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Growing Pains – A guide to Agricultural Insurance and Reinsurance
Peter Talbot - July 2015
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Introduction
• Just a few words about myself
• My role as a reinsurance broker
• Reinsurance is not just a transfer of risk but also needs to encompass a reciprocal transfer of knowledge and expertise.
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How can the International Reinsurance market help the Insurance Industry in Azerbaijan to develop Agricultural Insurance products suited to the needs of the local farmers, in order to transfer the economic risks from the local farmers to the Private sector.
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A very short History of Agriculture Insurance• First Crop Insurance 18th Century.
• Crop hail insurance was offered in Germany.
• Livestock insurance in the 1830’s in parts of Germany.
• In these early times, insurance was generally provided by small mutuals/single peril.
• Government involvement in Agricultural Insurance began to emerge around 100 years later.
• After World War II Governments in many European countries started introducing Multiple Peril Crop Insurance.
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Growth of Worldwide Agriculture Premiums
Source: Adapted from Swiss Re Sigma
US$25,000,000,000
US$8,000,000,000
2008 2012 2016
US$50,000,000,000+ ??Estimated only 20% of Farmland is Currently Insured
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Global Split of Agriculture Premiums Est.
US & Canada
55%
Europe
18%Asia
22%
Latin America
4%
Africa
0.5% Australia & New Zealand
0.5%
Source: Adapted from (2013) Swiss Re Economic Research & Consulting http://www.swissre.com/media/news_releases/nr_20130116_improving_food_security.html 6
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Development of Agriculture Insurance
More recent developments:
• Index linked products (essentially derivatives)
• Single variable such as Rainfall, Regional Yield, and even Satellite images of Plant growth.
• These “financial” tools may not qualify for Government subsidies, and remain untested.
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Why is Agricultural Insurance so Important• Major economic sector and a Critical source of livelihood
• In Azerbaijan last year, agriculture accounted for 5.7% of GDP.
(500,000 tonnes of meat; 2,000,000 tonnes of milk; over 1,600,000 eggs; along with Wool, Maize, Cereals , Vegetables and of course some wonderful fruits)
• Exposure to natural events, weather, insect damage/disease.
• Heavy negative impact on production affects livelihood of the farmers and subsidiary businesses.
• Economic well being of the whole country at risk.
• Risk to economic stability makes Government involvement particularly critical in developing economies.
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Agricultural Risk Management
Consider ARM in 3 tiers:
1)Farm risk mitigation
2)Locally severe risks
3)Major or Catastrophic
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What do the Farmers want?
• As a minimum requirement a farmer needs to cover his loan.
• Most farmers want the sort of cover that a subsidised Multi Peril Crop Insurance (MPCI) would offer.
• MPCI policies protect standing crops against all weather-related risks and can be extended to include insects and plagues, as long as these cannot be attributed to negligence in farm management.
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What can Insurers and Reinsurers bring to the table?
• Specific or Named Perils Policies
• Multiple Peril or All Risks Policy
• Index Based Products
• Claims Handling Experience
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What are Reinsurers looking for?
• Who is underwriting the business?
• What are the objectives of the Company in terms of Agriculture?
• How are the claims handled?
• What is the knowledge base of the underwriters and claims handlers in the Agriculture team?
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It is easier to teach Insurance to an Agronomist, than to teach Agronomy to an Insurance practitioner
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Where and what next?
• The USA is currently the largest region where Agriculture Insurance is offered.
• Where are reinsurers looking now… Africa and other developing regions.
• Indemnity coverage - Quota Share/Stop Loss.
• Non-indemnity coverage - Indexed Products.
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Government Support can take several forms
1) Regulatory framework
2) Premium Subsidies
3) Education / Training
4) Data Infrastructure
5) Public Sector Reinsurance Support
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Public Private Partnership (1 of 2)• Government-sponsored crop initiatives and the availability of historical
data vary considerably from country to country.
• Direct correlation in market maturity for those countries whose governments have actively sought to support the growth of the Crop Insurance sector.
• Benefit to farmers through greater awareness of protection available.
• Specialist insurers and reinsurers offer global expertise and tailored solutions.
• Risk management and planning awareness.
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Public Private Partnership (2 of 2)
• Crop Insurance premiums in China have accelerated following the introduction of premium subsidies in 2007.
• Agriculture Insurance premium volume is now the second largest in the world.
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US$ 2,250,000,000
US$ 113,000,000
2005 201416
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Summary
• The needs of the Farmers
• Risk to the Farmers, the local economy, the State
• Insurers and Reinsurers experience and expertise
• Government support
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In order to achieve a successful Agriculture Risk Management system here in Azerbaijan there needs to be in my opinion a coming together of Insurers, Reinsurers, Farmers and Government.
I believe there is a wonderful opportunity to develop this sector, protect the farmers, create a strong local insurance market, utilise the expertise and capacity of the International Reinsurance Industry, and transfer at least some degree of the risk of economic instability from Government to Private Enterprise.
In Conclusion
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Peter TalbotT +44 (0) 20 7621 [email protected]
The views expressed here are solely those of the presenter in his private capacity and do not necessarily represent the views of RFIB Group Limited
Thank you