Farmers must scrupulously follow instructions from relevant authorities in the event of an outbreak of foot and mouth disease (FMD) in Australia to ensure their insurance policy responds, Ausure says.

Rural & Distribution Manager Grant Brokenshire tells insuranceNEWS.com.au he has held discussions with farmers who “seem to be on to it and guided by whatever the ag department tells them to do,” and instructions from authorities may relate to farm access, and movement or destruction of livestock.

All farm insurance policies contain a “catch all” general exclusion or condition that requires the insured to comply with all statutory obligations, including regulations, laws and by-laws, and to take all reasonable care to prevent a loss or exposure to liability.

"You should follow the advice of the relevant authorities to the letter and also do everything possible to prevent or contain an outbreak of FMD,” he said.

FMD is highly contagious and affects cloven hoofed animals such as sheep, cattle, goats, camels, alpacas, deer and pigs. An article on the Ausure website assesses how farm insurance policies might respond to an FMD outbreak, or transmission on or from an insured farm.

“An outbreak of FMD will have severe consequences for the animal health and trade,” it said, noting risks include infection of livestock and possible compulsory destruction of herds.

There could be an exposure under the liability section of a farm policy if there is an outbreak of FMD on a farm either directly, or from a product produced, if that outbreak results in personal injury or property damage, including infection of a third party’s livestock.

Mr Brokenshire says the “news is not great” when it comes to available insurance protection. Generally, stand-alone cover for livestock disease is difficult to obtain and “perhaps impossible now, given the proximity of the disease to Australia”.

“It’s extremely unlikely underwriters will want to be exposed to FMD which has the potential to cause widespread loss and damage and of course, expose them to substantial losses.

“If it does get into the country it’s going to be a $80 billion hit over 10 years and the insurance industry doesn’t have a solution for that,” he said, adding political pressure for insurers to come up with a solution would be likely, as has been seen with flood cover.

In the UK, compensation was paid by the government on all suspected Bovine Spongiform Encephalopathy (BSE) case cattle slaughtered. Of 129,700 cattle slaughtered to 1993, 110,101 were subsequently confirmed as having it, and £93 million ($159 million) or £715 ($1,220) per animal, was paid.

A standard Farm Property Cover (Livestock) policy generally provides very limited events cover for livestock, and sub limits or Farm Interruption cover for the humane destruction of livestock will generally be dependent on a claim being paid.

“An outbreak of disease will not be an insured event,” Ausure says. “Unless the livestock is affected by a defined event – and FMD or any disease will not be an insured event – it is very unlikely that cover will be provided should livestock be required to be slaughtered.”

Some underwriters may have additional benefits for the prevention of the spread of an exotic disease originating outside of Australia, but a number of conditions may prevent a claim for FMD being accepted, for example it may have to originate very close to the farm, not from the farm, and be “sudden, unforeseen, and identifiable”.

“In any event the sub limit will be relatively low,” said Ausure, which also urges that farmers make sure their contents policies include cover for any embryos and stud semen frozen to protect valuable bloodlines.

Mr Brokenshire says in general, farm insurance is currently challenging due to "cost and capacity” pressures, with knock backs occurring and brokers finding business hard to place, based on location plus claims histories.

“There may or may not be a solution. The bigger feed lots might be able to get cover but your average farmer is not going to be able to have it.”

Storm claims and new assessments of total risk by underwriters have resulted in 60% premium increases in some subclasses, he says. Large weather and catastrophe events, increased cost of fertilizers and chemicals, and hefty equipment values of $1 million are all factors putting upward pressure on premiums.

“Definitely property premiums are through the roof and the insurers are just being more selective. There’s not that much capacity out there so they’ve got the opportunity to price things, perhaps correctly, for the future,” Mr Brokenshire said.

Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES) data shows the cost of insurance per farm across Australia, on average, was $41,130 last year for cropping, up from $18,348 in 2010, and for mixed farming it hit $24,757, from $9,419 in 2010.

For beef it rose to $9,447 from $5,778 in 2010, for broadacre farmers to $17,298 from $9,530, and for dairy to $18,485 from $9,108. Farm receipts also rose during the decade though.

“When you’ve got a limited pool of underwriters, they pretty much dictate what the price is going to be. They all seem to be doing it, putting up their rates,” Mr Brokenshire said.