N.Z. horticultural boom demands insurance

Press, 16 July 1982, Page 20

N.Z. horticultural boom demands insurance

The demand for insurance on growing crops is expected to increase quite dramatically as a result of the horticultural boom in New Zealand, according to Mr R. P. White. New Zealand manager of Farmers' Mutual Insurance Association. Many growers will not have the financial resources ■ to withstand a loss of income caused by the convulsions o! nature, Mr White told a news media seminar organised by the Insurance Council of New Zealand in Wellington recently. Because of exorbitant prices for horticultural land, the high establishment costs of the crop and increased operating costs fuelled by inflation, the servicing costs of their investment will be too great to risk a loss of income for which insurance might be available, said Mr White. Another form of insurance which could be developed in the future is protection against loss of income caused by industrial disputes, said Mr White. When the Bay of Plenty kiwifruit crop reached full production, a city the size of Rotorua (population 37,163) will be required to service it. "Imagine the predicament of growers if through industrial dispute their crops could not be harvested,” said Mr White. This problem was not confined to horticulture, but existed in most of New Zealand's primary industries. The meat industry was probably the classic example. “Heaven forbid that protection of this nature should become a responsibility to be borne by the insurance industry. “Industrial unrest is symptomatic of our social and economic ills and should be" solved by political means, not commercial ones.

“However, there have been signs of demand building for insurance of this nature so who knows what the future may bring." said Mr White. Compulsory crop insurance schemes for natural disasters such as hail, wind. snow, floods and frost are a recent development of rural insurance, said Mr White. Two such schemes were introduced during the last two years on behalf of the wheat and apple and pear industries and were underwritten by some members of the insurance industry. The traditional method of arranging crop insurance on a voluntary individual basis usually had difficulties because there was insufficient income from premiums to meet the losses, said Mr White. This resulted in an unprofitable portfolio for the insurer which required an increase in premium or even a withdrawal of the cover. The underlying reason why people did not support voluntary crop insurance sufficiently was probably the fact' that disasters arising from weather conditions are not frequent, although their incidence would seem to be increasing.

"In general terms, only people who recently suffered disaster damage bother to insure and even these people, as the memory of the disaster fades, finally decide it is not worth renewing the insurance." said Mr White.

Before a compulsory scheme could be introduced, it must be approved by the growers in a democratic process. and the industry's controlling body be given legislative power to deduct a levy from all growers to meet the cost of insurance.

Under a compulsory scheme, premiums are lower than in voluntary insurance because the cost is spread over the whole industry.

A compulsory scheme had a long-term element of security because during disaster-free years the fund rose at the same level of contributions in preparation for the disaster which would inevitably occur.

The widest possible geographical spread of risk is obtained under a compulsory scheme, an important safeguard that assumed disaster would not be likely to strike in two places at the same time, said Mr White.