A totally organic experience

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Does organic farming, with its avoidance of pesticides and veterinary chemicals, pose a greater or lesser risk to insurers than non-organic farming? Hugo Cranmore finds out

Though the organic farming movement is gaining momentum, it is not yet enough to constitute a niche market for underwriters. Agricultural insurers already provide for organic farmers, and cover is as readily available and affordable for organic producers as for others. Gareth Rushton, regional development manager for Rural Insurance, notes that farming numbers have declined over the years, rendering farming itself a niche market.

So does organic farming have specific risks and exposures associated with it?

Helen Browning, who successfully farms organically in Wiltshire, is a former chairman of The Soil Association - the campaigning and certification body for UK organic food and farming. She says that while all farmers are subject to more stringent regulation in today's world, it is even stricter for organic farmers. She believes this compliance is beneficial to insurers.

Compare and contrast

How does the risk profile compare in the eyes of underwriters? David Murray Wells, executive chairman of underwriting agency AIUA, says the risk profile of the organic farmer is to some extent better, but in other areas worse. "The people involved tend to regard it as an issue, emphasising that the farms are better managed. On the downside, however, there are product liability issues. For example, the absence of chemical seed dressings could lead to the development of plant diseases, causing problems further down the food chain. There is also the question of storage: no preservatives can be used and no waxing for fruit, so there are problems with shelf life."

Despite this, Mr Murray Wells believes agricultural insurers are sympathetic to organic farming, adding: "No one really likes pesticides." He confirms he did look into creating an organic scheme but the risk profile did not warrant a discount in rates. He adds there was insufficient differentiation on livestock farms, and arable growers face PL risks.

This view is not shared by David Waite, joint technical head of the agriculture, rural industries and estates division of adjuster Crawford & Company.

"There is no significant increase in PL risk, although there may be an increased product guarantee risk if organic crops fail to meet physical quality criteria," he says. "The supermarkets will pass this risk back to the growers, but this is unlikely to be insured."

There may not be any specific discounts for being organic, but better rates are available indirectly, claims Elaine Pyke, chief executive of FarmWeb. "By its very nature organic farming requires strict records and tight controls. This translates into good risk management, reflecting well on premium levels."

Chemical absence

William Barne, divisional director of broker Lycetts, suggests it is liability where the risk profile differs most. "There could be trips to farmers' markets or the direct sale of produce. Farmers in those categories need to make sure their PL cover is adequate. Crop value is not an insurable risk but the absence of chemicals may be a better risk from the point of view of the insurer."

David Lamb, underwriting manager of agriculture and leisure at Norwich Union, agrees the PL risk might vary, but the usual types of claim still appear. "Employers' liability claims are very similar. The fact that organic farms may have greater regulation relates more to the nature of their business and doesn't necessarily introduce things of interest to insurers."

Mr Rushton explains that the number of organic farmers is not yet sufficient to produce any meaningful figures, but says he feels organics are a slightly better risk. He cites regulations relating to loading ramps imposed by the Soil Association, which have reduced fatalities to animals at this stage in the transport process. "However, there are instances when an organic farmer might not be prepared to administer chemical drugs to help livestock through an illness, which leads to the death of the animal when it might otherwise survive."

How relevant is the absence of pesticides and veterinary chemicals? Mr Waite says organically reared and grown animals and crops are at increased risk of attack by pests and diseases due to the very limited range of veterinary products and pesticides that can be used. "But this does not impact on insurance cover as it represents a product guarantee as opposed to a PL risk."

And farmers cannot currently insure against GM crop contamination. Mr Lamb says the GM issue is an evolving situation. "It's untrodden ground and it's difficult to see how in a global economy any contamination might be traced back to source.

"Our current policies cover damage to crops against sudden and unforeseen accidental perils. This would not seem to apply to a bee spreading pollen, for example. Who might be responsible for that? And even if you knew, could negligence be proved? The situation is very vague, but no doubt the insurance industry will be adapting to new situations in the months and years ahead."

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