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Industry insurance data supports more affordable options

Business Management

Valuable insights into the insurance needs and challenges of the apple and pear industry are emerging as APAL gathers data to identify opportunities that may deliver more affordable premiums for growers. 

Almost 80 businesses have already responded to APAL’s call for business premium and claim details to aggregate into a data-driven industry profile for use in seeking better insurance outcomes.
While this accounts for 16 per cent of commercial growers it is predominantly data from the industry’s largest producers. As many growers receive their annual insurance renewal notices this month, it is an ideal time for smaller and medium operators to review their insurance and consider contributing their data to help APAL build a more representative picture of industry that includes the challenges and opportunities for all.

Evidence-based approach

At Future Business workshops across the regions this year we have looked at risk management and possible options for reducing insurance premiums ranging from group buying to establishing an industry-owned Discretionary Mutual Fund (DMF).

An evidence-based approach built on a comprehensive industry profile is an essential starting point. And so, at the Post-harvest Seminar in Shepparton in January APAL launched a project to build that evidence-based profile and invited industry to share a specific set of insurance and business operations data. This data is aggregated to provide an industry-level profile – and to ensure
individual details remain confidential. Key findings emerging from data supplied so far are:

1. Low payout-to-premiums ratio

Businesses who provided data paid a combined total of almost $6 million in premiums for Industrial Special Risk (ISR), property and business interruption and public liability insurance coverage in 2018-2019, with their five-year claim average sitting at $1.7 million (see below). This is a 33 per cent payout-to-premiums ratio, which is relatively low (property and car insurance ratios typically range from 40–60 per cent) and even lower once adjusted for the impact of one single claim (a large bushfire) that represented more than 80 per cent of total payouts. Data supplied shows coolstore operators reporting few and very modest ISR claims over the last five years – but still paying significant insurance premiums. The findings suggest premiums for cool stores are calculated based on the risk level for a broader mix of industries that include higher-risk sectors such as abattoirs and bakeries. These industries have a record of significantly more frequent, costly claims due to cooking and machinery use in their facilities.

Insurance-related data collected from the apple and pear industry shows that 78 businesses paid $5,997,728.17 in insurance premiums in 2018-019, with their five-year claim average sitting at $1.7 million. It’s important to note that claim data included one large bushfire, a catastrophic loss. Actual working losses are a much lower average.

2. Multiple similar policies all paying for full individual risk

The 78 businesses who have supplied data are paying a range of premiums for multiple individual policies to more than 20 insurance companies. Collectively they are insuring almost 2,000 vehicles at an annual premium totalling approximately $1.5 million.

Next steps and opportunities

If the early findings above are supported by a more complete dataset representative of the wider industry, opportunities to reduce premiums might include:

Re-evaluating Industrial Special Risks

Expanded Polystyrene (EPS) or Insulated Sandwich Panels (ISP) have been a common construction material in coolstores for more than 30 years. Over time the technology and design of the panels has evolved, along with the associated risk, however according to risk specialists AB Phillips* many insurers are wary of EPS because it is classified as a high-risk product. Buildings with EPS can be difficult and expensive to insure. A robust, evidence-based industry profile providing a detailed picture of EPS use, the risk mitigants put in place by the industry to prevent damage to these facilities, and the low claim level, may facilitate an opportunity to start a discussion with the insurance industry about re-evaluating our ISR with regard to EPS use.

Group buying

The data has highlighted industry members are collectively paying substantial premiums each year to insure property, public liability, machinery breakdown, vehicles and other assets. Negotiating group buying arrangements that deliver scale and spread the risk for insurers may deliver reduced premiums.

Discretionary Mutual Fund

APAL with expert assistance from AB Phillips and KJ Risk Group* is exploring the creation of a DMFwhich could provide an insurance-like product through a member owned and operated company. A DMF  has been identified as feasible but requires a scale of $20m in annual premiums to be viable. The businesses who have provided data account for just under a third of that (see below). To progress discussions further data demonstrating $20m industry annual premiums is required.

 

To progress discussions for the Discretionary Mutual Fund (DMF) we need to reach $20m in premium information

Tagged:
DMF fund Future Business

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