New parametric insurance for dairy farmers

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• NFU Mutual, Skyline Partners, Gallagher and Markel develop UK’s first parametric heat stress insurance for dairy farmers
• New insurance being piloted to help protect dairy farmers from heat-stress financial losses
• NFU Mutual survey reveals 41% of dairy farmers say heat stress is a priority risk for their business yet 70% are yet to take further steps to reduce the risk
• Parametric insurance designed to help farmers react and adapt to climate change

NFU Mutual is helping dairy farmers adapt to climate change by trialling a new type of insurance which pays out if increased hot weather causes heat stress.

The UK’s leading rural insurer has partnered with parametric insurance specialist Skyline Partners, broker Gallagher, and insurance provider Markel to develop and pilot the new cover – the first of its type in the UK dairy sector – in May.

Research from NFU Mutual with dairy farmers has found that just over four in ten (41%) say that heat stress is a priority risk for their business whilst 70% are yet to take further steps to reduce the risk*.

Known as parametric insurance, this index-driven cover offers customers pre-determined pay outs based on a trigger event. Independent satellite and weather station data is recorded automatically. If limits are exceeded, the policy pays out at the end of the summer risk period, with farmers being able to use payments towards the cost of losses in production and improve their farm infrastructure to combat the effects of heat stress without the need to submit any claims evidence.

When temperature and humidity limits are triggered during the summer risk period, they are recorded to provide a calculated payment sent following the end of the policy term. Farmers will be able to tailor their insurance to suit their farm business’s risk appetite and budget, by selecting the total number of milking cows they wish to insure, with four coverage levels to choose from.

The first dairy parametric cover trial will be run this summer with selected customers in key dairy regions across the UK. NFU Mutual has developed the dairy product with their collaborative partners Skyline and Markel, with a long-term view to investigate a range of on-demand parametric covers which would automatically compensate farmers in the agriculture and horticulture sectors for climate-related losses.

Chris Walsh, Farm Specialist at NFU Mutual, explained that the new insurance had been developed in response to farmers growing concerns about the cost of heat-stress losses as farmers work to demonstrate ever higher levels of animal welfare on UK farms. The product also comes at a time when the industry is facing tight operating margins and falling milk prices.

“Heat stress in cows is becoming a major concern for many dairy farmers as summers get hotter,” he said.

“To help our dairy farmers cope with this growing problem, we’ve talked to agricultural experts, dairies, farmers, and insurers across the world to develop an innovative product which operates simply and effectively.

“Parametric insurance is already used to protect farmers’ incomes in some countries, but this is the first time it has been developed to support the UK’s dairy sector like this.

“We believe this type of cover may become increasingly important to protect other agricultural and horticultural sectors as the effects of climate change intensify, and we are working with farmers and growers to understand the need for a range of bespoke policies.”

To further assess the impacts of heat stress NFU Mutual consulted with Dr Tom Chamberlain, a leading expert on the impacts of heat stress on UK dairy farmers.

Dr. Chamberlain’s recent 2022 study, in conjunction with Lallemand Animal Nutrition, found that across the nine farms within the study group, heat stress led to an average loss of production ranging from £24,000 to £90,000 depending on herd size.

Laurent Sabatié, Skyline Partners Co-Founder and Executive Director, said: “We’re excited to be working with leading rural insurer NFU Mutual to bring parametric insurance to the UK agricultural sector. Parametric insurance products such as this which we created for NFU Mutual, promise a radical change to the way businesses are insured.”

Skyline Co-Founder and Executive Director Gethin Jones said: “Claims under traditional insurance policies require physical loss or damage to trigger a claim. But not all losses involve a fire, the death of an animal, or another physical loss. A heatwave can drastically reduce milk yields for example, and even put a farm’s sustainability at risk over a long period. Parametric insurance can help protect farms from these climate-related losses with cover tailored to individual farm’s needs and a simple, transparent pay-out mechanism.”

Rob Wells, Head of Livestock at Markel’s International division, said: “At Markel, we're always looking for new, smarter ways to support our customers and to trial promising new ideas that respond to changing needs. We are delighted to work with our partners, NFU Mutual, Skyline and Gallagher, on this initiative and to support farmers’ risk management in a way that traditional insurance products have not.”

Working with Dr Tom Chamberlain, NFU Mutual is also sharing the following dairy heat stress advice:

Short-term actions

• Providing suitable access to water troughs and pipes are in good working order, have no leaks, and that the flow rate to the troughs is sufficient.

• Identifying paddocks that have greater shade availability and utilising these on hot days.

• When buffer feeding adding suitable feed additives to ensure cattle are receiving peak nutrition to support rumen health function.

Medium-term actions

• Implementing ‘Siesta’ Management where appropriate – this technique involves cows grazing directly after milking and then being ‘housed’ at around 10am, with buffer feed available to them. Cows are then sent back out to graze after afternoon milking to graze until dusk.

• Installing greater numbers of water troughs in key locations so that cows are never more than 100m away from a clean water source.

• Adjusting milking times to coincide with the cooler periods of the day.

• Installing shade and fans in holding yards and cow sheds.

Long-term actions

• Reviewing breeding plans to focus on genetic strains that have greater heat tolerance levels.

Chris Walsh added: “Hopefully, with some or all these measures in place, it will help reduce the negative impacts that heat stress can have on a herd’s productivity and general welfare.

“We want to support dairy farmers meet the ever-evolving challenges they face. This is why we’re developing innovative forward-thinking products, utilising new technology and responding to climate challenges.”

NFU Mutual’s Heat Stress (Dairy Supply Chain) Insurance is being trialled from May 2023. As part of the new service customers will receive a tailored climate summary report for their operating area.

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For further information, please contact:

For NFU Mutual:

Rebecca Davidson, Rural Affairs Specialist

Phone: 07583 009448

Email: Rebecca_davidson@nfumutual.co.uk

For Skyline Partners:

Dr Adrian Leonard, Strategic Insurance Communications

Phone: +44 (0)7977130093 (call or WhatsApp)

Email: adrian@canadrian.co.uk

About NFU Mutual:

NFU Mutual offers a wide range of products, including general insurance, life, pensions, and investments. These products and services are delivered through our network of NFU Mutual Agent offices, as well as through our direct sales and service centres. With 295 local businesses located in rural towns and villages throughout the UK, NFU Mutual has become part of the fabric of rural life and remains committed to serving the needs of our members nationwide.

NFU Mutual is proud to deliver more than simply insurance. Making farming safer, supporting rural initiatives across the UK and helping to look after the environment are just some of the ways we do that. To find out more about everything we do to support our communities, visit https://www.nfumutual.co.uk/about-us/responsible-business

About Skyline Partners:

Skyline Partners is a private-equity funded UK insurTech dedicated to index-based parametric insurance driven by data and technology. It helps re/insurance carriers, brokers, agents, affinity partners, and government agencies solve risk challenges with innovative solutions. Skyline developed InsDex, a proprietary index insurance technology platform which aggregates high-value data from multiple sources, to analyse risk and monitor the occurrence of insured events. Skyline has the technology, expertise and relationships to transform any data stream into transparent, reactive protection delivered with minimal frictional costs and no surprises. Learn more at skylinepartners.org.

*NFU Mutual survey with 153 respondent dairy farmers from 1-30 September 2021.