Review of Multi-peril Crop Insurance Incentive Measures in NSW

IPART

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Knowledge level: Advanced

Farm Table says:

This report looked at the different measures that are likely to increase the uptake of multi-peril crop insurance, and whether they are good value for money.

 

What is the problem?

In April 2016, Independent Pricing and Regulatory Tribunal NSW (IPART) was asked to evaluate five measures to increase the uptake of multi-peril crop insurance. It also considered how a subsidy for multi-peril insurance should be designed if the Government decided to introduce one.

The NSW Government committed to working with the Commonwealth Government and farming communities to encourage the development of a commercial multi-peril insurance sector for cropping.  A number of insurers have offered unsubsidised multi-peril crop insurance products in the NSW market since 2014, however it was being purchased by less than 1% of crop farmers in 2016.

IPART provided advice on whether different measures are likely to increase the uptake of multi-peril crop insurance, and whether they are good value for money.

What did the research involve?

The review considered incentives for the uptake of multi-peril insurance for crop farmers only.  Of around 18,000 farm businesses in NSW, around 7000 undertake substantive cropping activities.

What were the key findings?

They found that the main potential economic benefit of multi-peril crop insurance is increased productivity in good seasons, because it might encourage additional upfront investment in inputs such as fertiliser. This may occur because if low yields result from subsequent adverse conditions, the costs are underwritten by the insurance, improving farmers’ confidence, and access to capital. Insurers may also provide incentives for insured farmers to adopt best practice through their products.

Final comment

The Government responded to the final report in June 2017. It decided not to introduce a subsidy scheme for multi-peril crop insurance. However, it announced that it would remove the 2.5% stamp duty on multi-peril crop insurance from 1 January 2018 to make it more affordable for farmers.

2017 - Australia - IPART
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