Seismic changes are afoot in the agricultural sector. Andrew Holt reports on the insurance industry's challenge to keep a step ahead
The rural environment is today facing revolutionary migration and change not seen since the start of the industrial revolution.
A number of factors are responsible for this situation, which has far-reaching implications not just for the sector itself, but also its insurers.
First, the decline in EU subsidies as well as legislative and regulatory pressures are forcing many farmers to conclude that their work is no longer worth the candle.
Gareth Rushton, a regional development manager with Rural Insurance Group, says: "Over the next two years there will be the biggest changes the rural sector has ever seen."
The main reason for this is the change to the government's farming grant payment system. "In line with EU legislation the government has divorced payments made based on a production basis. These are to be replaced by a single payment subsidy, which will effectively reduce over the years. And we will see a large number of people subsequently dropping out of the rural sector," says Rushton.
A survey by the Milk Development Council in April last year revealed that of the 513 farmers surveyed across the UK, almost a quarter plan to quit in the next two years. It also suggested that many farmers do not understand EU Common Agriculture Policy reforms.
If the survey results fully represent the national profile of farms then the figures equate to 31% of farmers planning to leave over the next couple of years, and only 12% planning to expand.
This in turn will put pressure on insurers. "With changes in the rural sector and the Financial Services Act, insurers need to be more aware of the products they are selling. We have to make sure they are highly relevant to farmers' changing needs," adds Rushton.
Rather worryingly, agriculture is now the number-one killer in terms of health and safety at work - outstripping the building industry, which has significantly improved in this area. The agriculture sector has also fallen behind other industries in risk management.
Furthermore, farmers account for the highest rate of suicides in any working group. They are twice as likely to commit suicide as other members of society. Suicide is the second most common cause of death in male farmers under 45 years of age.
To help understand the issues behind this pessimistic outlook FarmWeb, the network of specialist agricultural insurers, undertook research to identify how farmers conform to modern regulatory standards.
It found many farmers wanting. For example, 80% have no continuity plan and two-thirds have not had an electrical inspection in the last three years.
Elaine Pyke, chief executive of FarmWeb, says: "Historically farmers have done things their own way with a particular mindset. With reduced agricultural income there has been pressure on them to do things their own way, which, if they were in a commercial, regulated environment, wouldn't be allowed."
Both Defra and the Health and Safety Executive (HSE) plan to carry out further research. For a variety of reasons, farmers do not readily seek help when in trouble but usually rely on their self-sufficiency to get them through a crisis.
So is it fair to say that regulation and visits from the HSE have provided a safer environment for agricultural workers and less riskier situations for insurers?
To a point. Pyke says: "There has been a bombardment of legislation and regulation from all directions and it is difficult for farmers to know how to interpret it or what to do with it sometimes."
One such case has been the introduction in May 2004 of the Control of Asbestos at Work Regulations 2002. The regulations require, among other things, the "duty holder" to survey all non-domestic buildings to find all accessible asbestos-containing materials, record their condition and write a management plan based on the associated risks.
Harold Woolgar, a FarmWeb director, adds: "It is vital that farmers take action to check out their buildings. Failure to do so will not only have legal implications but is likely to affect insurance cover for buildings.
"Farmers must address whether their cover is adequate. Is it enough to cover the cost of removing asbestos and rebuilding? In the past many farmers have buried asbestos on their land; this is no longer allowed. Specialist contractors will be needed to remove it."
Agricultural brokers have traditionally had close relationships with farmers, helping them find the most suitable policies while moving with the latest diktat. "Brokers know their clients very well and give advice on what needs to be covered. But they are not risk managers and cannot always get involved in the more complex areas of risk," says Pyke.
But as farmers become more aware of the need to be in line with regulations this will hopefully have a positive knock-on effect for insurance. "A lower number of claims cases and more awareness and management of agricultural risk has obvious benefits for the farmer and insurer," says Pyke.
The long-term picture in the countryside is that there will be more big conglomerates running the farms of Britain - which means fewer insurance policies. "We will end up with larger farm owners run by farm managers as a matter of economies of scale. This will have a negative impact on tertiary industries working with the rural sector," says Rushton. IT