Bird flu insurance: What should your policy cover?
©Christopher Furlong/Getty Images Avian influenza is a continuing threat to the UK. So should UK producers prepare by taking out insurance?
Experts say it is not a case of “if” we get an epidemic of avian influenza in the UK – it is a case of “when”.
According to Gary Ford, NFU chief poultry adviser, an outbreak of AI can cost hundreds of thousands of pounds.
“Defra will compensate farmers for the value of the healthy birds they destroy, but importantly, there is no compensation for dead or dying birds or consequential losses,” he says.
See also: Bird flu threat escalates as virus mutates
In the case of a highly pathogenic virus – where all birds will be culled – mortality can be as high as 100% within three to four days, so it is essential that farmers test and report an outbreak quickly.
Where a low pathogenic virus has the capacity to mutate into a highly pathogenic one, Defra will also cull all the birds.
But a low risk, low pathogenic virus will not result in the flock being culled, so no compensation will be forthcoming.
“Yet with a low pathogenic virus, you can still expect mortality of 10-15% and reduced productivity, which can render that flock uneconomic,” says Mr Ford.
“Producers may decide it’s better to cull that flock early and restock at a cost of about £4 for a point-of-lay pullet, but they won’t get any compensation for that.”
Policies for Bfrepa members
Avian influenza cover has also been available through insurance broker Scrutton Bland, which has had a preferential arrangement with the British Free Range Egg Producer’s Association – though new policies have been suspended since the H7N7 outbreak in Lancashire in July.
Until then, the policy was split into two broad areas – the first covering the value of the birds culled, and the second covering loss of income.
“Defra does pay compensation for birds culled during an outbreak of AI, but, for older birds, this falls well short of the actual replacement value,” explained broker Ed Nottingham.
Top-up cover was available for this, though the greater interest from farmers has been in the area of consequential loss, Mr Nottingham told Poultry World.
“After the more immediate costs of secondary cleansing and disinfection, you don’t know how long it might be before you can order a replacement flock, as it could be several weeks before the outbreak is formally closed.
“It is then another 14-16 weeks for point-of-lay pullets to arrive, followed by another few weeks for them to become productive.”
The policy offered by Scrutton Bland covered all that lost income, including the cost of cleaning up, for a premium of about 9p/bird.
As Bfrepa members, producers were assumed to be operating to Lion Code standards, which gave the underwriter the necessary guarantees over biosecurity and high production standards.
While the policy has been suspended, Mr Nottingham said he was optimistic it would be reinstated once the dust had settled following the Lancashire outbreak.
Consequential losses
Even when a flock is compulsorily slaughtered by Defra, the consequential losses can be massive, he adds.
“Defra will organise and pay for the culling and rendering, and pay compensation for healthy birds on a set tabular rate – but it takes time to get a diagnosis and results, and you could lose thousands of birds in that time.”
Once an outbreak is confirmed, the farm will be subject to movement restrictions and a vigorous cleanout procedure that has to be checked and approved by the Animal and Plant Health Agency (APHA) before restocking.
“In the Hampshire outbreak in February, it took six men six weeks to carry out the secondary cleansing and disinfection at a cost to the farmer of tens of thousands of pounds,” says Mr Ford.
Even after the APHA has approved restocking, a laying unit may lie empty for 16 weeks while pullets are reared to order.
“Say you have a flock of 32,000 layers and are making a margin over feed of £10 a bird – those consequential losses quickly stack up.”
Insurance options
But will insurance cover those losses – and at an affordable rate?
So far the UK’s main farming insurer – NFU Mutual – doesn’t offer AI insurance. “We are working very closely with them to develop an AI insurance package,” says Mr Ford.
“But it has got to be affordable, otherwise it’s pointless. And the price is only half the consideration – cover, including terms, requirements and excesses, being the other half.”
Lorraine Mills, livestock class underwriter at XL Catlin, writes AI policies for cover worldwide, and is seeing a sharp increase in demand in the US.
“We offer a top-up to general livestock policies to cover compulsory slaughter,” she says.
In the UK this provides 25% of the birds’ value, on top of Defra’s compensation for slaughtered birds, and 100% of the value for those dead birds which are not compensated.
Premiums typically range from 0.3% to 0.5% of the birds’ value, depending on the level of risk, including proximity of houses and neighbouring units, prevailing wind direction, migratory routes and so on.
Extensions are available at extra cost to cover losses from clean-down or economic slaughter in the case of low pathogenic strains, says Ms Mills.
“Many farmers want to be able to recover their full loss of earnings during an outbreak and are often requesting cover for up to 24 months.
“But in areas where poultry farms are highly concentrated, individual biosecurity controls won’t protect against a contiguous cull, so at the moment we don’t offer business interruption cover for AI.”
How premiums are calculated
Thompson & Richardson is one of the few firms to offer consequential loss cover in the UK, with a view to putting producers in the same position they would have been without the AI outbreak.
“However, it’s only if the insured is directly infected; we don’t cover producers for losses incurred through being in the surrounding restriction zone, although we are working on that cover and it should be available shortly,” says poultry insurance specialist Dawn Rix.
Premiums for the AI part of a policy, which also offers salmonella cover at an extra cost, are based on farm revenue, the number and location of sheds, and average about £1,700/year for a typical free-range laying flock of 32,000 hens with an annual turnover of about £640,000.
“Of course, it’s calculated on a risk-by-risk basis, but there is no excess and we offer cover on a standalone basis,” says Miss Rix.
Any compensation paid by Defra is deducted from the payout, but cleanout costs and loss of income are included.
The farm must be part of a recognised assurance scheme, and claims will be disallowed in the first two weeks of cover.
“We only cover H5 and H7 outbreaks, although we can extend it to low pathogenic strains if you want.”
Typical requirements for most insurers revolve around stringent biosecurity, including restricting entry to essential personnel, recording all visits, excluding visitors who have been on another poultry farm in the previous 72 hours, and providing boots, protective clothing and disinfection baths for vehicles and footwear.
Given the virulence and speed of an AI outbreak, such measures are already likely to be in place on most farms.