Confusion has emerged over NFU Mutual's new salmonella insurance scheme after a free range egg producer was told there would a limit on the level of clean-up costs paid out by the company in the event of a claim.
Trevor Sellers, who farms at Belton in Rutland, Oakham in Leicestershire, was clearly told there would be a cap on such costs when he asked for a quote for the insurance.
He was told by email, "The associated clean up costs of the unit will be dealt with as an additional cost of working, which is part of our Business Interruption cover. The limit for this is 20 per cent of your sum insured or a maximum payment of £50,000."
But when NFU Mutual was asked about the limit, a spokesman insisted that that the policy did not include a cap on clean-up costs.
Tim Price, NFU Mutual rural affairs specialist, said he could not comment on individual insurance quotes, but the policy, itself, did not have a cap. He said, "NFU Mutual's salmonella insurance cover has been designed to protect egg producers' businesses in the event of a salmonella outbreak.
"The insurance protects egg producers' businesses by covering reduced income resulting from a salmonella outbreak, and additional expenses such as clean-up costs.
"Additional expenses are covered providing they help minimise the farm's reduction in income. This means the insurance will for pay additional costs - provided they do not exceed the saving achieved. This is known as paying up to the 'economic limit' - put simply this means additional expenses of £1 wouldn't be covered if they would only generate additional income of 99p.
"The insurance, which is part of NFU Mutual's Farm Select policy, covers losses up to 3.5 times the value of poultry slaughtered in accordance with DEFRA valuation, up to a cover limit of £6m."
Trevor Sellers, who represents East Anglia region on the council of the British Free Range Egg Producers’ Association (BFREPA), is concerned that, if a cap is applied, the policy will fail to cover the full costs incurred in the event of a salmonella outbreak. Trevor fears that an affected producer may be left having to fund the difference if the capped payment falls short.
"Clean down and disposal costs could soon mount up when Defra (the Department for Food, Environment and Rural Affairs) is involved," said Sellers.
"You would not be able to get rid of the birds through the normal processing line. You would have the increased cost of killing and disposing of potentially infected birds, you would have the problem of what to do with the muck, and then there would be the cleaning costs for the sheds.
"You can be sure that if Defra is involved then they would want this done very thoroughly. I am not sure that £50,000 would be enough to cover the costs a producer would incur, and I don’t know why they have set this limit when Thompson & Richardson, who have been providing salmonella insurance for the last few years, don’t have a limit. They work out what is needed and pay for it."
Joel Vincent at Thompson & Richardson said that in his experience it was very difficult to set any kind of limit in advance because each case could be very different.
"We pay what is needed to get the producer back to normal. We cover what is needed to get them to the position they were in before the outbreak," said Vincent.
"We have a product on the market that has been working for a number of years. I don't understand why NFU Mutual would want to come along and seek to do it differently when there is an example there that is working well. Producers need to buy a policy that they know is going to do what they want it to do. Don’t sell yourself short because it is not necessarily straightforward getting back to normal. You can’t just ring a pullet supplier and expect to have pullets the following week, for example. It doesn’t work like that."
NFU Mutual was criticised for being slow to respond to the need for salmonella insurance in the egg sector. Four years ago there were calls for NFU Mutual to provide such cover when leading packers and an egg co-operative stepped in with salmonella insurance schemes. B
Both Noble and Stonegate introduced insurance policies, as did Eggsell, which offered its members a policy provided by Thompson & Richardson. NFU Mutual drew criticism from the farming community for being slow off the mark. It has finally responded to calls from the egg sector, but now that it has entered the market, the policy, itself, has become mired in confusion.
Trevor Sellers, who has 17,000 layers, was quoted just over £990 to insure his birds through NFU Mutual. He said the premium with Thompson & Richardson was slightly higher, just over £1,000, but for just a little extra he obtained much more cover. He said that Thompson & Richardson did not impose a limit on clean-up costs.
NFU Mutual also applied an excess - something that Thompson & Richardson did not require. The excess set by NFU Mutual was a minimum of £500 or five per cent of the loss, he said.
On announcing the company’s policy, NFU Mutual's Jeremy Diston, the chief underwriting manager, said, "We understand the needs of people who live and work in the countryside and the devastating effect a salmonella outbreak can have on a poultry business."
He said, "Very often, it’s not the cost of replacing stock that has the greatest impact on the business, but the loss of income while buildings are disinfected, and the wait until new birds are brought in and start to lay. During this period rent, interest charges, wages and utility bills still have to be paid, putting the business under considerable strain. We've designed the new cover to protect egg producers from this risk at competitive premium rates."
He said that NFU Mutual’s loss of income cover would pay out for up to 18 months after a salmonella outbreak. The maximum amount payable would be three and a half times the DEFRA stock valuation or £6 million, whichever was lower. The cover would cost five pence per bird, subject to a minimum premium of £250 plus insurance premium tax, he said.
