Category Archives: Agriculture Risk

Addressing the Challenges in Assessing Livestock Insurance Risks

This article was originally published in Insurance Day, click here to view the original article.

Livestock insurance represents a significant part of global agriculture premium. Traditional indemnity insurance products are available, complemented with less common products like parametric index insurance. Managing livestock insurance is a complex business, as livestock mortality is a recurring event.

China is one of the biggest players as the world’s largest livestock producer. In China, livestock insurance premium represents about 25 percent of total Chinese agriculture premium, making livestock risk management a major concern for the insurance industry.

Like China, many countries have improved their contingency plans and established controlled diseases centers to reduce mortality event impacts. In China, major recent disease epidemics include Foot and Mouth Disease (FMD), Porcine Reproductive and Respiratory Syndrome (PRRS), Swine Fever, Avian Influenza and Newcastle disease. Noticeable epidemics since 1995 include SARS in 2003 (poultry), major FMD and PRRS in 2006 and 2007 (pigs), and FMD in 2009 and 2010.

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Coming Together to Build a Resilient India Agriculture Insurance Sector

India is an agricultural powerhouse, ranked second in the world in terms of its level of agricultural output. With 58 percent of the rural population of India reliant on agriculture for their livelihood (and a total figure of 2.2 billion across Asia) plus more than fifty percent of total working population of India employed in the food industry, ensuring that farmers are resilient and can rebuild after crop setbacks is a top priority for the country.

This challenge is being tackled. For India, agricultural insurance schemes such as Pradhan Mantri Fasal Bima Yojana (PMFBY) are ambitious, continually pressing to reduce the protection gap, with a target to cover 50 percent of gross cropped area over the next couple of years. But the challenge to further close this gap continues, and it was central to the theme for the Fifth Asia Agriculture Insurance Conference recently held in New Delhi — entitled “The Future of Agro Insurance: The Impact of Climate Change, Technology and Inclusive Insurance.”

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China Reinsurance: Domestic or Global Expansion Both Require Risk Modeling

Paul Burgess, Client Director, Asia-Pacific, RMS

Erica Xue, Senior Product Manager – Model Development, RMS

In a country that according to the United Nations, between 1995 and 2015 experienced the largest number of natural disasters globally, and with these losses largely uninsured, China is at the start of a journey to close its protection gap between economic and insured losses — during a sustained period of rapid GDP growth. Examples such as the devastating Sichuan earthquake in 2008 which killed more than 80,000 people and caused US$125 billion in economic losses saw just 0.3 percent of losses covered by insurance. Floods in southern China during the summer of 2016 saw economic losses of US$20 billion, the second costliest event of the year. But again, according to Munich Re, just two per cent was insured.

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EXPOSURE Magazine: Looking Back, Looking Forward

The latest edition of EXPOSURE is essential reading for risk professionals, as we look back at what can be learned from last year’s events and look forward to the future including new challenges faced by the global risk management community and new opportunities to capitalize on.

EXPOSURE offers a unique perspective with a clear mission “… to provide insight and analysis to help insurance and risk professionals innovate, adapt and deliver.” And with a new North Atlantic hurricane season nearly upon us, and memories of HIM (Hurricane Harvey, Irma and Maria) fresh in the industry’s collective consciousness, EXPOSURE talks to the industry and paints a picture of a mature, responsible insurance sector that managed HIM with certainty and confidence. Cyber has also demonstrated its potential as a global systemic risk, and EXPOSURE looks at how events such as an outage of a major cloud services provider could generate economic losses as high as Superstorm Sandy.

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EXPOSURE Magazine: Essential Insight for Changing Times

I invite you to explore the latest digital edition of EXPOSURE Magazine, which also hit the streets of Monte Carlo as a print edition for those attending Les Rendez-Vous de Septembre, and will be available at RMS events over the coming months.

There is a clear mission for EXPOSURE, which is “… to provide insight and analysis to help insurance and risk professionals innovate, adapt and deliver.” And change is in the air for all businesses in the industry, whether it is developing new opportunities, getting products to market faster, being more agile and efficient, or using data-driven insight to transform decision making.

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China Upgrades Support for Agriculture Insurance

Right be­fore the Chi­nese New Year, the Min­istry of Fi­nance (MoF) in China re­leased up­dated guid­ance regarding agri­cul­ture in­sur­ance for the country. It has in­creased the pre­mium sup­port to­wards cen­tral and west China, and high­lighted its com­mit­ment in sup­port­ing its ma­jor three crop types: rice, wheat, and corn.

The guidance, which has been in effect since the start of 2017, sees the cen­tral gov­ern­ment in China covering 40 percent of the crop in­sur­ance pre­mium in cen­tral and west provinces, while for the east area it re­mains at 35 percent. Within counties and districts defined by the MoF as of significant agri­cul­tural importance, coverage will be fur­ther increased up to 47.5%.

