Managing risk

using Multi-Peril
Crop Insurance
A review of 2017 MPCI products
for use in cropping operations
G R A I N G R O W E R S L I M I T E D

Research powered by Kondinin Group


What is MPCI?
Multi-Peril Crop Insurance
(MPCI) protects against crop
yield and farm revenue losses
by enabling farmers to insure a
percentage of crop production
or revenue.
PRODUCT TYPES INCLUDE:
· Farm income protection
· Agreed minimum yield
· Parametric or weather indexed.
PERILS COVERED INCLUDE:
· Rain — drought/flood
· Heat/frost/wind stress
· Disease/pest damage
· Grain price risk
· Revenue shortfalls below an
agreed level.
CROPS COVERED INCLUDE:
· Winter cereals
· Pulses
· Oilseeds
· Hay crops
· Summer crops
· Irrigated crops, and
· Other crops such as lupins.
2 GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance
Managing risk
using Multi-Peril
Crop Insurance
As one of the many tools farmers can
use to manage risk, Multi-Peril Crop
Insurance (MPCI) should have a place
in grower considerations, along with
decisions such as enterprise selection
and best management practices.
MPCI isn’t new to Australia. It was briefly available
in Western Australia in 1974–1975 and again in
1999–2000. Western Australian bulk handler, CBH, also
operated a mutual fund around 2010. But the concept is
relatively new to states outside WA.
The current product range is also quite different to that
offered in the past. According to most providers, this is to
ensure policy longevity and to maintain market presence.
This booklet will enable you to compare what’s on the
market.
The results of GrainGrowers’ 2017 survey on MPCI
showed 12.7 per cent of 451 participants were
considering taking out MPCI but 44.8 per cent were not.
Most commonly, this was because they considered the
premiums were too high.
A lack of information about, and understanding of,
available insurance policies and companies also appear
to be contributing factors in lower than expected uptake.
This publication hopes to assist in correcting this.
Companies offering MPCI are typically underwritten by,
or are subsidiaries of, a larger insurer, with the insurer
and underwriting firms changing from year to year.
However, while the product range described here is not
an exhaustive listing, and offerings may change,
Kondinin Group has endeavoured to identify as
many MPCI or similar insurers as possible.
It should be noted that premiums paid will vary
significantly depending on location, cropping
history and risk profile. As an example, in a
submission to the New South Wales Government
review of MPCI in 2015, Latevo indicated the
average price of taking out MPCI in NSW was
approximately $22/ha while in Western Australia
the average cost was around $10/ha.
Since work on this publication began, Latevo
announced it would not have a product this year.
However, the company plans to be back with a
new offering in 2018.
GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance
Your MPCI check list
In comparing MPCI products you
should consider:
• If your state is included....................page 11
• Which perils are covered..................page 11
• How/when premiums are paid..... page 12
• Closing dates for applications/what
stages are covered............................... page 13
• What information is required to
support an application..................... page 13
• The level of cover and other
features offered.................................... page 14
3
 WEIGHING UP THE OPTIONS
MPCI is just one of the tools farmers can use to
manage risk. The cost of the insurance needs to
be considered against the cost of alternative risk
management practices. When adding up the cost,
remember to include the costs of your time in
compiling the farm records and historical data
which the insurer may require in an application.
APPLICATION FEES
To determine risk profile and potential exposure,
most, but not all, MPCI insurance providers
require a grower to pay an application fee.
Application fees can vary between providers and
can vary according to the size of their operation
and the product on offer. Some providers,
including Sure Season Revenue Protection, for
example, have a higher, but fixed, one-off fee of
$4,400, whereas parametric weather derivative
products do not have any application fee.
4 GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance
STAMP DUTY
Stamp duty varies significantly between states.
Victorian producers no longer pay any stamp
duty on MPCI policies, while NSW growers pay
2.5 per cent (0 per cent by 2018), Tasmanians and
Western Australians pay 10 per cent, Queensland
growers pay 9 per cent and South Australians pay
11 per cent. Added to the cost of a policy, stamp
duty can be a significant barrier to uptake. State
governments are being pressured by industry
groups and insurance providers to follow Victoria’s
lead and withdraw stamp duty on MPCI.
DIFFERING OPTIONS
A review of the product range shows there are a
number of MPCI types on the market. Some offerings
will prevent losses by covering the costs associated
with producing a crop. Others look to provide
proportional income surety by offering to top-up
farm income, to a proportion of historical returns.

