The main insurance product available to Australian producers has been multi-peril crop insurance. Under this kind of policy, crops are covered for a range of damage such as drought, excessive rainfall, wind, wildlife under a single policy. Prof Mushtaq’s research found no multi-peril crop insurance was taken out in Australia in 2020.
“It is expensive, and it requires a visit from an assessor if you put in a claim which could take weeks to finalise if the assessor and farmer agree on the damage. If not, it can be a very protracted and unpleasant process,” he said
USQ’s Centre for Applied Climate Sciences is researching and developing indexed insurance products and industry initiatives like “mutuals” to assist farmers to manage climate related risk. Indexed insurance gives the farmer a choice in what they are insuring against and to what degree.
“The index could be based on rainfall, soil moisture or temperature depending on which factor is of most risk to the operation. The payout trigger would be set and immediate - no need for an assessor which is usually 30 - 40% of the cost,” Dr Mushtaq explained.
Under an indexed based insurance product, the farmer could set an indexed threshold of 50mm of rain total for January and February. If their nearest and suitable Bureau of Meteorology weather station only recorded 35mm for those months the payout would be immediately triggered, no questions asked.
“This also means a grower who mitigates against weather and climate risk by adapting their on-farm practices can take more calculated risks knowing the indexed insurance will be their safety net,” Dr Mushtaq said.