More gen­er­ous sup­port from cen­tral gov­ern­ment is meant to fur­ther relieve some of the fi­nan­cial pres­sures experienced by provin­cial, pre­fec­ture, and county-level gov­ern­ments, as the new pol­icy sets a 20 percent pre­mium to be cov­ered by the farmer as the pre­con­di­tion to benefit from the increased support.

With this be­ing in­tro­duced, we believe that two ma­jor changes could take place. The first is the uni­fied pre­mium rate at provin­cial level, which will take the im­pact— and we could then see a county level rate struc­ture emerge. Sec­ondly, the insurance pen­e­tra­tion rate for rice, wheat, and corn, which currently averages around 70 percent in av­er­age, will see a ro­bust in­crease.

How AgTech Trends are Overcoming the Food Production Shortage: It’s All About the Data

There are many ways in which food productivity gains can and are be­ing achieved, but none are proving more ef­fec­tive than the ap­pli­ca­tion of tech­nol­ogy. Agricultural Technology, commonly abbreviated to AgTech or AgriTech, are the terms used to de­scribe the de­ploy­ment of this tech­nol­ogy within the agri­cul­tural sec­tor.

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India Reports PMFBY-Linked Crop Insurance Growth in 2016

Re­cent sta­tis­tics re­leased by the Gen­eral In­sur­ance Coun­cil of In­dia re­veal the extent of in­sur­ance pre­mi­um growth in the coun­try, and par­tic­u­larly in the agri­cul­ture sec­tor.

Agri­cul­tural in­sur­ance pre­mi­ums in­creased by 75 percent between April and Oc­to­ber this year, com­pared to the same pe­riod last year, fol­low­ing the launch of the Prad­han Mantri Fasal Bima Yo­jana (PMFBY) crop in­sur­ance scheme ear­lier in 2016 dur­ing the Kharif sea­son.

Pre­mi­ums col­lected for agri­cul­ture busi­ness rose to Rs 18,000 crore over the same pe­riod last year. This equates to just un­der USD $3 billion, mak­ing it the third largest agri­cul­tural insur­ance scheme in the world af­ter the U.S. (ap­proximately $9.75 billion in 2015) and China (ap­proximately $5.8 billion, of which 70 percent relates to crops).  Agriculture insurance premiums for India are now ahead of Japan, with premiums at approximately $1 billion.

The agri­cul­ture min­istry has also just an­nounced that 26.5% of farm­ers are now in­sured, an in­crease of 18.5% from the pre­vi­ous year. The agri­cul­tural area in­sured has in­creased by 15 percent. This compares to 23 percent of the agri­cul­tural area across the country being in­sured in 2014. The goal is to in­crease cov­er­age to over 50 percent of agri­cul­tural land.

Per­haps even more im­por­tantly – at least for the farm­ers who buy in­sur­ance – is that the to­tal sum in­sured has in­creased by 104 percent. In the pre­vi­ous in­sur­ance scheme, the sum in­sured cov­er­age was capped in or­der to min­imize pre­mi­ums. There­fore farm­ers who were in­sured could only re­cover a frac­tion of their losses. The new scheme pro­vides pre­mium sub­si­dies so that the sum in­sured can in­crease and farm­ers can re­coup all their losses when an event oc­curs.

Crop Cutting in Haryana State Halted: Technology to the Rescue?

The in­tro­duc­tion of the Pradhan Mantri Fasal Bima Yojana (PMFBY) in­sur­ance scheme in In­dia this year has led to a widely re­ported in­crease in the up­take of agri­cul­tural in­sur­ance across the coun­try.

The scheme has been wel­come news to the In­dian farm­ing com­mu­nity, who for many years have felt they were not com­pen­sated ad­e­quately or in a timely manner for losses in­curred dur­ing the grow­ing sea­sons. How­ever, there are a num­ber of as­pects to be ad­dressed be­fore the scheme can be con­sid­ered a suc­cess, and one of the most not­able is regarding Crop Cut­ting Ex­per­i­ments (CCEs).

CCEs are used to as­cer­tain the yield for no­ti­fied crops un­der the scheme, which are then mea­sured against the in­sur­ance threshold yields to de­ter­mine pay­out lev­els. They must be under­taken on-site prior to har­vest­ing and pose a lo­gis­ti­cal burden in terms of the timely and ac­cu­rate col­lec­tion of sen­si­tive data, es­pe­cially when they are re­quired in such high vol­umes, as tens of thou­sands of CCEs are re­quired across the coun­try.

