5 July, 2021

Insurance considerations when farming clients diversify their business

Business diversification is a growing trend among farmers as they look to create secondary income streams that can help smooth earnings during periods of drought and other uncertainty. But Argis farm underwriting manager Peter Morsley warns that farm insurance cover doesn’t automatically extend to other businesses being run from a farm.

“As a farm insurer, our policy wording clearly states that we cover normal farming operations in relation to the occupation that’s shown on the certificate of insurance. Just because something happens on a farm doesn’t make it part of normal farming operations,” he explains.

Types of side income streams for farmers

The most common areas for diversification among farmers include onsite accommodation, farm tours, produce sales, horse riding, operating cafes and restaurants, or leasing land for events such as trail rides or fun runs, or functions such as weddings.  

Mr Morsley says some farmers also operate other commercial businesses from their farm premises such as mechanic workshops or transport operations, which involve storing machinery and vehicles on the property.

Whether or not a farm insurance policy will provide cover varies with the type of side business being run, so Mr Morsley says it’s important that policyholders discuss any change in business operations or land usage with their broker, and that brokers discuss these with underwriters.

What may – and may not – be covered under a farm insurance policy

Mr Morsley says the biggest risk with running a side business on a farm is the potential public liability exposure.

“The greatest risk lies with letting people come onto a working farm, which is just like any other business. If you're running a factory, you wouldn't have large numbers of people coming through just for recreational purposes.”

With accommodation the most common side business for farmers, Argis offers a farm stay extension, however Mr Morsley says the accommodation business needs to be incidental to the main farming operations, and needs to be accommodation only. “They can’t be providing any activities on the farm such as horse riding or farm tours,” he explains.

When it comes to on-site events, the risk is amplified if alcohol is being served, and the amount of risk such events carry also depends on their proximity to the working farm operations.

While onsite café or restaurant premises have a similar risk profile to events, by contrast, Mr Morsley says that selling produce grown onsite direct from a farm gate, without a lot of people venturing onto the premises, would typically be considered a part of normal farming operations.

“We understand that farmers will sell produce direct, the perfect example of that is fruit growers who have people on site to pick their own. There's obviously an added risk, but as long as they're not using implements, and it's only for a short harvest period, we’d certainly consider insuring them.”

How to help your clients

Mr Morsley says that open communication between clients, brokers and underwriters is key to avoid the potential for gaps in insurance cover.

“It’s important for brokers and insureds alike to not just assume that because its happening on a farm they’ll be covered by farm insurance. If they haven't advised us, it may not be covered – and nobody wants that.”

Mr Morsley says that if Argis declines to cover an additional business risk on a farm, it may be in the best interests of the client to find alternate cover for their entire business risk, due to the difficulties involved in apportioning liability.

“If someone comes onto the property for another reason but gets injured from a farming accident, liability can be very difficult to split. That’s why they may be better off having a policy that covers everything so there’ll never be an issue over liability and policy boundaries,” he explains.

Here to help

For more information about the insurance implications of running a side business from a farm, or for general enquiries about farm insurance, you can visit our website or contact us on 1300 794 364.