A presentation delivered at "Healthy Australian Agribusiness 2020+" in Adelaide on 23-8-18, for a group of 100 leaders of agribusiness, discussing common risks and insurance considerations from an insurance brokers vantage point.
2. Slide deck context
• The following slide deck was developed for & shared with a group of 100
Agribusiness leaders at “Healthy Australian Agribusiness 2020+” in
Adelaide on August 23rd 2018
• It provides insights and suggestions of a general nature only, regarding the key
risks that many agribusinesses should be mindful of & consider protecting
themselves against
• The newspaper clippings used in the slides are taken from the public domain
and employed for demonstration purposes only – no specific claims are made
regarding these events or stories
• For tailored advice specific to your business and circumstances, please contact
Peter Alderson at Shield Insurance Brokers Adelaide for a discussion;
▫ peter@shieldinsure.com.au ph 08 8172 8900
3. What can agribusinesses do with risk?
• A) Retain it yourself (carry it on the balance sheet)
• B) Transfer it to someone else (insurance) - generally to an
insurance company via a policy
Very few people love business risk, and not many business owners love insurance.
The goal of a good insurance partner?
Ensure your insurance optimally balances investment vs risk
4. What are the barriers to businesses taking out
“optimum” cover?
• Ignorance
• Apathy
• Poor advice
• No advice
• & the 2 big ones?
5. 1 The perception of insurance cost
• Some “first time” insurable events our clients have recently endured
▫ Truck fire and damage to road infrastructure: $1,000,000
▫ Employee harassment: $250,000
▫ Product harms: $250,000
▫ Homestead fire: $400,000
▫ Executive theft: $BIG
2 An “It’s never happened to us” mentality
• The net cost of a comprehensive insurance programme is, on average, only 0.5% to
2% of a business’ total revenue
• Retaining risk on a balance sheet vs the cost of insurance on property valued at
$1,000,000 over 20 years, is approximately $1,600,000 V $44,000
7. 1 Insufficient Values Insured
(Property, Plant, Equipment, Stock)
• Don’t hedge your exposure
• Values insured need to represent genuine replacement value
Issue: Underinsurance
8. 2 Consequential financial loss
• Property loss = Financial loss
• 12-month indemnity periods often don’t cover 24+ month
lingering financial losses (regulatory matters, development
processes, relocation, building & construction etc)
Issue: No cover in place, underinsured,
indemnity period to short
9. 3 Crime, Theft of funds or property
• First party, third party, electronic theft – there are multiple
ways businesses can be defrauded, and all need coverage
Issue: No cover in place, policy conditions not met,
sum insured too low
10. 4 Cyber
• Cyber events need to be covered by a cyber policy
• Cyber cover should include coverage for damage to your
systems, third party liabilities, statutory liabilities, extortion,
terrorism and financial loss (revenue)
Issue: No cover or limited cover in place,
reliance on IT provider integrity
11. 5 Management Liability
• With greater obligations now placed on business owners, protection
is needed for management regarding employment issues, statutory
liabilities (eg. chain of responsibility, OHS, Pollution), Crime,
Directors & Officers obligations, and Company obligations
Issue: No cover or limited cover in place
12. 6 Transit of goods, Marine (Inland)
• Be self-reliant, don’t rely on your carrier for insurance
• Consignment notes generally always restrict the carrier’s
liability, regardless of what you might be told
Issue: Assumption that the carrier is
responsible, incorrect cover in place, policy
conditions not met, loss of market
13. 7 Transit of goods (marine) – Import / export
• Always check the terms of trade (Incoterms)
• The buyer needs to control their own insurance
• Seek the broadest cover available to avoid disappointment
Issue: Terms of trade don’t match insurance,
inherent vice, loss of market, rejection
14. 8 General liability policy misconceptions
• Review all contracts for contractual liabilities
• Public & product liability policies do not cover product recall,
guarantee or rectification costs – these require specific cover
Issue: Product recall, product guarantee,
rectification, contractual liabilities exclusion
15. 9 Trade credit insurance
• If you sell your goods on credit and you are not paid, there are
policies available to insure your bad debts
Issue: Lack of awareness of exposures and policy
availability
16. 10 Governance
• Good governance reduces your exposure to insured and
uninsured losses, reduces claims frequency, reduces insurance
cost and makes claims process faster and easier
Issue: Lack of internal financial controls,
compliance, records management
17. Check list
• 1 Insufficient Values Insured Property, Plant, Equipment, Stock
• 2 Consequential financial loss
• 3 Crime, Theft of funds or property
• 4 Cyber
• 5 Management Liability
• 6 Transit of goods, Marine (Inland)
• 7 Transit of goods (marine) – Import / export
• 8 General liability policies misconceptions
• 9 Trade credit insurance
• 10 Governance
18. Thank you
• Peter Alderson is the Senior Partner at Shield Insurance
Brokers Adelaide.
• Peter has over 30 years experience in financial services and
insurance. Peter’s clients include individuals, couples and
families, and businesses in agriculture, transport & logistics,
community organisations, professional services, IT,
manufacturing, hospitality & more.
• Shield is a member of Steadfast, Australia’s largest
independent insurance broker group.
