurance
McKinnis absolutely agrees with the proposal to change the government lending criteria through the newly created Regional Investment Corp (RIC) so that it should be dependent on the primary producer holding adequate farm income or crop cover. Further, he says, “I would urge the government to influence the major private rural bank lenders to either also require ‘adequate farm income or crop cover’ or acknowledge and commit to a lower lending margin where such cover is in existence.”