Business Interruption Insurance: A Critical Safety Net for Dairy Farmers
Dairy farming is a business that runs on precision, timing, and continuity. The cows don’t stop needing to be milked, and your operations don’t easily pause, even in the face of disaster. But what happens when the unexpected does happen? What if your dairy is damaged in a fire, your pasture is lost due to fire, or insured damage to farm machinery means your ability to operate is suddenly disrupted?
That’s where Business Interruption Insurance can come in.
What is Business Interruption Insurance?
Business Interruption Insurance is cover that responds when;
(a) an insured event, like a fire, storm or breakdown causes damage to
(b) insured property, machinery or pasture (depending on your policy)
which stops or slows your business operations to the extent that you suffer either loss of revenue and/or increased costs of operating.
Please note that the above is a summary only and each insurer and policy will have different ways of defining the trigger for business interruption cover and it’s important you understand the specific terms of your own policy.
Unlike property insurance, which covers the cost to repair or replace damaged assets, business interruption covers the financial fallout of not being able to operate as normal.
There are a few different ways this cover can be structured in a farm insurance policy. Common options include:
· Loss of Revenue: cover for the reduction in your business income due to the interruption.
· Farm Continuation Expenses: cover for the additional, necessary expenses to keep your operations going while you're recovering from the event
· Loss of Rent or Agistment Income: cover for lost income from third-party use of your property (if applicable).
· Rewriting Records or Planning Costs: some policies also cover the clerical and professional costs of restoring records or planning the use of your property post-loss.
Note that each insurer will have different definition and calculation methods in determining the financial impact of the insured event on your business. It is very important to discuss this with an experienced broker so that you are aware of the potential triggers for business interruption cover and how revenue and expenses would be calculated by the insurer under your specific policy.
Why It’s Particularly Important for Dairy Farmers
Dairy farms face unique risks due to the highly perishable nature of milk and the continuous cycle of production. If something interrupts your ability to milk, process, or store milk, your losses can mount quickly.
Unlike some other industries, you can’t just “catch up” later. Once that milk is lost, it’s gone, and depending on the length and severity of the interruption, the financial and reputational cost can be significant.
Business Interruption Insurance can:
· Help recover lost income
· Cover increased costs of operating (like transport, feed, or agistment)
· Provide a financial bridge while you return to full production
· Support the restoration of records and forward planning
But not all farm insurance policies include this cover automatically, and the details can vary significantly. That’s why a tailored discussion with a broker is essential.
How to Approach Business Interruption Cover
1. Start With a Business Continuity Plan
Before you think about cover, ask: if something happened tomorrow that impacted our day-to-day operations, what would we do? Map out the actions you would take in the immediate and long-term aftermath of such an event. This is called a Business Continuity Plan.
A comprehensive Business Continuity Plan is your first step in any consideration of Business Interruption Insurance. It will give you a well-thought out, realistic plan for what your approach will be if there was an interruption to your operations. Insurance should provide protection where your planning and mitigations cannot. If you view business interruption from this perspective, you will likely have more appropriate sums insured and a clear pathway to action and recovery in the event of an interruption to your business.
2. Understand What You Need to Insure
Ask yourself:
· If I had to stop or reduce milking for a period, what would the financial impact be? How long that financial impact last?
· What would I do if I couldn’t use my dairy?
· What would it cost to keep operating in a limited capacity, or relocate my herd?
· Could I still meet processor targets or receive volume bonuses? Would I want to incur additional expenses to do what is reasonably necessary to still hit the target?
· Do I have contingency plans for pasture damage, fodder shortages, or transport issues? Think about the price of fodder in peak bushfire season and where there is a peak in demand (which we see following a significant fire within a region).
Business Interruption Insurance should reflect your actual recovery plan. If you’d buy in fodder or relocate your herd, you need to calculate those costs. If missing a processor bonus would impact your revenue, that should be factored in too.
3. Be Aware of Underinsurance Clauses
Some policies contain underinsurance clauses.
If you underestimate your gross profit sum insured by more than 80%, any payout under a business interruption “loss of gross profit” cover would be reduced proportionally to your under-estimate.
Additionally, some insurers will not cover the increased costs of working if it is caused by loss/expense arising from farm property or a farm vehicle that is insufficiently insured to rebuild, replace or repair.
It is essential that you are aware whether these underinsurance clauses apply to your policy, as it significantly impacts the efficacy of your cover.
To avoid this, discuss the specific terms of your cover with your broker and make sure your property and infrastructure are properly valued and that your sums insured reflect current costs (including any increases in feed or freight prices during peak seasons).
4. Know What Business Interruption Doesn’t Cover
Not every kind of loss is included. For example:
· The loss must be triggered by an insured event under your policy – it is not cover for any and all interruptions.
· Losses caused by flood are typically excluded.
· Costs that relate to property that is underinsured might invalidate your claim altogether (as mentioned above)
Final Thoughts
Business Interruption Insurance isn’t just about replacing lost income, it’s about giving your farm the best chance to bounce back after something goes wrong. But it’s not one-size-fits-all. The right cover depends on how your business is run, what risks you face, and what your recovery strategy looks like. And importantly, the specific terms of the policy you take out to respond to this risk.
At Dairy Protect, we understand how complex and personal this cover can be. We’ll work with you to review your risks, plan for the unexpected, and build a cover that fits your business. So you can keep milking, keep moving, and keep growing.
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