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Incentivising global insurers to take part in farm income-protection insurance in Australia will allow the government to avoid implementing large-scale subsidies like in the US, according to a global insurance expert.
Julian Roberts, managing director of alternative risk-transfer solutions team at London-based Willis Towers Watson, said it would be a sound move for the Australian government to get the private sector to help mitigate climatic risk.
“As it currently stands, the government is often forced to step in through drought-funding initiatives anyway, so allowing the commercial insurance sector to take some of that risk would be a benefit,” Roberts told Farm Online.
The government could support crop-insurance mechanisms in Australia by introducing tax incentives, scrapping stamp duty, stepping in to help underwrite policies in extreme events, and developing a system that reflected its own risks, Roberts said.
The risk-and-analytics leader said products should be designed to address the specific needs of Australian farmers.
“You might see farmers favour something that gives them a modest level of protection, just covering the cost of production or a little below,” Roberts told the news website. “It is all about the cost and what people are prepared to pay. It’s like a car, it can be used to get you from A to B just the same, but you could be driving an old ute or a Rolls Royce. You choose the cost and value that is appropriate for you. Farmers are rational and price savvy and will make their choices accordingly.”
Roberts said international insurers are interested in having a presence in Australia despite its relatively small scale due to the geographic diversification it brings to their books.
“We don’t have the exposure here, and it would be valuable diversification,” he said. “Especially as with weather phenomena such as El Niño, what is a bad year in Australia is often good in the Americas and vice-versa.”
Roberts said getting the insurance sector on board would help reduce the reliance on government in drought years.
“If the government doesn’t assist in implementing the right commercial framework for crop insurance in Australia, the take-up of this type of insurance protection will remain stubbornly irrelevant, and farmers will inevitably revert to government for assistance in future drought years,” Roberts told Farm Online.