There are also weather event based options,
known as parametric insurance. Farmers taking
out these policies can insure against a particular
weather event as opposed to insuring against the
impact an event might have on the farm.
Multiple weather event insurance over the
growing season can also be purchased. While this
is a more simple form of insurance, parametric
insurance policies do not cover against perils
such as pest damage.
LACK OF UNDERSTANDING
According to specialist agribusiness insurance
broker AgRisk, there are a number of drivers for
farmer hesitancy in the uptake of MPCI. These
include a lack of understanding and confusion
about the product offerings and the costs
associated with applications and premiums.
GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance
HOW MPCI WORKS
A REVENUE INSURANCE
EXAMPLE
The 5-year historical average revenue of
a farm is $1 million. For 2016, the farmer
is offered 70 per cent revenue coverage,
at $25 per hectare, for a premium of
$57,500. In 2016, the farm’s revenue falls
to $500,000, which is 50 per cent of its
historical average. This triggers a payout of
$200,000, which is the difference between
the sum insured of 70 per cent of the
historical average ($700,000), and what the
farmer earned for the year.
For 2017, the historical 5-year average
for the farm would fall to $900,000. If
it again takes out 70 per cent coverage,
the threshold for a payout would fall
to $630,000. If again the farmer makes
$500,000 for the year, the payout would
fall to $130,000 for this year.
Revenue insurance implicitly insures against
commodity price downturns that affect
farmer income. However, price downturns
are often the result of higher yields, which
would offset some of the price downturn.
Source: Review of Multi-Peril Crop Insurance Incentive
Measures, Independent Pricing and Regulatory Tribunal,
October 2016, page 18.
5
 Insurance providers say banks and farm
consultants also commonly lack understanding
of MPCI.
According to at least two insurance providers,
some consultants believe that MPCI should
provide a top-up to 100 per cent of the farm
average income, but insurers say that this level
of coverage would never be offered because
premiums would be prohibitively expensive and
uneconomical for farmers.
For now at least, the majority of the MPCI suite
of offerings looks to offer either a proportional
income guarantee or a stop-loss to cover inputs.
MPCI AS AN INPUT
One way of considering MPCI is as a crop input to
guarantee a return. There are plenty of chemicals
typically applied to a crop which cost more than
MPCI and help to provide a better chance of a
6 GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance
reasonable return. But in the same way that a
thorough knowledge of agronomy is required
before applying a chemical, so, too, is knowledge
and understanding of the insurance policy
applied.
EARLY CONSIDERATION REQUIRED
Most MPCI providers close off their offering
before the seeders have finished or in some
cases as early as January. This limited window of
opportunity may be holding growers back from
MPCI uptake. It means that the following year’s
crop must be considered at harvest the year
before. n
GOVERNMENT REBATES
The Federal Government is offering a once
only rebate for advice and assessments to help
farmers prepare and apply for a new insurance
policy to manage drought and other production
and market risks. Eligible farm businesses can
apply for a rebate of the costs of engaging an
accountant or farm advisor to undertake an
assessment required by an insurance provider,
compiling historical farm financial performance
and production data, and analysing insurance
options based on a long-term, whole-of-farm
risk assessment.
The rebates are for half of the costs incurred by
eligible farm businesses from 1 July 2015, up to a
maximum of $2,500 (GST exclusive).
The farm business must have a written offer from
an insurance provider for a new or additional
policy covering a peril or climatic event that the
farm business has not insured against within the
past five years.
This is limited to MPCI products, parametric
products (based on rainfall or other climatic
factors or other single-peril products e.g. fire,
hail and frost insurance).
The rebate cannot be used to offset premiums.
For more information about the
Federal Government’s Managing Farm
Risk Programme visit:
http://www.agriculture.gov.au/ag-farm-
food/drought-assistance/mfrp
Support for farmers’ take-up of MPCI products in
other jurisdictions is as follows:
QUEENSLAND
The Queensland Government earlier this year
announced research grants of $100,000 for
projects that collate and/or interpret agricultural
GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance
production data on a regional or industry/
crop specific basis that could be used in
the assessment and development of risk
management products such as crop insurance
further down the track.
Visiting expert, London-based Willis Towers
Watson’s Julian Roberts told the Queensland
Rural Press Club in July that agronomic data
could be collected automatically on-farm and
added to meteorological modelling to create
insurance indices for agriculture. Mr Roberts
has been working with the Queensland
Farmers’ Federation, the University of
Southern Queensland and the Queensland
Government to examine indexed, rather
than individually assessed, Multi-Peril Crop
Insurance.
VICTORIA
Victorian farmers no longer pay stamp duty
on MPCI policies.
NEW SOUTH WALES
On the back of the final Independent Pricing
and Revenue Tribunal (IPART) report: Review
of Multi-Peril Crop Insurance Incentive
measures (2012), the NSW Government has
announced it will abolish the 2.5 per cent
stamp duty on Multi-Peril Crop Insurance
products from 1 January 2018 to make them
more affordable to farmers.
However, since the IPART report found no
evidence of market failure to justify direct
government intervention, the government
said it would not be introducing a subsidy
scheme for premiums.
No other state governments have committed
to assistance for MPCI schemes.
7
 What happens overseas?
According to the National Rural There are three possible ‘models’ for agricultural
Advisory Council (NRAC) in its insurance schemes (see Table 2). These are:
assessment of agricultural insurance
policies (2012), crop insurance accounts
· A scheme which relies entirely on
involvement of private sector organisations.
for almost 90 per cent of the value of
global agricultural insurance policies
· A scheme that involves a partnership between
private sector organisations and government.
— Named Peril and MPCI insurance are
the main two products offered.
· A scheme provided entirely by government.

