Agricultural insurance: Happiness is in the field
A growing demand for crops for human and animal consumption, the increased use of machinery and modern farming technologies, and the ever-present threat of natural catastrophes are prompting more and more farmers to seek ways to manage and transfer the risks they face.
And, according to our Agricultural Insurance Survey 2018, farmers across the world are keen to see levels of coverage increase, to include full production risks, and eventually market risks too.
Demand for coverage for agricultural risks is growing in emerging markets, in part, stimulated by governmental efforts to help boost insurance penetration.
The global insurance market for agricultural risks is currently thought to be worth about US$33 billion, and is growing at a rate of about 5% each year. Most of this growth – some 80% – is coming from emerging markets, such as India, China and Brazil.
India and China, in particular, have made huge efforts to increase insurance penetration over the last few years.
In many countries, particularly emerging markets, crop insurance premiums are often subsidised by governments. Without their support, many farmers simply wouldn’t be able to pay premium rates of about 10% for multi-peril crop insurance.
This means that any political changes that result in decreases in government subsidy budgets could have a potentially significant impact on the level of insurance coverage farmers can buy.
The agricultural insurance markets of Brazil, China and India have all experienced phenomenal growth in recent years due to the revamping of government subsidy schemes. And we expect this growth to continue, with estimates ranging from 10% to 15%, or even 20%, per year.
To give just one example, in Brazil premium volume grew to US$1.1 billion in 2017 from US$900 million a year earlier.
After the US, China and India are the world’s second- and third-largest agricultural insurance markets, respectively.
And while Brazil has a smaller agricultural insurance market, it offers substantial opportunities in terms of premium volume growth and geographic diversification.
For the economies and societies of these countries, agriculture is hugely important, and this creates, of course, opportunity for insurers to provide risk transfer solutions to bolster the sector.
The role of public authorities
Government support can be both a bane and boon for agricultural coverage.
Subsidies can help to support the development of a market for agricultural insurance coverage and enable farmers to afford to transfer risk.
On the flipside, however, authorities may prioritise scale over the level of protection, aiming to cover as many people as possible, but in turn keeping coverage levels low for farmers and rates and margins tight for insurers.
They might also favour simple or generic solutions over more innovative and flexible products that foster the introduction of new technologies, add further crops, increase the sums insured, or expand the current coverage.
Challenges and innovation
The agricultural insurance market has become increasingly competitive over the past three to five years, as new insurers have entered the marketplace. This competition has sparked a greater focus on innovation, client service and entrepreneurial spirit.
Commodity price volatility also presents challenges for the agriculture sector.
Including price risk volatility into insurance programmes has been common practice in North America for some time. But in other parts of the world, where this hasn’t hitherto been the case, we are seeing an increasing number of clients wanting to include this cover in their programmes.
As an international insurer with a mixture of agronomic, insurance and scientific know-how on the one hand and close contacts with clients and brokers on the other, we are in a great position to provide innovative and bespoke coverages.
Recently, for example, we worked with a European investment management bank to create a tailor-made coverage for coffee cooperatives in Central America.
As the world’s population continues to rise, new crops and technologies will offer opportunities for the agriculture industry to meet demand. Our aim is to create innovative insurance and reinsurance solutions to support them to do so.