Livestock can represent a significant portion of a farm’s assets, and as market prices for cattle and other livestock fluctuate, it is imperative for policyholders to keep their sum insured up to date and accurate. Failing to do so could result in you being underinsured and if you are underinsured, the ‘average clause’ could be applied by insurers in the event of a claim; this means the payout you receive from insurers could be reduced, leaving you to source the remaining funds or accept your losses.
In light of cattle prices in particular seeing such significant fluctuations, we discuss the importance of maintaining an accurate livestock sum insured, how to do so in order to avoid underinsurance, and your responsibilities.
The Issue of Underinsurance
Underinsurance occurs when the sum insured noted in a policy is less than the actual value of the insured assets. In the context of livestock, this means that the monetary value assigned to the animals on your policy is lower than their current market value. This discrepancy can have severe financial implications for farmers when they need to make a claim.
Insurers often apply the ‘average clause’ in cases of underinsurance. This clause allows insurers to reduce a claim payout proportionally, based on the extent of underinsurance. For example, if a farmer insures their livestock for 80% of its actual value, the insurer may only pay out 80% of the claim amount. This can result in significant financial shortfalls for farmers, who may already be struggling with the loss of their livestock.
A recent example that underscores this point involved a devastating fire on a farm in East Yorkshire, where over 800 goats tragically perished in a barn blaze*. Reports indicated that the fire spread rapidly, leaving little chance for recovery or rescue. While the full financial and insurance details were not disclosed publicly, events of this nature involving such large-scale livestock losses serve as a sobering reminder of how quickly circumstances can change, and why ensuring you are sufficiently insured is essential to avoid being left financially exposed.
Fluctuating Market Prices
The market prices for livestock are subject to frequent fluctuations due to supply and demand, feed costs, disease outbreaks, changes in consumer preferences and other factors. These fluctuations can cause the value of livestock to change rapidly, making it challenging to maintain an accurate sum insured. For instance, a sudden increase in demand for beef can drive up cattle prices, while an outbreak of disease can lead to a sharp decline in market values. Similarly, changes in feed prices can affect the cost of raising livestock, influencing their market value.
As these factors constantly evolve, farmers need to stay vigilant and adjust their insured sums accordingly. This year, following record highs in prime cattle prices in 2024**, AHDB reports that in 2025 we will see cattle prices continue to be supported due to an anticipated decrease in production of 5% with a consumer demand increase of 1%***.
As reinforced in an Escape to the Farm with Kate Humble episode last month, the livestock market landscape is shaped by a complex interplay of factors, whether that be economic or consumer-driven, that contribute to volatile pricing trends of livestock****.
Some insurer’s look to cater for fluctuations in their policies; for example, some policies will allow for up to a 25% difference in the sum insured amount to actual market value. However, all policies are different, and so it is important you check your policy wording and understand exactly what is expected of you, the policyholder, in terms of keeping insurers accurately informed when it comes to the sum insured of your livestock.
Responsibilities of Farmers
Farmers bear the responsibility of ensuring that the sum insured for their livestock is accurate and up to date. This involves several key actions:
Accurately Valuing your Livestock
Farmers should understand the value of their livestock at all times; understanding their current market value is naturally a part of a well-run farming operation, but as we know, it is also vital when it comes to your insurance. Reviewing livestock market reports, online price calculators or consulting with agricultural valuers or accountants can all be helpful sources when it comes to accurately valuing your livestock.
Updating Insurers
Should you feel you need to adjust the sum insured for your livestock, whether than be an increase to prevent potential underinsurance, or indeed a decrease to prevent paying for a level of cover you do not need, inform your insurer or broker at your earliest opportunity – accidents can happen at any time, don’t wait until it is too late and you are needing to make a claim. In the event of a claim, you will want to be accurately compensated for your loss.
Benefits of Accurate Sum Insured
Financial Protection
An accurate sum insured for your livestock supports you receiving an adequate payout in the event of a claim. This financial protection helps you to recover from losses and continue operations without significant and drawn-out disruption.
Avoid Disputes
Keeping the sum insured up to date reduces the likelihood of disputes with insurers over the claim settlement amount. An accurate valuation and documentation that supports this can make it easier to substantiate claims and expedite the payout process meaning you can be back to a pre-loss state, quicker.
In Summary
In the dynamic agricultural industry, farmers must recognise the importance of maintaining an accurate livestock sum insured because, if not, this can cause unexpected and costly issues in the event of a claim. As market prices for cattle and other livestock fluctuate, it is the farmer’s responsibility to update insurance policies, select an accurate sum insured and keep detailed records. By doing so, farmers can look to avoid the pitfalls of underinsurance, obtain accurate claim payouts, and safeguard their financial stability. Accurate livestock insurance is not just a necessity; it is a cornerstone of responsible farm management.
Sources:
* 800 goats die following East Yorkshire barn fire – Hull Live
** Beef market update: what’s next for 2025? | NatWest Business
*** Lower supply and rising demand point to beef price support in 2025 | AHDB
**** 5 – Escape to the Farm with Kate Humble – Season 3 – Episode 6 / Episode 6