About 62 per cent of the value of global

agricultural insurance policies is accounted for by
policies in the more mature insurance markets of
United States and Canada, and many European
countries where the markets have been operating
since the 1900s.
Products broadly fall into two categories:
‘traditional’ insurance, such as Named Peril,
Multi-Peril and mutual insurance products,
and ‘index-based’ insurance, such as yield and
weather index products (see Table 1).

8 GRAINGROWERS
GRAINGROWERS
— Managing
— Managing
risk risk
using
using
Multi-Peril
Multi-Peril
CropCrop
Insurance
Insurance
TABLE 1 Insurance schemes used to manage weather-related production downturn overseas
Insurance Insurance scheme Type of cover provided Available in
category (non-exhaustive list)
Traditional Named Peril (single or Single or multi risk—against one Germany, Netherlands,
insurance multi risk) insurance or more peril(s) of a non-systemic United Kingdom, Ireland,
nature (usually hail, fire or frost). United States, Portugal,
New Zealand, Malaysia, India
Yield or Multi-Peril Comprises the main risks that affect Spain, Italy, France, Canada,
insurance yield (all named and combined perils United States, Japan,
plus, for example, drought). An Republic of Korea, China
example is MPCI.
Index-based Index insurance (yield Cover against a predetermined and/ India, United States, Canada,
insurance index and/or weather or modelled index (for example, Mexico, Peru, Spain, Iran
index) yield or weather index).
Note: Australia now has access to Named Peril, Multi-Peril and Index products as of 2017.

