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Growing Pains – A guide to Agricultural Insurance and
Reinsurance
Peter Talbot - July 2015
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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2
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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3
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
US$50,000,000,000 + ??
Estimated only
20% of Farmland
is Currently
Insured
US$25,000,000,000
US$8,000,000,000
2008
Source: Adapted from Swiss Re Sigma
2012
2016
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Global Split of Agriculture Premiums Est.
Europe
US & Canada
Asia
18%
22%
55%
Africa
Latin America
0.5%
4%
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
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6
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?
It is easier to teach Insurance to an Agronomist, than
to teach Agronomy to an Insurance practitioner
• 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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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)
US$ 2,250,000,000
• 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.
.
US$ 113,000,000
2005
2014
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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 Conclusion
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.
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Thank you
Peter Talbot
T +44 (0) 20 7621 8348
[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
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