Navigating the global risk and cost instability in the UK agriculture market

Ongoing global economic and geopolitical pressures are increasingly impacting the UK agricultural sector. These conditions are expected to heighten underinsurance risks and increase both the complexity and cost of claims over the summer period by driving sharp cost inflation across operations, stock/deadstock and buildings and all the farming sectors.

One of the most immediate impacts for UK farms has been the rise in the value of insured stock and deadstock. Disruption to energy markets and key shipping routes has pushed up the cost of fertiliser, feed, fuel and other essential inputs. In the event of a claim under these sections, values will therefore be significantly higher. Generally, sums insured for stock/deadstock tend to be moderate (or can be incorporated within business interruption cover); however, where sums insured have not been reviewed, the risk of underinsurance and the application of the average clause is increased. The cost of carcass removal and disposal is also likely to rise sharply due to higher fuel costs and haulier charges. The claim costs could be particularly high for intensive livestock risks of pigs and poultry.  Although for more general livestock cover, many agricultural policies contain relatively modest limits, which could be quickly exhausted.

The repair or replacement of buildings and plant/machinery are another area of growing exposure across all sectors. Inflation in construction materials, labour and transport continues to drive higher rebuild costs for barns, grain stores and livestock housing. Longer reinstatement periods driven by contractor availability and supply-chain delays will also increase the knock-on business interruption losses.

Perhaps the most pressured area will be the Increased Cost of Working (ICOW). While ICOW is designed to fund additional expenditure to mitigate the impact on turnover following an insured loss, rising fuel prices, machinery hire rates, spot-market feed costs and temporary storage expenses mean that traditional ICOW limits may prove to be inadequate, combined with a greater test of the economics of such expenditure.  With limits being reached more quickly and will result in greater claims friction.

It is likely that there will be increasingly fragile supply chains for specialist agricultural equipment and materials. Delays in sourcing parts or securing experienced contractors during the short harvest window could also pressurise business interruption sums insured and ICOW limits.

Both the claims lifecycle and overall claims costs are likely to increase over the coming summer if there is no immediate resolution to the crisis. Also, there is the potential for higher claims frequency. During periods of cost stability, many farmers and businesses tend to absorb smaller losses themselves. However, as margins tighten and uncertainty increases, businesses are more likely to notify claims as a means of mitigating financial risk.

In this context, proactive risk management will be more critical when coupled with tight margins. From an insurance perspective, regular review of sums insured, ICOW sub-limits, and indemnity periods should be reviewed ahead of peak risk harvesting periods. From a claim’s perspective, early assessment, realistic reinstatement planning and close collaboration between insureds, brokers, and insurers will be essential to navigating heightened costs while maintaining operational continuity. While market conditions may ease, the potential for elevated risk exposure and claims complexity across the UK agricultural sector this summer appears high.

Despite ongoing uncertainty, the agricultural sector has a long track record of adapting through periods of global disruption. Past cycles show that sharp increases in input costs can be followed by relatively swift easing, often within six to twelve months. A similar trajectory may develop, with improved stability contributing to excess supply in energy markets and a downward correction in prices, potentially approaching historical lows by year‑end.