TABLE 2 Main insurance models used for agricultural insurance

Model Description Available in
(non-exhaustive list)
Private Pure market-based agricultural insurance. Programs Australia, New Zealand, Malaysia,
receive no financial or other support from government. Thailand, India, Germany, United
Insurance and reinsurance is provided by general or States, Canada, Hungary, Sweden,
specialist agricultural insurance companies. Argentina, Netherlands.
Public-private Responsibility for agricultural insurance delivery rests China, Japan, Mongolia, Republic
partnerships with a private commercial or mutual insurers and of Korea, Pakistan, Spain, Turkey,
(PPP) government commits support usually in the form of United States, Canada, France,
premium subsidies and/or reinsurance protection. Brazil, Poland, Italy
Public The government assumes full liability. This involves Bangladesh, India, Nepal,
subsidisation and underwriting of insurance schemes. Philippines, Sri Lanka, Canada,
Greece, Iran, Cyprus
Source: Feasibility of agricultural insurance products in Australia for weather-related production risks by National Rural Advisory Council, September 2012, page 6-8.

GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance 9

 10
Availability Product details Product type

Product
name MPCI
Product Underwritten
2017 2018 Provider Details

yield
type by

index
Other

Cost of
Agreed
name

income

revenue

recovery
Business
/ weather

minimum

protection

production
proportion
Parametric

Maintained
SureSeason
Product type

Revenue Lloyds of
Yes Expected SureSeason MPCI 3
Winter Crop London
Multi-Peril

Lloyds of Multi-level coverage

Certainty No Expected Latevo MPCI 3 from 45% to 90%
London
MPCI features

Multi Peril The policy is a

Crop Insurance revenue-based
Multi Peril Liberty
product. Yields are
Yes Expected Crop Insurance MPCI Specialty 3 3 used to determine
Australia markets
average income per
hectare

Insurance
Cropsure Yes Expected MPCI Inter Hannover 3
Facilitators
Product details

Agreed value
PrimeGuard Yes Expected Primacy MPCI Allianz 3 3

Dry season / Book 20 days prior

Wet harvest / to the risk period. If
Weather

GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

Frost Yes Expected Celsius Pro Multiple 3 triggered, payment
Derivative
is made 20 days
thereafter

Weather risk Weather index can

management be paired with a
Weather
and transfer Yes Expected SRG Corporate Multiple 3 commodity price
Derivative
index against falls in
commodity prices
 Availability Perils covered States covered

Product
name

SA
NT
2017 2018 Other Perils

Vic
Tas

risk
Qld
WA

Frost
NSW

Excess

Lack of
rainfall
rainfall
Disease
Revenue
below an
shortfalls

Grain price
Exclusions

Windstorm
agreed level

Heat stress

Pest damage
SureSeason Drought, water stress,
Revenue heat stress, flood, hail,
Winter Crop excessive wind, frost,
3 lightning, excessive
Perils covered

Multi-Peril
rain, snow, hurricane,
Yes Expected (only if
3 3 3 3 3 another 3 3 3 cyclone, tornado, 3 3 3 3 3 3 3
peril wildlife, accidental
occurs) fire, bushfire, insect
or pest manifestation,
plant disease, livestock
damage
All natural perils — Station
Certainty No Expected 3 3 3 3 3 3 3 refer to policy wording 3 3 3 3 3 3 3 country
when released
Multi Note: grain price Limited
Peril Crop drop only comes cover
Insurance into effect if there in Qld
is a claimable event.
Yes Expected 3 3 3 3 3 3 3 3 triggered by another 3 3 3 3
All perils covered for
winter grown crops, no
summer or irrigated
States covered

crops at this stage

GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

Cropsure Yes Expected 3 3 3 3 3 3 3 3 3 3
Please refer to the Special
policy wording acceptance
PrimeGuard Yes Expected 3 3 3 3 3 3 3 3 3 3 3 3
for full details required
for Qld
Dry season / Profit on crop at
Wet harvest / Yes Expected 3 3 3 3 3 harvest 3 3 3 3 3 3 3
Frost
Weather risk Any weather index
management measured and reported
and transfer Yes Expected 3 3 3 3 3 3 on by the BoM or other 3 3 3 3 3 3 3
party in the case
of grain price

