By David Mathieson
Livestock insurance is often a cover that is either overlooked or not correctly set up in many farm insurance programs. Although it may seem like a simple cover to arrange, it can be far more complex and just as important to get right than any other fixed asset insurance.
Options for livestock insurance include;
* Farm Property- Defined Events such as fire, lightning strike, malicious damage etc.
* Full Mortality- Defined Events plus illness/disease and accidental damage
* Stud Stock- Individual insured animals for Defined Events, illness/disease and full loss of use
Unlike farm infrastructure, the problem with livestock is that potential market fluctuations need to be considered when reviewing the sum insured along with peak numbers during high risk periods.
A "market value" policy sounds like a good option as the basis of settlement is paid on the market value at the time of the loss, however there can be significant problems around this method of reinstatement. A "market value" policy will still require a total value to be declared at the commencement of the policy and it's important the declared values factor in peak livestock numbers and values during the highest risk periods. Although a "market value" policy will provide cover for the value of the livestock immediately prior to the loss, the timing of the loss during the production cycle can impact the farms potential profit margin, for example;
Insured value at policy renewal/inception in February
* Insured Livestock- "Angus cows $1,000,000"
* Total loss of livestock in December with an assessed market value of $1,500 per head= $750,000
* Claim settlement based on market value at time of loss = $750,000
* Estimated value of cattle at proposed sale date in January $2,000 per head= $1,000,000
Loss of livestock margin of $250,000