The Two Main Types of Crop Insurance

New Zealand growers have access to two fundamentally different types of crop insurance, and choosing between them is one of the most important decisions in structuring your risk management programme. Understanding how each works — and where their limitations lie — is essential before your next renewal.

Named Perils Insurance: How It Works

Named perils insurance covers specific events that are explicitly listed in the policy. If your crop is damaged or destroyed by a listed peril, you can claim. If the cause of loss is not listed, you cannot — regardless of how severe the damage is.

Common named perils in NZ crop insurance policies include:

  • **Hail** — the most commonly claimed peril for horticulture growers
  • **Frost** — critical for orchards, vineyards, and vegetable growers
  • **Fire** — important for arable crops especially at harvest time
  • **Wind / Windstorm** — including cyclone and ex-tropical low events
  • **Flood / Excess Moisture** — coverage varies widely; some policies include, others exclude
  • **Lightning** — less common but included in most base policies
  • **Snow / Ice** — relevant in South Island alpine areas

What Named Perils Policies Typically Exclude

Understanding the exclusions is just as important as understanding what is covered. Standard named perils exclusions in NZ crop insurance include:

  • **Drought** — considered a gradual deterioration rather than a sudden event; almost universally excluded from named perils policies
  • **Disease and pest damage** — biological losses are typically excluded
  • **Market price decline** — a drop in commodity prices is not an insurable event
  • **Poor farming practice** — damage attributable to substandard agronomic management will be declined
  • **Pre-existing conditions** — damage present before the policy commenced

Advantages of Named Perils Cover

Lower premiums — because the coverage scope is defined and limited, named perils policies are significantly cheaper than all-risk alternatives. For many NZ growers, this is the deciding factor.

Simplicity — both the grower and the insurer know exactly what is and isn't covered. This clarity reduces disputes at claim time.

Wide availability — named perils cover is available from multiple NZ insurers including FMG, Gallagher, Aon, and Farmcover. Competition keeps pricing reasonable.

Tailored peril selection — some insurers allow growers to select only the perils that are genuinely relevant to their operation, reducing premium cost.

Multi-Peril Crop Insurance (MPCI): How It Works

MPCI provides an all-risks guarantee: you are covered for crop loss from any natural cause, subject to defined exclusions. Rather than listing what is covered, the policy specifies what is NOT covered — and everything else is included.

MPCI policies typically work by guaranteeing a minimum yield or revenue. For example, a policy might guarantee 75% of your historical average yield. If your actual yield falls below 75% of your historical average due to any natural cause, the shortfall is paid by the insurer. This structure provides income certainty that named perils cover cannot match.

How MPCI Is Structured in NZ

MPCI is less commonly available in New Zealand than in markets like the United States (where it is government-subsidised) or Australia. However, it is accessible through specialist brokers including Gallagher and Aon, who access international underwriting capacity through Lloyd's of London and specialist agricultural underwriters.

Key MPCI policy variables include:

  • **Coverage level**: The percentage of historical average yield guaranteed, typically 60–85%
  • **Approved yield**: The historical yield record used to calculate your guarantee, usually a 5–10 year Olympic average (excluding highest and lowest years)
  • **Price election**: The crop price used to calculate the revenue guarantee — fixed at policy inception or indexed to a market price
  • **Individual vs. area trigger**: Some MPCI products trigger on individual farm outcomes; others on area-wide yield data

Advantages of MPCI

Drought coverage — arguably the single biggest advantage of MPCI over named perils for NZ growers, particularly in drier regions like Canterbury and Hawke's Bay. Drought is the most underinsured major agricultural risk in NZ.

Comprehensive protection — regardless of what combination of events causes your crop to fail, MPCI provides a safety net. This is particularly valuable for years when multiple smaller events compound to create a significant total loss.

Revenue certainty — for growers with supply contracts, debt obligations, or cash flow commitments, MPCI provides income certainty that supports business planning and banking relationships.

Covers unforeseen risks — new pests, unusual disease pressures, or novel weather patterns that might not be named perils are covered under all-risk MPCI.

Limitations of MPCI

Higher premiums — MPCI premiums are typically 2–4x higher than equivalent named perils cover. For smaller operations, this cost may not be justified.

Complexity — MPCI policies are more complex to understand and administer. The yield guarantee and settlement calculation require good record-keeping.

Limited NZ availability — MPCI is not available from all NZ insurers. Accessing it typically requires a specialist broker with international market connections.

Higher excess — MPCI policies typically have a built-in deductible equivalent to the uninsured yield band (e.g., the first 25% of yield loss if you insure at 75%).

A Framework for Choosing Between Named Perils and MPCI

Consider MPCI if:

  • You grow high-value crops with large per-hectare input costs and significant revenue at stake
  • **Drought** is a genuine risk in your region — this is the single most compelling argument for MPCI
  • You have supply contracts with significant penalty clauses for under-delivery
  • Your operation is large enough (typically $200,000+ in annual crop revenue) to justify the higher premium cost
  • You want to provide your bank with income certainty as part of your lending arrangements

Consider Named Perils if:

  • Your main risk is a specific, identifiable weather event — hail for orchard growers is the classic example
  • Premium cost is a primary consideration and your business can absorb losses from uninsured perils
  • You want a simple, transparent policy that is easy to administer and understand
  • You are in a region where drought is not a material risk (Bay of Plenty, Nelson)

The Hybrid Approach

Many of NZ's larger growers use a hybrid structure: named perils cover for the specific high-frequency risks (hail, frost), supplemented by a revenue protection or revenue top-up product for broader income certainty. This approach balances cost and coverage and is worth exploring with a specialist broker.

Getting the Right Advice

The best approach is to have a frank conversation with a specialist crop insurance broker who can present both options with comparative pricing. Our broker network can access named perils policies from NZ insurers including FMG and Farmcover, and MPCI products from specialist international markets accessed via Gallagher, Aon, and Howden. Contact us for a no-obligation comparison.