11
 12
Availability Crops covered Fees How are premiums paid?
Upfront Monthly,
Product Revenue
— as % Payment proportion
name share
of crop after an of crop
after an Other

fee
2017 2018

fees
or other agreed or other

crops
crops
Notes

pulses

cereals
Winter
Winter
Winter
agreed

oilseeds
Summer
Irrigated
regarding
agreed date agreed

Hay crops
application

Application

Other crops
date
value value

SureSeason Once off Deposit

Revenue application fee with agreed
which meets premium
Crops covered

Winter Crop Yes Expected $4,400 the Federal payment

Multi-Peril
3 3 3 3 3
Farm Risk from post
Management seeding
Grant criteria

One-off fee Monthly

MPCI features

No Expected to enable payment

Certainty 3 3 3 3 3 $5,500 3 3
individual options
Fees

assessment available

Multi Will accept

Peril Crop Yes Expected pre-arranged
3 3 3 3 3 Lupins Nil 3 periodical
Insurance payment

10% deposit
Cropsure Yes Expected 3 3 Lupins Nil — balance by
12th January

Does not
require an
application fee.
Yes Expected Survey might
PrimeGuard 3 3 3 3 Nil 3
be requested

GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

if cover
requested past
May.

Dry season /
Wet harvest Yes Expected 3 3 3 3 3 3 3 Nil 3
/ Frost
How are premiums paid?

Weather risk
management Yes Expected 3 3 3 3 3 3 3 Nil 3
and transfer
 Availability Closing Cover stages Information requirements
date
(2017
Product offering)
name Key methods used
2017 2018 to calculate coverage

Other

Single
history
history
(information provided by the insurer)

offering
with crop
Financials
Accounts /

Agronomic

Production

Multiple in
accordance
growth stage
SureSeason Completed 5 years SureSeason offers a Risk Assessment process
Revenue application prior to Underwriting to quote. SureSeason
Closing date

25th April allows all participating growers to engage to

Winter Crop quote on their call with SureSeason unique
Multi-Peril Yes Expected 3 3 quote option flexible options to suit the growers’
risk ‘sweet spot’. This enables each grower
complete flexibility and choice in the process
about quote and policy design.

No Expected TBA 3 Historic performance and seasonal conditions

Certainty 5 years Current 3

Multi Normally 6 years 6 years 6 years Grower Calculation methods used are confidential.
Peril Crop 30th April, annual We use clients’ 6 year averages on the
will extend declarations, collected data provided
Insurance Yes Expected 3
depending GPS locations,
Cover stages

on volume of current
sales season crop

15th May on Minimum 5, Calculated based on production history data

Cropsure Yes Expected 3
given year or up to 10

GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

No formal As much as As much as Calculated based on production history data and
PrimeGuard Yes Expected cut-off date 3 the grower the grower agronomic records
can provide can provide

Dry season / Never closes No information is required. Historical weather

Wet harvest Yes Expected events are used to determine premium
3
/ Frost

Weather risk One month Details of adverse historic weather events

management prior to and the payout structure and limit required.
Yes Expected inception 3 Historical (>40yrs) average payout and Standard
and transfer Deviation of the payout are key determinants of
premium
Information requirements

13
 14
Availability Product details Contacts

Product Other important

name MPCI policy information
Product Underwritten Phone Web
2017 2018 Provider type by
Name

SureSeason
Revenue Lloyds of
Yes Expected SureSeason MPCI (03) 5382 0569 http://www.sureseason.com.au
Winter Crop London
Product details

Multi-Peril

Lloyds of The only product offering that

Certainty No Expected Latevo MPCI offers farmers the relevant level 1300 528 386 http://latevo.com/
London
of coverage at an affordable price
MPCI features

