Agriculture is an inherently risky business. It is subject to a number of random price, climatic, biological, and geological shocks that require coping strategies and financial management instruments to deal with the implications. Traditional risk management strategies and ex post government provided emergency relief have often not proven to be sufficiently effective and robust in preventing serious economic loss or permitting a speedy recovery.
From 23rd until 25th of June 2014 Polish Reinsurance Company organized in Torun VI International Seminar on agricultural insurance. This time the Agro Seminar was dominated by three thematic blocks, all dedicated to crop insurance. Furthermore, Konrad Rojewski (Polish Re) discussed the Polish agricultural insurance system and referred to the recent legislation of the European Commission determining the possibility of subsidizing agricultural insurance. Then he presented a method how reinsurers analyze the crop portfolios of their ceding companies.
Small-scale farmers in developing countries can no longer absorb the negative impacts of climate threats within their traditional risk management strategy. One supplementary risk management instrument could be agricultural insurances. But they need to be tailored to the specific needs particularly of small-scale farmers, a great challenge for the insurance providers.
The Insurance companies can co-operate with insurers and use meteostation’s data for the risks control. The station allows getting weather information in the real-time regime for exact time determination of the risk event beginning, descriptions of risk and duration of influence on the insured crops or animals.
In 1997 Kazakhstan introduced mandatory agricultural insurance through a special provision in the Insurance Law. Agricultural insurance services were offered through a specialized state insurance company named Kazagropolis, but the agricultural insurance uptake was low. During the period from 1998 to 2002 the number of insurance companies offering agricultural insurance decreased from 13 to 7. Premium rates were high, reaching 20%. In 2003 the government adopted a law on the state regulation of finance market and finance institutions. In 2004 a law on mandatory crop insurance was adopted. Currently agricultural insurance is mandatory for all crop producers.
Crop insurance started in Australia in 1918 but did not expand much until the 1960s. Crop insurance now is very well established in Australia, is handled by private insurers, and is competitive. Expansion of the traditional broad acre hail insurance to many other crops happened from the 1980s onwards. Forestry insurance is also important. Livestock insurance is a much smaller industry than crop insurance but includes equine, livestock, and aquaculture insurance.
In 1929 the Livestock Insurance Act was enacted as a modern disaster relief measure. The National Forest Insurance Law was enacted in 1937 in order to compensate forest owners for damage by fire, weather impacts (wind, water, snow, drought, frost, tidal waves), and volcanic eruptions. The Crop Insurance Act was established in 1938.
Basic information on agricultural insurance in Argentina. About 60% of the tillage land is insured in Argentina. Farmers purchase insurance mostly for field crops. The major crops insured are soy beans, wheat, corn and sunflower. About 67% of the premiums are being collected on oilseed insurance contracts, insurance of grain crops add 31% of the premiums.
Reinsurers are playing often a key role in developing new agricultural insurance markets. In agriculture, finance of inputs and lending for crop inputs is very often linked to the availability of crop insurance and hence reinsurance. Being in the financial service industry Partner Re sees its role in providing risk capital for risk transfer with all the financial services that go along with that process. For Partner Re the sector of agriculture insurance has been defined clearly as a main strategic target.
Mold and other quality losses are rarely severe enough to trigger crop insurance claims, as I found out when reporting today's news story on how growers will be compensated for their sub-par crops. Kernel damage and low test weights must meet thresholds before insurance adjustments trigger. In practice, crop insurers told me, it's hard for growers to get fully paid for dockage and they believe that will be the case with this latest outbreak of white mold in the Illinois and Indiana corn crops.
The international agricultural insurance market has an important dimension. The experience of economically developed countries revealed the fact that without a stable development of agricultural insurances, there is no chance for high performance agriculture. This will require the establishment of a framework for responding to severe systemic events affecting agricultural production, and establishing an appropriate regulatory environment to foster private sector innovation and investment in services for less catastrophic events.
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