Issues with collecting CCEs has recently made the news, with the suspension of all CCE activity in the northern state of Haryana.  Avoid­ing head­lines such as this recent quote from the Times of India is a pri­or­ity for what many hope is a step change in agri­cul­tural in­sur­ance in In­dia:

“It has also been de­cided that the work of CCE will be com­pletely sus­pended un­til the re­quired re­sources, trained man­power with enough bud­get is pro­vided”—Sushil Goyat, Pres­i­dent of Haryana Agricultural Development Officers As­so­ci­ation

Tech­nol­ogy has a role to play in re­duc­ing the logis­ti­cal bur­den of plan­ning, executing, and col­lect­ing CCEs and the data they gather. So far, satel­lite im­agery has been used to plan CCE sched­ules and the de­vel­op­ment of a new mo­bile application that is capable of ge­o-tagging photos should in­crease both the speed of per­form­ing each ex­per­i­ment and the con­fi­dence level in the data gath­ered. Yet there is more that could be done with ex­ist­ing data and crop mod­els to re­duce the need for such large vol­umes of CCEs whilst main­tain­ing or im­prov­ing ac­cu­racy.

China and India Step Up Agricultural R&D Spending

Two significant re­ports into global pat­terns in agri­cul­tural research and development (R&D) spend­ing have re­cently been published. Agri­cul­tural re­search is crit­i­cal for greater pro­duc­tiv­ity, ef­fi­ciency, and poverty re­duc­tion. Rapidly grow­ing coun­tries with large farm­ing pop­u­la­tions such as China and In­dia have paved the way in im­ple­ment­ing agri­cul­tural in­sur­ance schemes and are in­vest­ing heav­ily in agri­cul­tural R&D.

In its lat­est re­port on the land­scape of agricultural research and development in India, the In­ter­na­tional Food Pol­icy Re­search In­sti­tute (IF­PRI) finds that In­dia has one of the best-staffed agri­cul­tural re­search and de­vel­op­ment sys­tems in the world. The IF­PRI pro­vides a global data­base of agri­cul­tural re­search in­vest­ment through its Agri­cul­tural Sci­ence and Tech­nol­ogy In­di­ca­tors (ASTI) pro­gramme. This report published in Au­gust re­veals that agri­cul­tural re­search spend­ing in In­dia has significantly increased from US $616 million in 2000 to $1.06 billion in 2014 (at constant 2011 US Dollar value), en­sur­ing that re­search keeps pace with in­fla­tion and the growth in GDP.

As a per­cent­age of GDP generated by agriculture, In­dia spends 0.3% of its “AgGDP” on agri­cul­tural re­search, which rep­re­sents a much higher share than neigh­bor­ing Pak­istan (0.18%), but only half the share in­vested by China (0.62%). It is also con­sid­er­ably less than the 1.8% spent by Brazil. How­ever, in terms of re­searchers, In­dia em­ploys more than dou­ble the num­ber of re­searchers as Brazil does, with 12,750 peo­ple em­ployed in this sec­tor (ex­clud­ing the pri­vate re­search in­dus­try), com­pared to 5,800 in Brazil. Given the very dif­fer­ent pop­u­la­tions and struc­ture of the farm­ing in­dus­try, this rep­re­sents a ra­tio of only 4.6 per 100,000 farm­ers in In­dia, com­pared to 57 per 100,000 in Brazil.

An­other analy­sis re­cently pub­lished in the journal Nature in Sep­tem­ber 2016, based on a data se­ries main­tained by the Uni­ver­sity of Min­neso­ta In­ter­na­tional Sci­ence and Tech­nol­ogy Prac­tice and Pol­icy (In­STePP) Cen­ter in St. Paul, shows that for the first time in mod­ern his­tory, mid­dle-in­come coun­tries are in­vest­ing more in pub­lic-sec­tor agri­cul­tural re­search and de­vel­op­ment than high-in­come ones. They also note a sig­nif­i­cant in­crease in the role of pri­vate-sec­tor agricultural R&D in com­par­i­son to gov­ern­ment funded agricultural R&D. For mid­dle-in­come coun­tries, the pri­vate pro­por­tion of do­mes­tic spend­ing was 37 percent in 2011 com­pared to 19 percent in 1980.  They par­tic­u­larly high­light China, where more than $6 bil­lion, or around 57 percent of the coun­try’s en­tire do­mes­tic agricultural R&D spend­ing, came from the pri­vate sec­tor in 2011.

The Na­ture study high­lights that while mid­dle-coun­tries’ in­vest­ment on agricultural R&D has in­creased sig­nif­i­cantly, in low-in­come coun­tries it re­mains rel­a­tively sta­tic, and that on a per capita ba­sis, in­vest­ment by low-in­come coun­tries has shrunk con­sid­er­ably – par­tic­u­larly for nations in South Asia and Sub-Sa­ha­ran Africa. They note that with­out ef­forts to im­prove the global spread and adap­ta­tion of lo­cally rel­e­vant tech­nolo­gies, it is likely to get much harder for poor farm­ers to feed them­selves, let alone their na­tions’ in­creas­ingly ur­ban­ized pop­u­la­tions.