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Crop insurance in France - presentation at the International Agricultural Insurance Conference in Madrid (Spain,November 2006)

Author: Philippe Boyer, Deputy Director for Agricultural Finance, Ministry of Agriculture and Fishiries, France
File: 
Lins to source: www.mapa.es

Prepared and adapted for publication by Roman Shynkarenko, www.agroinsurance.com

History of French crop insurance system

XVI – law for indemnity to croppers in case of natural disasters (financing by tax system)

XVII – service in charge of indemnification of losses due to fire, hail, frost, flood … (financed by tax system and charity)

1850 – first professional fund for indemnification (but bankruptcy)

From 1900 to 1964 – development of hail insurance, some attempts to create a public indemnities fund, creation of loans with low rates for calamities (1948), local insurance products for frost (low development)

1964 – agricultural calamities law: NGFAC, public indemnities to non insurable losses and premium subsidies to crop insurance (hail)

2002 – 2005 – first program on premium subsidies for new crop insurance products for other risks than hail: frost for vineyards or fruits, multi-peril (except drought) for major crops (cereals, oilseeds, peas)

2005 – … – new program of premium subsidies for weather multi-peril and multi-product crop insurance products.

Different risks – different tools

Damage to crops, perennial plantations, cattle outside, etc … due to climatic disaster:

–          Non insurable: public indemnities paid by the “National guarantee fund for agricultural calamities” (NGFAC, from 1964);

–          Insurable: private insurance with public subsidies to premiums for some types of insurance products (hail insurance for fruits and vegetables);

–          Insurance with partial coverage: frost on fruits and vegetables, multi-peril (premium subsidies)

Damage to crops, perennial plantations and cattle due to diseases:

–          Public indemnities with ad hoc subsidies, exceptional subsidies

Damage to buildings, content (cattle, stock, etc.) and to equipment due to natural disasters or fire:

–          Indemnities from private insurance sector, no public subsidy;

–          Indemnities from private insurance sector with public guarantee after natural disasters (non-specific for agriculture).

Indemnification of crop losses due to climatic disasters, before 2005

Indemnification sum (long run average):

–          Public indemnities – 168 million EURO (about 30% of total loss, if >27% of crop production value (42% for crops with CAP acreage subsidies);

–          Indemnities by insurance sector – 176 million EURO (about 100% of loss minus deductible)

About 52% of losses arrive from hail insurance of cash crops. Close to 25% – forage crops losses. Insurance of crops for sale supply about 20% of losses. Close to 3% losses come from real estate and perennial plantations’ insurance.

No public subsidies provided on hail and wind insurance products for all crops except for multi-peril on tobacco (drought not covered).

From 1990 to 2005 the government provided premium subsidies to hail and wind insurance for fruits and vegetables. During 2002-2005 the government of France proposed premium subsidies on a number of insurance products including: hail and frost for fruits; hail and frost for grapes; and weather multi-peril insurance (except drought) for cereals, oilseeds and peas. The last program was introduced on a pilot basis.

Since 2005 the government introduced a premium subsidy program on weather multi-peril insurance products for all crops except for forage crops.

National Guarantee Fund for Agricultural Calamities

The fund is managed by the Ministry of Agriculture. The ministry allocates to fund 30 million EURO for insurance subsidies (2006) and 83 million EURO per year as public assistance to farms. The farmers contribute 90 million EURO per year to the fund through taxes on insurance of buildings and vehicles (11 p.c. of premiums).  The total sum of contributions to the fund is 203 million EURO per year. The fund provides payouts to the farms on partially covered insurable damages in the sum of 173 million EURO per year (average for 25 years). The fund also allocates 30 million EURO per year for premium subsidies on some crop insurance programs.

Ad hoc public indemnities are paid to the farms on the administrative decision by the government agencies which have to officially recognize the risk event. The average indemnity rate is 30%. The indemnities compensate 27% of the value of average crop yield (47% for major crops together with former CAP acreage subsidies). The losses on all damaged crops are compensated at 14% of farm normal product value.

Public indemnities on crop damage by type of the disaster (as paid by NGFAC):

–          Drought – 60%

–          Frost – 18%

–          Rain and flood – 13%

–          Other (snow, storm, etc.) – 9%

Most indemnities are paid out on fruits, olives and bovine meats. Though the insurance sector compensates most losses to fruit and meat producers, it is necessary to point out that fruit losses are mostly due to hail and they are covered by the insurance companies (about 65-70% – the rest is mainly frost damage which is covered by NGFAC). In case of compensations to meat producers, the assistance is mostly provided by NGFAC on drought risk.

The government of France introduced a pilot project on crop insurance in 2002. Under this project the farmers can insure most crops against major weather risks however drought is not insured against. The farmers prefer to insure fruits, vegetables and grapes (hail and frost). Insurance of field crops is minor and not popular (drought is not included in the list of risk insured). In 2005 the government modified the crop insurance program expanding risk coverage though drought is still not insured. The insurance companies sold 60.000 insurance contracts in 2005. About 20% of the contracts were purchased by professional farmers.

Premium subsidy rates in 2005 (percent of premium)

General case

Young farmers

Old program

Hail coverage for fruits and vegetables

7,5%

10%

2002-2005 program

Hail and frost on fruits

25%

34%

Hail and frost on grapes

10%

14%

Weather multi-peril on cereals, oilseeds and peas

10%

14%

New program (2005-…)

Weather multi-peril on all crops except forage crops

35%

40%

Outlook

Public expenditure development:

–          Depend on premium subsidies rates;

–          Depend on insurance coverage:

o   Only cash crops;

o   Expansion for forage crops.

Insurance system in France co-exists with public indemnification system. Public assistance is provided for non-insured crops’ losses during ascent phase of insurance system development. The government is planning to reduce the public indemnity rates. The country has a problem with reinsurance of agricultural risks. It has to decide which system to choose – private or mixed (private + public). The government decisions are strongly influenced by premium subsidies modulation considerations.

Premium subsidies costs forecast

 Crops

Insured value (2005 production)

Average premium rate

Premium/insured value estimation

Total premium sum

Subsidy rate – 35% (full coverage)

Subsidy rate – 35% (70% coverage)

Fruits

2290

8%

183

64

45

Vegetables and flowers

5625

3%

169

59

41

Grapes

7846

2%

157

55

38

Field crops

9277

2%

186

65

45

Total crops

25038

684

243

170

Forage crops

5800

2,24%

130

46

32

Conclusions

2005: change in the design of crop insurance – from “one weather risk for one crop” insurance coverage to “weather multi-peril multi-product” insurance program.

There are questions on crop insurance system development:

–          A need to decrease public indemnifications;

–          Permanent or temporary subsidies?

–          Expansion of the insurance program to forage crops;

–          Reinsurance!!!

–          Budgetary constraints and choice;

–          European co-financing outlook.