Multi Multi Peril Liberty We have been developing this

Peril Crop Yes Expected Crop Insurance MPCI Specialty policy for 3 years. We have one
1800 075 515 http://www.mpciaustralia.com.au/
Insurance Australia markets client who claimed in SA and we
made a payment

Insurance Fire and hail provides full

Cropsure Yes Expected MPCI Inter Hannover revenue cover (08) 8372 4020 https://www.if.net.au/
Facilitators

PrimeGuard Yes Expected Primacy MPCI Allianz (03) 9603 1050 https://www.pum.com.au
Other information

Dry season / Weather certificates can be

Wet harvest Weather priced from a BOM weather
Yes Expected Celsius Pro Multiple (02) 9994 8009 https://www.celsiuspro.com/
Derivative station, or a grid reference and
/ Frost
aimed at specific weather events

GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance

Weather risk Levels of cover are completely up
management to the grower —­ can be per ha,
and transfer per mm or per number of days
above or below temperature.
Weather http://www.srgcorp.com.
Yes Expected SRG Corporate Multiple Gridded weather data available
Derivative 1300 551 969 au/products/weather-risk-
on 5 km x 5 km grid. No fixed
Contacts

management-for-agribusiness.html
parameters other than cover need
to be bound one month or more
prior to the inception date
of the contract.
 References
NATIONAL
Feasibility of agricultural insurance products in Australia for weather-related production risks,
National Rural Advisory Council (NRAC), 11 October 2012 (www.agriculture.gov.au/ag-farm-
food/drought/nrac/work-program/agricultural-insurance-feasibility)

Options for insuring Australian agriculture, M. Hart, E. Heyhoe and L. Whittle, Australian Bureau
of Agricultural and Resource Economics and Sciences (ABARES), September 2012 (http://www.
agriculture.gov.au/SiteCollectionDocuments/ag-food/drought/ec/nracv/work-prog/abares-
report/abares-report-insurance-options.pdf)

NSW
Multi-Peril Crop Insurance Incentive Measures, Independent Pricing and Regulatory Tribunal
(IPART), 2016 — www.ipart.nsw.gov.au/files/sharedassets/wesite/shared-files/investigation-
section-9-sea-legislative-requirements-multi-peril-crop-insurance/final_report_-_ review_
of_multi-peril_crop_insrance_incentive_measures_-_October_2016.pdf)

Multi-Peril Crop Insurance Cost benefit analysis of selected support measures, The Centre of
International Economics (CIE), 2016 (https://www.ipart.nsw.gov.au/files/sharedassets/website/
shared-files/investigation-section-9-sea-legislative-requirements-multi-periol-crop-
insurance/consultant-report-by-the-cie-multi-period-crop-insurance-cost-benefit-analysis-
of-selected-support-measures-october-2016.pdf)

QUEENSLAND
Crop insurance research grants — guidelines (https://www.daf.qld.gov.au/business-trade/
development/crop-insurance-research-grants)

Acknowledgements
GrainGrowers acknowledges the work of Kondinin Group’s Ben White in preparing this report.

GRAINGROWERS — Managing risk using Multi-Peril Crop Insurance 15

 Produced by:

SYDNEY PERTH
Box Q1355, Queen Victoria Building, NSW 1230 T: (08) 6316 1356 Freecall: 1800 677 761
T: (02) 9286 2000 Freecall: 1800 620 519 E: contact@kondinin.com.au
E: feedback@graingrowers.com.au Twitter: @Kondinin Group Facebook: @KondininGroup
Twitter: @GrainGrowersLtd Facebook: @GrainGrowers
www.farmingahead.com.au
www.graingrowers.com.au
August 2017
This information has been provided as a guide only. GrainGrowers makes no warranties about the accuracy or completeness of the information.
GrainGrowers does not accept any liability for any loss, damage or other injury resulting from its use. This information doesn’t take into account
your personal objectives, financial situation and needs. You should consider these matters and the relevant Product Disclosure Statements (PDS)
before you act on any advice. You may also wish to seek the advice of a qualified financial planner.