Contact Peter for a no-obligation discussion;
Shield Insurance Brokers Adelaide
433 Goodwood Road WESTBOURNE PARK SA 5041
p 08 81728900 e peter@shieldinsure.com.au
Editor's Notes
Hands up who likes risk in their business? No? Then who likes insurance? Still no? That’s not a great synergy between a problem and a solution. The work we do at Shield is all about improving this synergy and delivering an insurance solution which provides the optimum outcomes for clients.
Unfortunately we frequently see claims being influenced by insurance arrangements that are far from optimum. “Optimisation” needs to happen long before an insurance claim.
The two most common barriers to optimum coverage are “perception of cost” and a mindset of “it has never happened to us before”. Firstly, cost. We believe insurance done right is good value and, when considered as a percentage of revenue, it is not a big cost in passing all insurable risks on to an insurer for the piece of mind you enjoy to focus on you business. It is a far more economical decision to insure versus retain the risk. As an example, consider a one million dollar property risk retained. Compare the risk capital / principal and interest over 20 years versus the cost of insurance – a significant difference. Then, the attitude of “it has never happened to us” In most cases, when clients are confronted with a large loss, it is the first time it’s happened to them. It’s vital that the appropriate insurance is in place prior to an event that might never have happened to you before.
To obtain a satisfactory result you need to insure for the full replacement value of the property, that’s what the fine print in your policy will say and you will be bound by that. If you do not insure for this premiums you save by doing this and hedging your loss “only half will be destroyed” will pale into insignificance when a full or partial loss occurs quite frankly you may be happier not to have insured and saved all your money on premiums than be disappointed with a sub standard settlement which could have easily and quite cheaply in context been avoided. A result which you will have a long term detrimental effect.
Where there is property loss generally there will be consequential financial loss, where insurance is available for this take it as they are totally related to one another. Traditionally an indemnity period is 12 months however we have seen lately that financial influence following a loss on a business lingers far longer than this, 18, 24 months. This is mainly due to our ever increasing regulatory environment, planning and environmental laws, development objections, building and construction process, relocation etc.
We are experiencing the case of the disappearing thief. Since the change of the century we have seen the demise of the traditional thief, in lieu of the more sophisticated corporate, cyber, con man criminal. CCV TV, DNA technology has done its thing, out with the old and in with the new. Make sure that you are familiar with and meet policy conditions to ensure that you fulfil your obligations.
10 years ago these policies did not exist they have evolved from the wave of hacks, virus events, malicious persons that comes with every innovation. The only insurance response to a cyber event is via a cyber policy. This policy now is as important as any other core insurance policy.
These policies evolved around 15 years ago mainly due to regulatory change and with that greater obligations placed on business owners. We now see the frequency of claims under these liability policies exceed those of traditional liability policies such as public and products liability yet we still see the take up of these to be less than latter and SME business still being un protected. Whilst a business may have best practice procedures ultimately things can still go wrong, if best practice procedures are used third parties can still allege wrong doing and you need to defend your self, Management liability as with most liability policies cover these costs and in many cases these can exceed any amounts payable in settlements. Ultimately you may have no case to answer but to get to this point you will incur legal and investigative costs.
If you move stock, produce, goods in fact anything from one place to another it needs to be covered by a marine or in common terms a transit policy. Too often people make the assumption that the carrier will be responsible for loss or damage to the goods carried this assumption is incorrect. Contract carriers carry goods under the terms of their consignment note which generally says they will not be responsible for the loss or damage to the goods carried, regardless of what they say and mostly to gain your business. Even if they do cover your loss to some degree, you are reliant on their policy and them to make a claim often this creates delay and confuses the process when you just want to be reimbursed to cover your goods. Own insurance is the path of lease resistance for speed of settlement and the certainty of protection.
Imports and exports of goods require special attention, who's responsibility is it to insure the goods, buyer or seller, from where to where and when to when. To ensure marine cover is correct in these respects cover must match the international commercial terms (incoterms) predetermined rules that govern responsibility of parties that are buyers and sellers of goods. Too often insurance arranged does not match the terms. Best for the purchaser to control insurance at the place of destination rather than transact with a foreign insurer located in another country. There are various level of cover available always seek the broadest cover available. If exports of fresh produce are the commodity covered policies do not cover rejection by the purchaser due to the alleged quality or state of the goods or inherent vice (natural deterioration) e.g. fruit, veg, meat will eventually spoil due to the nature of the goods. Cover for rejection and inherent vice is very difficult to obtain.
Public and products liability polices do not cover recall, guarantee or rectification they cover property damage and bodily injury arising from the nature of a product. These polices will also not cover liabilities assumed by one party under a contract which create greater responsibility for one party than they would have enjoyed in absence of the contract. Or in other words one party being made more responsible than they ordinarily would be. Policies will not cover this extra assumed liability.
If you sell your products or goods on credit you have exposures to bad debts, you can insure these potential bad debts many business owners do not know about the availability of this cover.
Nothing beats prevention however there is always a possibility something will slip through the cracks or you just can not prevent a loss, this is where insurance comes in. Good governance has many benefits over poor.
